DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Centers for Medicare & Medicaid Services 

42 CFR Parts 405, 412, 413, 415, 422, 424, 485, and 488 

[CMS-1607-P] RIN 0938-AS11 

Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute 

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

Proposed Fiscal Year 2015 Rates; Quality Reporting Requirements for Specific 

Providers; Reasonable Compensation Equivalents for Physician Services in 

Excluded Teaching Hospitals; Provider Administrative Appeals and Judicial 

Review; Enforcement Provisions for Organ Transplant Centers; and Electronic 

Health Record (EHR) Incentive Program 

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

ACTION: Proposed rule. 

SUMMARY: We are proposing to revise the Medicare hospital inpatient prospective 

payment systems (IPPS) for operating and capital-related costs of acute care hospitals to 

implement changes arising from our continuing experience with these systems. Some of 

the proposed changes implement certain statutory provisions contained in the Patient 

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

Act of 2010 (collectively known as the Affordable Care Act), the Protecting Access to 

Medicare Act of 2014, and other legislation. These proposed changes would be 

applicable to discharges occurring on or after October 1, 2014, unless otherwise specified 

in this proposed rule. We also are proposing to update the rate-of-increase limits for 

certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject 
 2 

to these limits. The proposed updated rate-of-increase limits would be effective for cost 

reporting periods beginning on or after October 1, 2014. 

 We also are proposing to update the payment policies and the annual payment 

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

provided by long-term care hospitals (LTCHs) and to implement certain statutory 

changes to the LTCH PPS under the Affordable Care Act and the Pathway for 

Sustainable Growth Rate (SGR) Reform Act of 2013 and the Protecting Access to 

Medicare Act of 2014. In addition we are proposing to revise the interruption of stay 

policy for LTCHs and to retire the “5 percent” payment adjustment for co-located 

LTCHs. While many of the statutory mandates of the Pathway for SGR Reform Act will 

apply to discharges occurring on or after October 1, 2014, others will not begin to apply 

until 2016 and beyond. However, in light of the degree of forthcoming change, we 

discuss changes infra and request public feedback to inform our proposals for FY 2016 in 

this proposed rule as well. 

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

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

are proposing to establish new requirements or revise requirements for quality reporting 

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

that are participating in Medicare. 

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

Purchasing (VBP) Program, the Hospital Readmissions Reduction Program, and the 

Hospital-Acquired Condition (HAC) Reduction Program. In addition, we are proposing 
 3 

changes to the regulations governing provider administrative appeals and judicial review 

relating to appropriate claims in provider cost reports; updates to the reasonable 

compensation equivalent (RCE) limits for services furnished by physicians to teaching 

hospitals excluded from the IPPS; regulatory revisions to broaden the specified uses of 

risk adjustment data and to specify the conditions for release of risk adjustment data to 

entities outside of CMS; and changes to the enforcement procedures for organ transplant 

centers. 

 We are proposing to align the reporting and submission timelines for clinical 

quality measures for the Medicare EHR Incentive Program for eligible hospitals and 

critical access hospitals (CAHs) with the reporting and submission timelines for the 

Hospital IQR Program. In addition, we provide guidance and clarification of certain 

policies for eligible hospitals and CAHs such as our policy for reporting zero 

denominators on clinical quality measures and our policy for case threshold exemptions. 

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

one of the addresses provided below, no later than 5 p.m. EDT on [insert 60 days from 

date of public display at the Office of the Federal Register]. 

ADDRESSES: In commenting, please refer to file code CMS-1607-P. Because of staff 

and resource limitations, we cannot accept comments by facsimile (FAX) transmission. 

 You may submit comments in one of four ways (no duplicates, please): 

 1. Electronically. You may (and we encourage you to) submit electronic 

comments on this regulation to http://www.regulations.gov. Follow the instructions 

under the “submit a comment” tab. 
 4 

 2. By regular mail. You may mail written comments to the following address 

ONLY: 

Centers for Medicare & Medicaid Services, 

 Department of Health and Human Services, 

 Attention: CMS-1607-P, 

 P.O. Box 8011, 

 Baltimore, MD 21244-1850. 

 Please allow sufficient time for mailed comments to be received before the close 

of the comment period. 

 3. By express or overnight mail. You may send written comments via express or 

overnight mail to the following address ONLY: 

Centers for Medicare & Medicaid Services, 

 Department of Health and Human Services, 

 Attention: CMS-1607-P, 

 Mail Stop C4-26-05, 

 7500 Security Boulevard, 

 Baltimore, MD 21244-1850. 

 4. By hand or courier. If you prefer, you may deliver (by hand or courier) your 

written comments before the close of the comment period to either of the following 

addresses: 

 a. For delivery in Washington, DC— 

 Centers for Medicare & Medicaid Services, 
 5 

 Department of Health and Human Services, 

 Room 445-G, Hubert H. Humphrey Building, 

 200 Independence Avenue, S.W., 

 Washington, DC 20201. 

 (Because access to the interior of the Hubert H. Humphrey 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. For delivery in Baltimore, MD— 

 Centers for Medicare & Medicaid Services, 

 Department of Health and Human Services, 

 7500 Security Boulevard, 

 Baltimore, MD 21244-1850. 

 If you intend to deliver your comments to the Baltimore address, please call the 

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, we refer readers to the beginning of 

the “SUPPLEMENTARY INFORMATION” section. 

FOR FURTHER INFORMATION, CONTACT: 
 6 

 Donald Thompson, (410) 786-4487, and Tiffany Swygert, (410) 786-4465, 

Operating Prospective Payment, MS-DRGs, Hospital-Acquired Conditions (HAC), Wage 

Index, New Medical Service and Technology Add-On Payments, Hospital Geographic 

Reclassifications, Graduate Medical Education, Capital Prospective Payment, Excluded 

Hospitals, and Medicare Disproportionate Share Hospital (DSH) Issues. 

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

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

Weights Issues. 

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

Demonstration Program Issues. 

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

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

Issues. 

 Karen Nakano, (410) 786-6889, Hospital Inpatient Quality Reporting--Measures 

Issues Except Hospital Consumer Assessment of Healthcare Providers and Systems 

Issues; and Readmission Measures for Hospitals Issues. 

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

Hospital Consumer Assessment of Healthcare Providers and Systems Measures Issues. 

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

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

Efficiency Measures Issues. 
 7 

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

Issues. 

 Kellie Shannon, (410) 786-0416, Appropriate Claims in Provider Cost Reports; 

Administrative Appeals by Providers and Judicial Review Issues. 

 Amelia Citerone, (410) 786-3901, and Robert Kuhl (410) 786-4597, Reasonable 

Compensation Equivalent (RCE) Limits for Physician Services Provided in Providers. 

 Ann Hornsby, (410) 786-1181, and Jennifer Harlow, (410) 786-4549, Medicare 

Advantage Encounter Data Issues. 

 Thomas Hamilton, (410) 786-6763, Organ Transplant Center Issues. 

 Jennifer Phillips, (410) 786-1023, 2-Midnight Rule Benchmark Issues. 

SUPPLEMENTARY INFORMATION: 

Inspection of Public Comments: All public 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 public comments received before the close of the comment period on the following 

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

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

Electronic Access 

 This Federal Register document is also available from the Federal Register

online database through Federal Digital System (FDsys), a service of the U.S. 

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

http://www.gpo.gov/fdsys. 
 8 

Tables Available Only through the Internet on the CMS Web Site 

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

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

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

the IPPS tables and LTCH PPS tables are no longer published in the Federal Register. 

Instead, these tables are available only through the Internet. The IPPS tables for this 

proposed rule are available only through the Internet on the CMS Web site at: 

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

titled, “FY 2015 IPPS Proposed Rule Home Page” or “Acute Inpatient – Files for 

Download”. The LTCH PPS tables for this FY 2015 proposed rule are available only 

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

Regulation Number CMS-1607-P. For complete details on the availability of the tables 

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

proposed rule.

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

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

Acronyms 

3M 3M Health Information System 

AAMC Association of American Medical Colleges 

ACGME Accreditation Council for Graduate Medical Education 
 9 

ACoS American College of Surgeons 

AHA American Hospital Association 

AHIC American Health Information Community 

AHIMA American Health Information Management Association 

AHRQ Agency for Healthcare Research and Quality 

AJCC American Joint Committee on Cancer 

ALOS Average length of stay 

ALTHA Acute Long Term Hospital Association 

AMA American Medical Association 

AMGA American Medical Group Association 

AMI Acute myocardial infarction 

AOA American Osteopathic Association 

APR DRG All Patient Refined Diagnosis Related Group System 

APRN Advanced practice registered nurse 

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

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

ASITN American Society of Interventional and Therapeutic Neuroradiology 

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

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

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

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

BIPA Medicare, Medicaid, and SCHIP [State Children’s Health Insurance 
 10 

Program] Benefits Improvement and Protection Act of 2000, 

Pub. L. 106-554 

BLS Bureau of Labor Statistics 

CABG Coronary artery bypass graft [surgery] 

CAH Critical access hospital 

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

CART CMS Abstraction & Reporting Tool 

CAUTI Catheter-associated urinary tract infection 

CBSAs Core-based statistical areas 

CC Complication or comorbidity 

CCN CMS Certification Number 

CCR Cost-to-charge ratio 

CDAC [Medicare] Clinical Data Abstraction Center 

CDAD Clostridium difficile-associated disease 

CDC Center for Disease Control and Prevention 

CERT Comprehensive error rate testing 

CDI Clostridium difficile (C. difficile) 

CFR Code of Federal Regulations 

CLABSI Central line-associated bloodstream infection 

CIPI Capital input price index 

CMI Case-mix index 

CMS Centers for Medicare & Medicaid Services 
 11 

CMSA Consolidated Metropolitan Statistical Area 

COBRA Consolidated Omnibus Reconciliation Act of 1985, Pub. L. 99-272 

COLA Cost-of-living adjustment 

CoP [Hospital] condition of participation 

COPD Chronis obstructive pulmonary disease 

CPI Consumer price index 

CQM Clinical quality measure 

CRNA Certified registered nurse anesthetist 

CY Calendar year 

DACA Data Accuracy and Completeness Acknowledgement 

DPP Disproportionate patient percentage 

DRA Deficit Reduction Act of 2005, Pub. L. 109-171 

DRG Diagnosis-related group 

DSH Disproportionate share hospital 

EBRT External Bean Radiotherapy 

ECI Employment cost index 

eCQM Electronic clinical quality measure 

EDB [Medicare] Enrollment Database 

EHR Electronic health record 

EMR Electronic medical record 

EMTALA Emergency Medical Treatment and Labor Act of 1986, Pub. L. 99-272 

EP Eligible professional 
 12 

FAH Federation of American Hospitals 

FDA Food and Drug Administration 

FFY Federal fiscal year 

FPL Federal poverty line 

FQHC Federally qualified health center 

FR Federal Register 

FTE Full-time equivalent 

FY Fiscal year 

GAF Geographic Adjustment Factor 

GME Graduate medical education 

HAC Hospital-acquired condition 

HAI Healthcare-associated infection 

HCAHPS Hospital Consumer Assessment of Healthcare Providers and Systems 

HCFA Health Care Financing Administration 

HCO High-cost outlier 

HCRIS Hospital Cost Report Information System 

HHA Home health agency 

HHS Department of Health and Human Services 

HICAN Health Insurance Claims Account Number 

HIPAA Health Insurance Portability and Accountability Act of 1996, 

Pub. L. 104-191 

HIPC Health Information Policy Council 
 13 

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 

IBR Intern- and Resident-to-Bed Ratio 

ICD-9-CM International Classification of Diseases, Ninth Revision, 

Clinical Modification 

ICD-10-CM International Classification of Diseases, Tenth Revision, 

 Clinical Modification 

ICD-10-PCS International Classification of Diseases, Tenth Revision, Procedure 

 Coding System 

ICR Information collection requirement 

IGI IHS Global Insight, Inc. 

IHS Indian Health Service 

IME Indirect medical education 

I-O Input-Output 
 14 

IOM Institute of Medicine 

IPF Inpatient psychiatric facility 

IPFQR Inpatient Psychiatric Facility Quality Reporting [Program] 

IPPS [Acute care hospital] inpatient prospective payment system 

IRF Inpatient rehabilitation facility 

IQR Inpatient Quality Reporting 

LAMCs Large area metropolitan counties 

LOS Length of stay 

LTC-DRG Long-term care diagnosis-related group 

LTCH Long-term care hospital 

LTCHQR Long-Term Care Hospital Quality Reporting 

MA Medicare Advantage 

MAC Medicare Administrative Contractor 

MAP Measure Application Partnership 

MCC Major complication or comorbidity 

MCE Medicare Code Editor 

MCO Managed care organization 

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 
 15 

MGCRB Medicare Geographic Classification Review Board 

MIEA-TRHCA Medicare Improvements and Extension Act, Division B of 

 the Tax Relief and Health Care Act of 2006, Pub. L. 109-432 

MIPPA Medicare Improvements for Patients and Providers Act of 2008, 

 Pub. L. 110-275 

MMA Medicare Prescription Drug, Improvement, and Modernization Act 

of 2003, Pub. L. 108-173 

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

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

MRHFP Medicare Rural Hospital Flexibility Program 

MRSA Methicillin-resistant Staphylococcus aureus

MSA Metropolitan Statistical Area 

MS-DRG Medicare severity diagnosis-related group 

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

MU Meaningful Use [EHR Incentive Program] 

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 
 16 

NHSN National Healthcare Safety Network 

NOP Notice of Participation 

NQF National Quality Forum 

NQS National Quality Strategy 

NTIS National Technical Information Service 

NTTAA National Technology Transfer and Advancement Act of 1991, 

 Pub. L. 104-113 

NVHRI National Voluntary Hospital Reporting Initiative 

OACT [CMS] Office of the Actuary 

OBRA 86 Omnibus Budget Reconciliation Act of 1986, Pub. L. 99-509 

OES Occupational employment statistics 

OIG Office of the Inspector General 

OMB [Executive] Office of Management and Budget 

OPM [U.S.] Office of Personnel Management 

OQR [Hospital] Outpatient Quality Reporting 

O.R. Operating room 

OSCAR Online Survey Certification and Reporting [System] 

PCH PPS-exempt cancer hospital 

PCHQR PPS-exempt cancer hospital quality reporting 

PMSAs Primary metropolitan statistical areas 

POA Present on admission 

PPI Producer price index 
 17 

PPS Prospective payment system 

PRM Provider Reimbursement Manual 

ProPAC Prospective Payment Assessment Commission 

PRRB Provider Reimbursement Review Board 

PRTFs Psychiatric residential treatment facilities 

PSF Provider-Specific File 

PSI Patient safety indicator 

PS&R Provider Statistical and Reimbursement [System] 

PQRS Physician Quality Reporting System 

QIG Quality Improvement Group [CMS] 

QIO Quality Improvement Organization 

QRDA Quality Reporting Data Architecture 

RCE Reasonable compensation equivalent 

RFA Regulatory Flexibility Act, Pub. L. 96-354 

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 

RSMR Risk-standardized mortality rate 

RSRR Risk-standard readmission rate 

RTI Research Triangle Institute, International 
 18 

RUCAs Rural-urban commuting area codes 

RY Rate year 

SAF Standard Analytic File 

SCH Sole community hospital 

SCIP Surgical Care Improvement Project 

SFY State fiscal year 

SIC Standard Industrial Classification 

SNF Skilled nursing facility 

SOCs Standard occupational classifications 

SOM State Operations Manual 

SSI Surgical site infection 

SSI Supplemental Security Income 

SSO Short-stay outlier 

SUD Substance use disorder 

TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248 

TEP Technical expert panel 

THA/TKA Total hip arthroplasty/Total knee arthroplasty 

TMA TMA [Transitional Medical Assistance], Abstinence Education, and QI 

[Qualifying Individuals] Programs Extension Act of 2007, Pub. L. 110-90 

TPS Total Performance Score 

UHDDS Uniform hospital discharge data set 

UMRA Unfunded Mandate Reform Act, Pub. L. 104-4 
 19 

VBP [Hospital] Value Based Purchasing [Program] 

VTE Venous thromboembolism 

Table of Contents 

I. Executive Summary and Background 

 A. Executive Summary 

 1. Purpose and Legal Authority 

 2. Summary of the Major Provisions 

 3. Summary of Costs and Benefits 

 B. Summary 

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

 2. Hospitals and Hospital Units Excluded from the IPPS 

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

 4. Critical Access Hospitals (CAHs) 

 5. Payments for Graduate Medical Education (GME) 

 C. Summary of Provisions of Recent Legislation Discussed in this Proposed Rule 

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

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

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

 3. Pathway for Sustainable Growth Rate (SGR) Reform Act of 2013 (Pub. L. 

113-67) 

 4. Protecting Access to Medicare Act of 2014 (Pub. L. 113-93) 

 D. Summary of the Provisions of This Proposed Rule 
 20 

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

Classifications and Relative Weights 

 A. Background 

 B. MS-DRG Reclassifications 

 C. Adoption of the MS-DRGs in FY 2008 

 D. Proposed FY 2015 MS-DRG Documentation and Coding Adjustment 

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

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

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

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

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

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

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

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

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

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

Pub. L. 110-90 

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

American Taxpayer Relief Act of 2012 (ATRA). 

 7. Prospective Adjustment for the MS-DRG Documentation and Coding Effect 

Through FY 2010 

 E. Refinement of the MS-DRG Relative Weight Calculation 
 21 

 1. Background 

 2. Discussion for FY 2015 

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

Conditions (HACs), Including Infections 

 1. Background 

 2. HAC Selection 

3. Present on Admission (POA) Indicator Reporting 

 4. HACs and POA Reporting in Preparation for Transition to ICD-10-CM and 

ICD-10-PCS 

 5. Proposal Regarding Current HACs and Previously Considered Candidate 

HACs 

 6. RTI Program Evaluation 

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

Evidence-Based Guidelines 

 G. Proposed Changes to Specific MS-DRG Classifications 

 1. Discussion of Changes to Coding System and Basis for Proposed MS-DRG 

Updates 

 a. Conversion of MS-DRGs to the International Classification of Diseases, 10th

Edition (ICD-10) 

 b. Basis for FY 2015 MS-DRG Updates 

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

 a. Intracerebral Therapies: Gliadel® Wafer 
 22 

 b. Endovascular Embolization or Occlusion of Head and Neck 

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

Breathing Pacemaker System 

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

 a. Exclusion of Left Atrial Appendage 

 b. Transcatheter Mitral Valve Repair: MitraClip®

 c. Endovascular Cardiac Valve Replacement Procedures 

 d. Abdominal Aorta Graft 

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

Connective Tissue) 

 a. Shoulder Replacement Procedures 

 b. Ankle Replacement Procedures 

 c. Back and Neck Procedures 

 6. MDC 10 (Endocrine, Nutritional and Metabolic Diseases and Disorders): 

Disorders of Porphyria Metabolism 

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

Perinatal Period) 

 8. Proposed Medicare Code Editor (MCE) Changes 

 9. Proposed Changes to Surgical Hierarchies 

 10. Proposed Changes to the MS-DRG Diagnosis Codes for FY 2015 

 a. Major Complications or Comorbidities (MCCs) and Complications or 

Comorbidities (CCs) Severity Levelsfor FY 2015 
 23 

 b. Coronary Atherosclerosis Due to Calcified Coronary Lesion 

 11. Complications or Comorbidity (CC) Exclusions List 

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

 b. Proposed CC Exclusions List for FY 2015 

 12. Review of Procedure Codes in MS-DRGs 981 through 983, 984 through 986, 

and 987 through 989 

 a. Moving Procedure Codes from MS-DRGs 981 through 983 or MS-DRGs 987 

through 989 into MDCs 

b. Reassignment of Procedures among MS-DRGs 981 through 983, 984 through 

986, and 987 through 989 

c. Adding Diagnosis or Procedure Codes to MDCs 

 13. Proposed Changes to the ICD-9-CM Coding System 

 a. ICD-10 Coordination and Maintenance Committee 

 b. Code Freeze 

 H. Recalibration of the Proposed FY 2015 MS-DRG Relative Weights 

 1. Data Sources for Developing the Proposed Relative Weights 

 2. Methodology for Calculation of the Proposed Relative Weights 

 3. Development of National Average CCRs 

 4. Bundled Payments for Care Improvement (BPCI) Initiative 

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

 1. Background 
 24 

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

Add-On Payments 

 3. FY 2015 Status of Technologies Approved for FY 2014 Add-On Payments 

 a. Glucarpidase (Trade Brand Voraxaze®) 

 b. DIFICIDTM (Fidaxomicin) Tablets 

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

 d. KcentraTM 

 e. Argus® II Retinal Prosthesis System 

 f. Zilver® PTX® Drug Eluting Stent 

 4. FY 2015 Applications for New Technology Add-On Payments 

 a. Dalbavancin (Durata Therapeutics, Inc.) 

 b. Heli-FXTM EndoAnchor System (Aptus Endosystems, Inc.) 

 c. WATCHMAN® Left Atrial Appendage Closure Technology 

 d. CardioMEMSTM HF (Heart Failure) System 

 e. MitraClip® System 

 f. Responsive Neurostimulator (RNS®) System 

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

 A. Background 

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

 1. Background 

 2. Proposed Implementation of New Labor Market Area Delineations 

 a. Micropolitan Statistical Areas 
 25 

 b. Urban Counties That Would Become Rural under the New OMB Delineations 

 c. Rural Counties That Would Become Urban under the New OMB Delineations 

 d. Urban Counties That Would Move to a Different Urban CBSA under the New 

OMB Delineations 

 e. Proposed Transition Period 

 C. Worksheet S-3 Wage Data for the Proposed FY 2015 Wage Index 

 1. Included Categories of Costs 

 2. Excluded Categories of Costs 

 3. Use of Wage Index Data by Providers Other Than Acute Care Hospitals under 

the IPPS 

 D. Verification of Worksheet S-3 Wage Data 

 E. Method for Computing the Proposed FY 2015 Unadjusted Wage Index 

 F. Proposed Occupational Mix Adjustment to the Proposed FY 2015 Wage Index 

 1. Development of Data for the Proposed FY 2015 Occupational Mix Adjustment 

Based on the 2010 Occupational Mix Survey 

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

 3. Calculation of the Proposed Occupational Mix Adjustment for FY 2015 

 G. Analysis and Implementation of the Proposed Occupational Mix Adjustment 

and the Proposed FY 2015 Occupational Mix Adjusted Wage Index 

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

Occupational Mix Adjusted Wage Index 

 2. Proposed Application of the Rural, Imputed, and Frontier Floors 
 26 

 a. Proposed Rural Floor 

 b. Proposed Imputed Floor and Alternative, Temporary Methodology for 

Computing the Rural Floor for FY 2015 

 c. Proposed Frontier Floor 

 3. Proposed FY 2015 Wage Index Tables 

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

Reclassifications 

 1. General Policies and Effects of Reclassification and Redesignation 

 2. FY 2015 MGCRB Reclassifications 

 a. FY 2015 Reclassification Requirements and Approvals 

 b. Effects of Implementation of New OMB Labor Market Area Delineations on 

Reclassified Hospitals 

 c. Applications for Reclassifications for FY 2016 

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

 a. Proposed New Lugar Areas for FY 2015 

 b. Hospitals Redesignated under Section 1886(d)(8)(B) of the Act Seeking 

Reclassification by the MGCRB 

 c. Rural Counties No Longer Meeting the Criteria to be Redesignated as Lugar 

 4. Waiving Lugar Redesignation for the Out-Migration Adjustment 

 5. Update of Application of Urban to Rural Reclassification Criteria 

 I. Proposed FY 2015 Wage Index Adjustment Based on Commuting Patterns of 

Hospital Employees 
 27 

 J. Process for Requests for Wage Index Data Corrections 

 K. Notice of Change to Wage Index Development Timetable 

 L. Labor-Related Share for the Proposed FY 2015 Wage Index 

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

Graduate Medical Education (GME) Costs 

 A. Proposed Changes to MS-DRGs Subject to the Postacute Care Transfer Policy 

(§ 412.4) 

 B. Proposed Changes in the Inpatient Hospital Updates for FY 2015 

(§§ 412.64(d) and 412.211(c)) 

 1. Proposed FY 2015 Inpatient Hospital Update 

 2. Proposed FY 2015 Puerto Rico Hospital Update 

 C. Rural Referral Centers (RRCs): Proposed Annual Updates to Case-Mix Index 

(CMI) and Discharge Criteria (§ 412.96) 

 1. Case-Mix Index (CMI) 

 2. Discharges 

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

 1. Background 

 2. Provisions of the Protecting Access to Medicare Act of 2014 

 3. Low-Volume Hospital Definition and Payment Adjustment for FY 2015 

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

1. IME Adjustment Factor for FY 2015 
 28 

 2. Proposed IME Medicare Part C Add-On Payments to Sole Community 

Hospitals (SCHs) That Are Paid According to Their Hospital-Specific Rates and 

Proposed Change in Methodology in Determining Payment to SCHs 

 3. Other Proposed Policy Changes Affecting IME 

 F. Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) 

(§ 412.106) 

 1. Background 

 2. Impact on Medicare DSH Payment Adjustment of Proposed Implementation of 

New OMB Labor Market Area Delineations 

 3. Payment Adjustment Methodology for Medicare Disproportionate Share 

Hospitals (DSHs) under Section 3133 of the Affordable Care Act (§ 412.106) 

 a. General Discussion 

 b. Eligibility for Empirically Justified Medicare DSH Payments and 

Uncompensated Care Payments 

 c. Empirically Justified Medicare DSH Payments 

 d. Uncompensated Care Payments 

 e. Limitations on Review 

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

 1. Background 

 2. Provisions of Pub. L. 113-93 for FY 2015 

 3. Expiration of the MDH Program 
 29 

 H. Hospital Readmissions Reduction Program: Proposed Changes for FY 2015 

through FY 2017 (§§ 412.150 through 412.154) 

1. Statutory Basis for the Hospital Readmissions Reduction Program 

 2. Regulatory Background 

3. Overview of Proposals and Policies for the FY 2015 Hospital Readmissions 

Reduction Program 

 4. Proposed Refinement of the Readmissions Measures and Related Methodology 

for FY 2015 and Subsequent Years Payment Determinations 

 a. Proposed Refinement of Planned Readmission Algorithm for Acute 

Myocardial Infarction (AMI), Heart Failure (HF), Pneumonia (PN), Chronic Obstructive 

Pulmonary Disease (COPD), and Total Hip Arthroplasty and Total Knee Arthroplasty 

(THA/TKA) 30-Day Readmission Measures 

 b. Proposed Refinement of Total Hip Arthroplasty and Total Knee Arthroplasty 

(THA/TKA) 30-Day Readmission Measure Cohort 

 c. Anticipated Effect of Proposed Refinements on Measures 

 5. No Proposed Expansion of the Applicable Conditions for FY 2016 

 6. Proposed Expansion of the Applicable Conditions for FY 2017 to Include 

Patients Readmitted Following Coronary Artery Bypass Graft (CABG) Surgery Measure 

 a. Background 

 b. Overview of the Proposed CABG Readmissions Measure: Hospital-Level, 

30-Day, All-Cause, Unplanned Readmission Following Coronary Artery Bypass Graft 

(CABG) Surgery 
 30 

 c. Proposed Methodology for the CABG Measure: Hospital-Level, 30-Day, 

All-Cause, Unplanned Readmission Following Coronary Artery Bypass Graft (CABG) 

Surgery 

 7. Maintenance of Technical Specifications for Quality Measures 

 8. Waiver from the Hospital Readmissions Reduction Program for Hospitals 

Formerly Paid under Section 1814(b)(3) of the Act (§ 412.152 and § 412.154(d)) 

 9. Floor Adjustment Factor for FY 2015 (§ 412.154(c)(2)) 

 10. Applicable Period for FY 2015 

 11. Proposed Inclusion of THA/TKA and COPD Readmissions Measures to 

Calculate Aggregate Payments for Excess Readmissions Beginning in FY 2015 

 12. Hospital Readmissions Reduction Program Extraordinary Circumstances 

Exceptions 

 I. Hospital Value-Based Purchasing (VBP) Program 

 1. Statutory Background 

 2. Overview of Previous Hospital VBP Program Rulemaking 

 3. FY 2015 Payment Details 

 a. Payment Adjustments 

 b. Base Operating DRG Payment Amount Definition for Medicare-Dependent 

Small rural Hospitals (MDHs) 

 4. Measures for the FY 2017 Hospital VBP Program 

 a. Measures Previously Adopted 

 b. Proposed Changes Affecting Topped-Out Measures 
 31 

 c. Proposed New Measures for the FY 2017 Hospital VBP Program 

 d. Proposed Adoption of the Current CLABSI Measure (NQF #0139) for the 

FY 2017 Hospital VBP Program 

 e. Summary of Previously Adopted and Proposed New Measures for the FY 2017 

Hospital VBP Program 

 5. Proposed Additional Measures for the FY 2019 Hospital VBP Program 

 a. Hospital-level Risk-Standardized Complication Rate (RSCR) Following 

Elective Primary Total Hip Arthroplasty (THA) and Total Knee Arthroplasty (TKA) 

 b. PSI-90 Measure 

 6. Possible Measure Topics for Future Program Years 

 a. Care Transition Measure (CTM-3) Items for HCAHPS Survey 

 b. Possible Future Efficiency and Cost Reduction Domain Measure Topics 

 7. Previously Adopted and Proposed Performance Periods and Baseline Periods 

for the FY 2017 Hospital VBP Program 

 a. Background 

 b. Previously Adopted Baseline and Performance Periods for the FY 2017 

Hospital VBP Program 

 c. Proposed Clinical Care - Process Domain Performance Period and Baseline 

Period for the FY 2017 Hospital VBP Program 

 d. Proposed Patient and Caregiver-Centered Experience of Care/Care 

Coordination Domain Performance Period and Baseline Period for the FY 2017 Hospital 

VBP Program 
 32 

 e. Proposed Safety Domain Performance Period and Baseline Period for NHSN 

Measures for the FY 2017 Hospital VBP Program 

 f. Proposed Efficiency and Cost Reduction Domain Performance Period and 

Baseline Period for the FY 2017 Hospital VBP Program 

 g. Summary of Previously Adopted and Proposed Performance Periods and 

Baseline Periods for the FY 2017 Hospital VBP Program 

 8. Previously Adopted and Proposed Performance Periods and Baseline Periods 

for Certain Measures for the FY 2019 Hospital VBP Program 

 a. Previously Adopted and Proposed Performance Period and Baseline Period for 

the FY 2019 Hospital VBP Program for Clinical Care – Outcomes Domain Measures 

 b. Proposed Performance Period and Baseline Period for the PSI-90 Safety 

Domain Measure for the FY 2019 Hospital VBP Program 

 c. Summary of Previously Adopted and Proposed Performance Periods and 

Baseline Periods for Certain Measures for the FY 2019 Hospital VBP Program 

 9. Proposed Performance Period and Baseline Period for the Clinical 

Care - Outcomes Domain for the FY 2020 Hospital VBP Program 

 10. Proposed Performance Standards for the Hospital VBP Program 

 a. Background 

 b. Performance Standards for the FY 2016 Hospital VBP Program 

 c. Previously Adopted Performance Standards for the FY 2017, FY 2018, and 

FY 2019 Hospital VBP Programs 
 33 

 d. Proposed Additional Performance Standards for the FY 2017 Hospital VBP 

Program 

 e. Proposed Performance Standards for the FY 2019 and FY 2020 Hospital VBP 

Programs 

 f. Proposed Technical Updates Policy for Performance Standards 

 g. Request for Public Comments on ICD-10-CM/PCS Transition 

 11. Proposed FY 2017 Hospital VBP Program Scoring Methodology 

 a. Proposed General Hospital VBP Program Scoring Methodology 

 b. Proposed Domain Weighting for the FY 2017 Hospital VBP Program for 

Hospitals That Receive a Score on All Domains 

 c. Proposed Domain Weighting for the FY 2017 Hospital VBP Program for 

Hospitals Receiving Scores on Fewer than Four Domains 

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

FY 2017 Hospital VBP Program’s Quality Domains 

 a. Previously Adopted Minimum Numbers of Cases and FY 2016 Proposed 

Minimum Numbers of Cases 

 b. Proposed Minimum Number of Measures – Safety Domain 

 c. Proposed Minimum Number of Measures – Clinical Care Domain 

 d. Proposed Minimum Number of Measures – Efficiency and Cost Reduction 

Domain 

 e. Proposed Minimum Number of Measures – Patient and Caregiver Centered 

Experience of Care/Care Coordination (PEC/CC) Domain 
 34 

 13. Applicability of the Hospital VBP Program to Maryland Hospitals 

 14. Disaster/Extraordinary Circumstance Exception under the Hospital VBP 

Program 

 J. Hospital-Acquired Condition (HAC) Reduction Program 

 1. Background 

 2. Statutory Basis for the HAC Reduction Program 

 3. Implementation of the HAC Reduction Program for FY 2015 

 a. Overview 

 b. Payment Adjustment under the HAC Reduction Program, Including 

Exemptions 

 c. Measure Selection and Conditions, Including Risk Adjustment Scoring 

Methodology 

 d. Criteria for Applicable Hospitals and Performance Scoring Policy 

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

of Information 

 f. Limitation on Administrative and Judicial Review 

 4. Proposed Maintenance of Technical Specifications for Quality Measures 

 5. Extraordinary Circumstances Exceptions/Exemptions 

 6. Implementation of the HAC Reduction Program for FY 2016 

 a. Measure Selection and Conditions, including a Risk-Adjustment Scoring 

Methodology 

 b. Criteria for Applicable Hospitals and Performance Scoring 
 35 

 7. Future Consideration for the Use of Electronically Specified Measures 

 K. Payments for Indirect and Direct Graduate Medical Education (GME) Costs 

(§§ 412.105 and 413.75 through 413.83) 

 1. Background 

 2. Proposed Changes in the Effective Date of the FTE Resident Cap, 3-Year 

Rolling Average, and Interim- and Resident-to-Bed (IRB) Ratio Cap for New Programs 

in Teaching Hospitals 

 3. Proposed Changes to IME and Direct GME Policies as a Result of New OMB 

Labor Market Area Delineations 

 a. New Program FTE Cap Adjustment for Rural Hospitals Redesignated as Urban 

 b. Participation of Redesignated Hospitals in Rural Training Track 

 4. Proposed Clarification of Policies on Counting Resident Time in Nonprovider 

Settings under Section 5504 of the Affordable Care Act 

 5. Proposed Changes to the Review and Award Process for Resident Slots under 

Section 5506 of the Affordable Care Act 

 a. Effective Date of Slots Awarded under Section 5506 of the Affordable Care 

Act 

 b. Proposal to Remove Seamless Requirement 

 c. Proposed Revisions to Ranking Criteria One, Seven, and Eight for 

Applications under Section 5506 

 d. Clarification to Ranking Criterion Two Regarding Emergency Medicare GME 

Affiliation Agreements 
 36 

 6. Proposed Regulatory Clarification Applicable to Direct GME Payments to 

Federally Qualified Health Centers (FQHCs) and Rural Health Clinics (RHCs) for 

Training Residents in Approved Programs 

 L. Rural Community Hospital Demonstration Program 

 1. Background 

 2. Proposed FY 2015 Budget Neutrality Offset Amount 

 M. Requirement for Transparency of Hospital Charges under the Affordable Care 

Act 

 1. Overview 

 2. Transparency Requirement under the Affordable Care Act 

 N. Medicare Payment for Short Inpatient Hospital Stays

 O. Suggested Exceptions to the 2-Midnight Benchmark 

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

 A. Overview 

 B. Additional Provisions 

 1. Exception Payments 

 2. New Hospitals 

 3. Hospitals Located in Puerto Rico 

 C. Proposed Annual Update for FY 2015 

VI. Proposed Changes for Hospitals Excluded from the IPPS 

 A. Proposed Rate-of-Increase in Payments to Excluded Hospitals for FY 2015 
 37 

 B. Proposed Updates to the Reasonable Compensation Equivalent (RCE) Limits 

on Compensation for Physician Services Provided in Providers (§ 415.70) 

 1. Background 

 2. Overview of the Current RCE Limits 

 a. Application of the RCE Limits 

 b. Exceptions to the RCE Limits 

 c. Methodology for Establishing the RCE Limits 

 3. Proposed Changes to the RCE Limits 

 C. Critical Access Hospitals (CAHs 

 1. Background 

 2. Proposed Changes Related to Reclassifications as Rural for CAHs 

 3. Proposed Revision of the Requirements for Physician Certification of CAH 

Inpatient Services 

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

(LTCH PPS) for FY 2015 

 A. Background of the LTCH PPS 

 1. Legislative and Regulatory Authority 

 2. Criteria for Classification as an LTCH 

 a. Classification as an LTCH 

 b. Hospitals Excluded from the LTCH PPS 

 3. Limitation on Charges to Beneficiaries 
 38 

 4. Administrative Simplification Compliance Act (ASCA) and Health Insurance 

Portability and Accountability Act (HIPAA) Compliance 

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

(MS-LTC-DRG) Classifications and Relative Weights for FY 2015 

 1. Background 

 2. Patient Classifications into MS-LTC-DRGs 

 a. Background 

 b. Proposed Changes to the MS-LTC-DRGs for FY 2015 

 3. Development of the Proposed FY 2015 MS-LTC-DRG Relative Weights 

 a. General Overview of the Development of the MS-LTC-DRG Relative Weights 

 b. Proposed Development of the MS-LTC-DRG Relative Weights for FY 2015 

 c. Data 

 d. Hospital-Specific Relative Value (HSRV) Methodology 

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

Relative Weights 

 f. Proposed Low-Volume MS-LTC-DRGs 

 g. Steps for Determining the Proposed FY 2015 MS-LTC-DRG Relative Weights 

 C. Proposed LTCH PPS Payment Rates for FY 2015 

 1. Overview of Development of the LTCH Payment Rates 

 2. Proposed FY 2015 LTCH PPS Annual Market Basket Update 

 a. Overview 
 39 

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

Affordable Care Act 

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

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

 1. Background 

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

Rate under the LTCHQR Program 

 d. Proposed Market Basket Under the LTCH PPS for FY 2015 

 e. Proposed Annual Market Basket Update for LTCHs for FY 2015 

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

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

 D. Proposed Revision of LTCH PPS Geographic Classifications 

 1. Background 

 2. Proposed Use of New OMB Labor Market Area Delineations (“New OMB 

Delineations”) 

 a. Micropolitan Statistical Areas 

 b. Urban Counties That Became Rural under the New OMB Labor Market Area 

Delineations 

 c. Rural Counties That Became Urban under the New OMB Labor Market Area 

Delineations 

 d. Urban Counties Moved to a Different Urban CBSA under the New OMB 

Labor Market Area Delineations 
 40 

 e. Proposed Transition Period 

 E. Reinstatement and Extension of Certain Payment Rules for LTCH Services--

The 25-Percent Threshold Payment Adjustment 

 1. Background 

 2. Proposed Implementation of Section 1206(b)(1) of Pub. L. 113-67 

 F. Proposed Changes to the Fixed-Day Thresholds under the Greater Than 3-Day 

Interruption of Stay Policy under the LTCH PPS 

 1. Background 

 2. Thresholds Used in Recent Statutory Programs 

 3. Proposed Changes to the Greater Than 3-Day Interruption of Stay Policy 

 G. Moratoria on the Establishment of LTCHs and LTCH Satellite Facilities and 

on the Increase in the Number of Beds in Existing LTCHs or LTCH Satellite Facilities 

 H. Evaluation and Proposed Treatment of LTCHs Classified under 

Section 1886(d)(1)(B)(iv)(II) of the Act 

 I. Description of Statutory Framework for Patient-Level Criteria-Based Payment 

Adjustment under the LTCH PPS under Pub. L. 113-67 

 1. Overview 

 2. Provisions of Section 1206(a) of Pub. L. 113-67 

 3. Additional LTCH PPS Issues 

 J. Proposed Technical Change 

 VIII. Appropriate Claims in Provider Cost Reports; Administrative Appeals by 

Providers and Judicial Review 
 41 

 A. Background 

 1. Payment and Cost Reporting Requirements 

 2. Administrative Appeals by Providers and Judicial Review 

 3. Appropriate Claims in Provider Cost Reports 

 B. Proposed Changes Regarding the Claims Required in Provider Cost Reports 

and for Provider Administrative Appeals 

 1. Proposed Addition to the Cost Reporting Regulations of the Substantive 

Reimbursement Requirement of an Appropriate Cost Report Claim 

 2. Proposed Revisions to the Provider Reimbursement Appeal Regulations 

 C. Proposed Conforming Changes to the Board Appeal Regulations and 

Corresponding Revisions to the Contractor Hearing Regulations 

 1. Technical Corrections and Conforming Changes to §§ 405.1801 and 405.1803 

 2. Technical Corrections and Conforming Changes to §§ 405.1811, 405.1813, 

and 405.1814 

 3. Proposed New § 405.1832 

 4. Proposed Revisions to § 405.1834 

 5. Technical Corrections and Conforming Changes to §§ 405.1836, 405.1837, 

and 405.1839 

 6. Technical Corrections to 42 CFR Part 405, Subpart R and All Subparts of 

42 CFR Part 413 

IX. Quality Data Reporting Requirements for Specific Providers and Suppliers 

 A. Hospital Inpatient Quality Reporting (IQR) Program 
 42 

 1. Background 

 a. History of the Hospital IQR Program 

 b. Maintenance of Technical Specifications for Quality Measures 

 c. Public Display of Quality Measures 

 2. Removal and Suspension of Hospital IQR Program Measures 

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

 b. Proposed Removal of Hospital IQR Program Measures for the FY 2017 

Payment Determination and Subsequent Years 

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

Subsequent Payment Determinations 

 4. Additional Considerations in Expanding and Updating Quality Measures 

Under the Hospital IQR Program 

 5. Previously Adopted Hospital IQR Program Measures for the FY 2016 

Payment Determination and Subsequent Years 

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

 a. Proposed Refinement of Planned Readmission Algorithm for 30-Day 

Readmission Measures 

 b. Proposed Refinement of Total Hip Arthroplasty and Total Knee Arthroplasty 

(THA/TKA) 30-Day Complication and Readmission Measures 

 c. Anticipated Effect of Proposed Refinements to Existing Measures 

 7. Proposed Additional Hospital IQR Program Measures for the FY 2017 

Payment Determination and Subsequent Years 
 43 

 a. Proposed Hospital 30-day, All-cause, Unplanned, Risk-Standardized 

Readmission Rate (RSRR) Following Coronary Artery Bypass Graft (CABG) Surgery 

 b. Proposed Hospital 30-day, All-cause, Risk-standardized Mortality Rate 

(RSMR) Following Coronary Artery Bypass Graft (CABG) Surgery 

 c. Proposed Hospital-level, Risk-standardized 30-day Episode-of-Care Payment 

Measure for Pneumonia 

 d. Proposed Hospital-Level, Risk-standardized 30-day Episode-of-Care Payment 

Measure for Heart Failure 

 e. Proposed Severe Sepsis and Septic Shock: Management Bundle Measure 

(NQF #0500) 

 f. Electronic Health Record-Based Voluntary Measures 

 g. Proposed Readoption of Measures As Voluntarily Reported Electronic Clinical 

Quality Measures 

 h. Electronic Clinical Quality Measures 

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

 a. Mandatory Electronic Clinical Quality Measure Reporting for FY 2018 

Payment Determination 

 b. Possible Future Electronic Clinical Quality Measures 

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

 a. Background 

 b. Procedural Requirements for the FY 2017 Payment Determination and 

Subsequent Years 
 44 

 c. Data Submission Requirements for Chart-Abstracted Measures 

 d. Alignment of the EHR Incentive Program Reporting and Submission 

Timelines for Clinical Quality Measures with Hospital IQR Program Reporting and 

Submission Timelines 

 e. Sampling and Case Thresholds for the FY 2017 Payment Determination and 

Subsequent Years 

 f. HCAHPS Requirements for the FY 2017 Payment Determination and 

Subsequent Years 

 g. Data Submission Requirements for Structural Measures for the FY 2017 

Payment Determination and Subsequent Years 

 h. Data Submission and Reporting Requirements for Healthcare-Associated 

Infection (HAI) Measures Reported via NHSN 

 10. Submission and Access of HAI Measures Data Through the CDC’s NHSN 

Web Site 

 11. Proposed Modifications to the Existing Processes for Validation of Chartabstracted Hospital IQR Program Data 

 a. Eligibility Criteria for Hospitals Selected for Validation 

 b. Number of Charts to be Submitted per Hospital for Validation 

 c. Combining Scores for HAI and Clinical Process of Care Topic Areas 

 d. Processes to Submit Patient Medical Records for Chart-abstracted Measures 

 e. Plans to Validate Electronic Clinical Quality Measure Data 
 45 

 12. Data Accuracy and Completeness Acknowledgement Requirements for the 

FY 2017 Payment Determination and Subsequent Years 

 13. Public Display Requirements for the FY 2017 Payment Determination and 

Subsequent Years 

 14. Reconsideration and Appeal Procedures for the FY 2017 Payment 

Determination and Subsequent Years 

 15. Hospital IQR Program Extraordinary Circumstances Extensions or 

Exemptions 

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

 1. Statutory Authority 

 2. Covered Entities 

 3. Previously Finalized PCHQR Program Quality Measures 

 4. Proposed Update to the Clinical Process/Oncology Care Measures Beginning 

with the 2016 Program 

 5. Proposed New Quality Measures Beginning with the FY 2017 Program 

 a. Considerations in the Selection of Quality Measures 

 b. Proposed New Quality Measure Beginning with the FY 2017 Program 

 6. Possible New Quality Measure Topics for Future Years 

 7. Maintenance of Technical Specifications for Quality Measures 
 46 

 8. Public Display Requirements Beginning with the FY 2014 Program 

 9. Form, Manner, and Timing of Data Submission Beginning with the FY 2017 

Program 

 a. Background 

 b. Proposed Reporting Requirements for the Proposed New Measure: External 

Beam Radiotherapy for Bone Metastases (NQF #1822) Beginning with the FY 2017 

Program 

 c. Proposed Reporting Options for the Clinical Process/Cancer Specific 

Treatment Measures Beginning with the FY 2015 Program and the SCIP and Clinical 

Process/Oncology Care Measures Beginning with the FY 2016 Program 

 d. Proposed New Sampling Methodology for the Clinical Process/Oncology Care 

Measures Beginning with the FY 2016 Program 

 10. Exceptions from Program Requirements 

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

 1. Background 

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

LTCHQR Program 

 3. Policy for Retention of LTCHQR Program Measures Adopted for Previous 

Payment Determinations 

 4. Policy for Adopting Changes to LTCHQR Program Measures 

 5. Previously Adopted Quality Measures 
 47 

 a. Previously Adopted Quality Measures for the FY 2015 and FY 2016 Payment 

Determinations and Subsequent Years 

 b. Previously Adopted Quality Measures for the FY 2017 and FY 2018 Payment 

Determinations and Subsequent Years 

 6. Proposed Revision to Data Collection Timelines and Submission Deadlines for 

Previously Adopted Quality Measures 

a. Proposed Revisions to Data Collection Timelines and Submission Deadlines 

for Percent of Residents or Patients Who Were Assessed and Appropriately Given the 

Seasonal Influenza Vaccine (Short Stay) (NQF #0680) 

b. Proposed Revisions to Data Collection Timelines and Submission Deadlines 

for the Application of Percent of Residents Experiencing One or More Falls with Major 

Injury (Long Stay) (NQF #0674) 

 7. Proposed New LTCHQR Program Quality Measures for the FY 2018 Payment 

Determination and Subsequent Years 

 a. Proposed New LTCHQR Program Functional Status Quality Measures for the 

FY 2018 Payment Determination and Subsequent Years 

 b. Proposed Quality Measure: National Healthcare Safety Network (NHSN) 

Ventilator-Associated Event (VAE) Outcome Measure 

 8. LTCHQR Program Quality Measures and Concepts under Consideration for 

Future Years 

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

Payment Determinations and Subsequent Years 
 48 

 a. Background 

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

FY 2016 and FY 2017 Payment Determinations (Except NQF #0680 and NQF #0431) 

 c. Proposed Revision to the Previously Adopted Data Collection Timelines and 

Submission Deadlines for Percent of Residents or Patients Who Were Assessed and 

Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF #-680) for the 

FY 2016 Payment Determination and Subsequent Years 

 d. Proposed Data Submission Mechanisms for the FY 2018 Payment 

Determination and Subsequent Years for Proposed New LTCHQR Program Quality 

Measures and for Proposed Revision to Previously Adopted Quality Measure 

 e. Proposed Data Collection Timelines and Submission Deadlines Under the 

LTCHQR Program for the FY 2018 Payment Determination 

 f. Proposed Data Collection Timelines and Submission Deadlines for the 

Application of Percent of Residents Experiencing One or More Falls with Major Injury 

(Long Stay) (NQF #0674) Measure for the FY 2018 Payment Determination and 

Subsequent Years 

 g. Proposed Data Collection Timelines and Submission Deadlines under the 

LTCHQR Program for the FY 2019 Payment Determination 

 10. Proposed LTCHQR Program Data Completion Threshold for the FY 2016 

Payment Adjustment and Subsequent Years 

 a. Overview 
 49 

 b. Proposed LTCHQR Program Data Completion Threshold for the Required 

LTCH CARE Data Set (LCDS) Data Items 

 c. LTCHQR Program Data Completion Threshold for Measures Submitted Using 

the Centers for Disease Control and Prevention (CDC) National Healthcare Safety 

Network (NHSN) 

 d. Application of the 2 Percentage Point Reduction for LTCHs That Fail to Meet 

the Proposed Data Completion Thresholds 

 11. Proposed Data Validation Process for the FY 2016 Payment Determination 

and Subsequent Years 

 a. Proposed Data Validation Process 

 b. Application of the 2 Percentage Point Reduction for LTCHs That Fail to Meet 

the Proposed Data Accuracy Threshold 

 12. Public Display of Quality Measure Data for the LTCHQR Program 

 13. Proposed LTCHQR Program Submission Exception and Extension 

Requirements for the FY 2017 Payment Determination and Subsequent Years 

 14. Proposed LTCHQR Program Reconsideration and Appeals Procedures for the 

FY 2016 Payment Determination and Subsequent Years 

 a. Previously Finalized LTCHQR Program Reconsideration and Appeals 

Procedures for the FY 2014 and FY 2015 Payment Determinations 

 b. Proposed LTCHQR Program Reconsideration and Appeals Procedures for the 

FY 2016 Payment Determination and Subsequent Years 

 15. Electronic Health Records (EHR) and Health Information Exchange (HIE) 
 50 

D. Electronic Health Record (EHR) Incentive Program and Meaningful Use 

(MU) 

 1. Background 

 2. Alignment of the Medicare EHR Incentive Program Reporting and Submission 

Timelines for Clinical Quality Measures with Hospital IQR Program Reporting and 

Submission Timelines 

 3. Quality Reporting Data Architecture Category III (QRDA-III) Option in 2015 

 4. Electronically Specified Clinical Quality Measures (CQMs) Reporting for 

2015 

 5. Clarification Regarding Reporting Zero Denominators 

 6. Case Threshold Exemption Policy; Clarification for 2014 and Proposed 

Change for 2015 

X. Proposed Revision of Regulations Governing Use and Release of Medicare 

Advantage Risk Adjustment Data 

 A. Background 

 B. Proposed Regulatory Changes 

 1. Proposed Expansion of Uses and Reasons for Disclosure of Risk Adjustment 

Data 

 2. Proposed Conditions for CMS Release of Data 

 3. Proposed Technical Change 

XI. Proposed Changes to Enforcement Provisions for Organ Transplant Centers 

 A. Background 
 51 

 B. Basis for Proposals in This Proposed Rule 

 1. Proposed Expansion of Mitigating Factors Based on CMS’ Experience 

 2. Coordination with Efforts of the Organ Procurement and Transplantation 

Network (OPTN) and Health Resources and Services Administration 

 C. Provisions of the Proposed Changes 

 1. Proposed Expansion of Mitigating Factors List 

 2. Content and Timeframe for Mitigating Factors Requests 

 3. System Improvement Agreements (SIAs) 

 a. Purpose and Intent of an SIA 

 b. Description and Contents of an SIA 

 c. Effective Period for an SIA 

XII. MedPAC Recommendations 

XIII. Other Required Information 

 A. Requests for Data from the Public 

 B. Collection of Information Requirements 

 1. Statutory Requirement for Solicitation of Comments 

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

 3. ICRs for the Occupational Mix Adjustment to the Proposed FY 2015 Wage 

Index (Hospital Wage Index Occupational Mix Survey) 

 4. Hospital Applications for Geographic Reclassifications by the MGCRB 

 5. ICRs for Application for GME Resident Slots 

 6. ICRs for the Hospital Inpatient Quality Reporting (IQR) Program 
 52 

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

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

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

 10. ICR Regarding Electronic Health Record (EHR) Incentive Program and 

Meaningful Use (MU) 

 11. ICR Regarding Proposed Revision of Regulations Governing Use and 

Release of Medicare Advantage (MA) Risk Adjustment Data (§ 422.310(f)) 

Regulation Text 

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

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

after October 1, 2014 and Payment Rates for LTCHs Effective with Discharges 

Occurring on or after October 1, 2014 

I. Summary and Background 

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

Costs for Acute Care Hospitals for FY 2015 

 A. Calculation of the Adjusted Standardized Amount 

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

 C. Calculation of the Prospective Payment Rates 

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

Capital-Related Costs for FY 2015 

 A. Determination of Federal Hospital Inpatient Capital-Related Prospective 

Payment Rate Update 
 53 

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

for FY 2015 

 C. Capital Input Price Index 

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

Percentages for FY 2015 

V. Proposed Updates to the Payment Rates for the LTCH PPS for FY 2015 

 A. Proposed LTCH PPS Standard Federal Rate for FY 2015 

 1. Background 

 2. Development of the Proposed FY 2015 LTCH PPS Standard Federal Rate 

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

FY 2015 

 1. Background 

 2. Proposed Geographic Classifications Based on the New OMB Delineations 

 3. Proposed LTCH PPS Labor-Related Share 

 4. Proposed LTCH PPS Wage Index for FY 2015 

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

Wage Level Adjustment 

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

in Alaska and Hawaii 

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

 1. Background 

 2. Determining LTCH CCRs under the LTCH PPS 
 54 

 3. Establishment of the Proposed LTCH PPS Fixed-Loss Amount for FY 2015 

 4. Application of the Outlier Policy to SSO Cases 

 E. Proposed Update to the IPPS Comparable/Equivalent Amounts to Reflect the 

Statutory Changes to the IPPS DSH Payment Adjustment Methodology 

 F. Computing the Proposed Adjusted LTCH PPS Federal Prospective Payments 

for FY 2015 

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

CMS Web Site 

Appendix A--Economic Analyses

I. Regulatory Impact Analysis 

 A. Introduction 

 B. Need 

 C. Objectives of the IPPS 

 D. Limitations of Our Analysis 

 E. Hospitals Included in and Excluded from the IPPS 

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

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

Operating Costs 

 1. Basis and Methodology of Estimates 

 2. Analysis of Table I 

 3. Impact Analysis of Table II 

 H. Effects of Other Proposed Policy Changes 
 55 

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

Infections 

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

Add-On Payments 

 3. Effects of Proposed Changes to List of MS-DRGs Subject to Postacute Care 

Transfer and DRG Special Pay Policy 

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

FY 2015 

 5. Effects of Proposal Related to IME Medicare Part C Add-On Payments to 

SCHs Paid According to Their Hospital-Specific Rates 

 6. Effects of the Extension of the MDH Program for the First Half of FY 2015 

 7. Effects of Proposed Changes under the FY 2015 Hospital Value-Based 

Purchasing (VBP) Program 

 8. Effects of the Proposed Changes to the HAC Reduction Program for FY 2015 

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

IME 

 10. Effects of Implementation of Rural Community Hospital Demonstration 

Program 
 56 

 11. Effects of Proposed Changes Related to Reclassifications as Rural for CAHs 

 12. Effects of Proposed Revision of the Requirements for Physician Certification 

of CAH Inpatient Services 

 13. Effects of Proposed Changes Relating to Administrative Appeals by 

Providers and Judicial Review for Appropriate Claims in Provider Cost Reports 

 I. Effects of Proposed Changes to Updates to the Reasonable Compensation 

Equivalent (RCE) Limits for Physician Services Provided to Providers 

 J. Effects of Proposed Changes in the Capital IPPS 

 1. General Considerations 

 2. Results 

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

LTCH PPS 

 1. Introduction and General Considerations 

 2. Impact on Rural Hospitals 

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

Changes 

 4. Effect on the Medicare Program 

 5. Effect on Medicare Beneficiaries 
 57 

 L. Effects of Proposed Requirements for Hospital Inpatient Quality Reporting 

(IQR) Program 

 M. Effects of Proposed Requirements for the PPS-Exempt Cancer Hospital 

Quality Reporting (PCHQR) Program for FY 2015 

 N. Effects of Proposed Requirements for the LTCH Quality Reporting 

(LTCHQR) Program for FY 2015 through FY 2019 

 O. Effects of Proposals Regarding Electronic Health Record (EHR) Incentive 

Program and Hospital IQR Program 

 P. Effects of Proposed Revision of Regulations Governing Use and Release of 

Medicare Advantage Risk Adjustment Data 

 Q. Effects of Proposed Changes to Enforcement Provisions for Organ Transplant 

Centers 

II. Alternatives Considered 

III. Overall Conclusion 

 A. Acute Care Hospitals 

 B. LTCHs 

IV. Accounting Statements and Tables 

 A. Acute Care Hospitals 

 B. LTCHs 

V. Regulatory Flexibility Act (RFA) Analysis 

VI. Impact on Small Rural Hospitals 

VII. Unfunded Mandate Reform Act (UMRA) Analysis 
 58 

VIII. Executive Order 12866 

Appendix B: Recommendation of Update Factors for Operating Cost Rates of 

Payment for Inpatient Hospital Services 

I. Background 

II. Inpatient Hospital Update for FY 2015 

 A. Proposed FY 2015 Inpatient Hospital Update 

 B. Proposed Update for SCHs for FY 2015 

 C. Proposed FY 2015 Puerto Rico Hospital Update 

 D. Proposed Update for Hospitals Excluded from the IPPS for FY 2015 

 E. Proposed Update for LTCHs for FY 2015 

III. Secretary’s Recommendation 

IV. MedPAC Recommendation for Assessing Payment Adequacy and Updating 

Payments in Traditional Medicare 

I. Executive Summary and Background 

A. Executive Summary 

1. Purpose and Legal Authority 

 This proposed rule would make payment and policy changes under the 

Medicare inpatient prospective payment systems (IPPS) for operating and 

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

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

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

hospitals (LTCHs) under the long-term care hospital prospective payment system 
 59 

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

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

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

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

methodologies and programs for FY 2015 and subsequent fiscal years. These 

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

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

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

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

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

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

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

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

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

hospitals; and short-term acute care hospitals located in the Virgin Islands, Guam, the 

Northern Mariana Islands, and American Samoa. Religious nonmedical health care 

institutions (RNHCIs) are also excluded from the IPPS. 

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

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

development and implementation of a prospective payment system for payment for 

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

1886(d)(1)(B)(iv) of the Act. 
 60 

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

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

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

payments are generally based on 101 percent of reasonable cost. 

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

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

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

• Section 1886(d)(4)(D) of the Act, which addresses certain hospital-acquired 

conditions (HACs), including infections. Section 1886(d)(4)(D) of the Act specifies that, 

by October 1, 2007, the Secretary was required to select, in consultation with the Centers 

for Disease Control and Prevention (CDC), at least two conditions that: (a) are high cost, 

high volume, or both; (b) are assigned to a higher paying MS-DRG when present as a 

secondary diagnosis (that is, conditions under the MS-DRG system that are CCs or 

MCCs); and (c) could reasonably have been prevented through the application of 

evidence-based guidelines. Section 1886(d)(4)(D) of the Act also specifies that the list of 

conditions may be revised, again in consultation with CDC, from time to time as long as 

the list contains at least two conditions. Section 1886(d)(4)(D)(iii) of the Act requires 

that hospitals, effective with discharges occurring on or after October 1, 2007, submit 

information on Medicare claims specifying whether diagnoses were present on admission 

(POA). Section 1886(d)(4)(D)(i) of the Act specifies that effective for discharges 

occurring on or after October 1, 2008, Medicare no longer assigns an inpatient hospital 

discharge to a higher paying MS-DRG if a selected condition is not POA. 
 61 

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

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

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

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

indirect medical education (IME) is made under section 1886(d)(5)(B) of the Act. 

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

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

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

specified by the Secretary. 

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

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

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

performance period for such fiscal year. 

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

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

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

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

hospital-acquired conditions. 

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

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

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

hospital” beginning on or after October 1, 2012, under which payments to those hospitals 
 62 

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

readmissions. 

• Section 1886(r) of the Act, as added by section 3133 of the Affordable Care 

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

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

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

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

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

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

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

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

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

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

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

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

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

of all DSH hospitals expressed as a percentage. 

● Section 1886(m)(6) of the Act, as added by section 1206(a)(1) of the Pathway 

for SGR Reform Act of 2013, which provided for the establishment of patient criteria for 

payment under the LTCH PPS for implementation beginning in FY 2016. 

● Section 1206(b)(1) of the Pathway for SGR Reform Act of 2013, which further 

amended section 114(c) of the MMSEA, as amended by section 4302(a) of the ARRA 
 63 

and sections 3106(c) and 10312(a) of the Affordable Care Act, by retroactively 

reestablishing and extending the statutory moratorium on the full implementation of the 

25-percent threshold payment adjustment policy under the LTCH PPS so that the policy 

will be in effect for 9 years (except for “grandfathered” hospital-within-hospitals 

(HwHs), which are permanently exempt from this policy); and section 1206(b)(2) (as 

amended by section 112(b) of the Protecting Access to Medicare Act of 2014 (Pub. L. 

113-93)), which together further amended section 114(d) of the MMSEA, as amended by 

section 4302(a) of the ARRA and sections 3106(c) and 10312(a) of the Affordable Care 

Act to establish a new moratoria (subject to certain defined exceptions) on the 

development of new LTCHs and LTCH satellite facilities and a new moratorium on 

increases in the number of beds in existing LTCHs and LTCH satellite facilities 

beginning January 1, 2015 and ending on September 30, 2017; and section 1206(d), 

which instructs the Secretary to evaluate payments to LTCHs classified under section 

1886(b)(1)(C)(iv)(II) of the Act and to adjust payment rates in FY 2015 or FY 2016 

under the LTCH PPS, as appropriate, based upon the evaluation findings. 

● Section 1886(m)(5)(D)(iv) of the Act, as added by section 1206 (c) of the 

Pathway for SGR Reform Act of 2013, which provides for the establishment, no later 

than October 1, 2015, of a functional status quality measure under the LTCHQR Program 

for change in mobility among inpatients requiring ventilator support. 

 To conform regulations to the statutory requirements of the Provider 

Reimbursement Review Board (Board) appeals based on untimely determinations of the 

Medicare Administrative Contractor (MAC), in this proposed rule, we are proposing to 
 64 

amend the regulations to eliminate the provider dissatisfaction requirement as a condition 

for Board jurisdiction over such appeals. We are proposing a similar amendment to the 

regulations for appeals to MAC hearing officers, to maintain consistency between the 

regulations for MAC and Board appeals. We also are proposing to codify in the cost 

reporting regulations our existing policy, implemented in section 115 of the Provider 

Reimbursement Manual, requiring providers to include an appropriate claim for an item 

in its cost report. In addition, we are proposing that providers’ failure to include an 

appropriate claim for an item in its cost report will result in foreclosure of payment in the 

notice of program reimbursement and in any decision or order issued by a reviewing 

entity in an administrative appeal filed by the provider. 

 We are proposing to align the reporting and submission timelines for clinical 

quality measures for the Medicare EHR Incentive Program for eligible hospitals and 

critical access hospitals (CAHs) with the reporting and submission timelines for the 

Hospital IQR Program. In addition, we provide guidance and clarification of certain 

policies for eligible hospitals and CAHs such as our policy for reporting zero 

denominators on clinical quality measures and our policy for case threshold exemptions. 

 In addition, this proposed rule contains several proposals that are not directly 

related to these Medicare payment systems, such as regulatory revisions to broaden the 

specified uses and reasons for disclosure of risk adjustment data and to specify the 

conditions for release of risk adjustment data to entities outside of CMS and changes to 

the enforcement procedures for organ transplant centers. The specific statutory authority 

for these other proposals is discussed in the relevant sections below. 
 65 

2. Summary of the Major Provisions 

a. MS-DRG Documentation and Coding Adjustment 

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

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

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

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

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

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

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

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

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

 While our actuaries estimated that a –9.3 percent adjustment to the standardized 

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

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

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

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

many similar cases, we made a -0.8 percent recoupment adjustment to the standardized 

amount in FY 2014. We are proposing to make an additional –0.8 percent recoupment 

adjustment to the standardized amount in FY 2015. 

b. Reduction of Hospital Payments for Excess Readmissions 

 We are proposing changes in policies to the Hospital Readmissions Reduction 

Program, which is established under section 1886(q) of the Act, as added by section 3025 
 66 

of the Affordable Care Act. The Hospital Readmissions Reduction Program requires a 

reduction to a hospital’s base operating DRG payment to account for excess readmissions 

of selected applicable conditions. For FYs 2013 and 2014, these conditions are acute 

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

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

readmission ratio) to account for additional planned readmissions. We also established 

additional readmissions measures, Chronic Obstructive Pulmonary Disease (COPD), and 

Total Hip Arthroplasty and Total Knee Arthroplasty (THA/TKA), to be used in the 

Hospital Readmissions Reduction Program for FY 2015 and future years. We are 

proposing to expand the readmissions measures for FY 2017 and future years by adding a 

measure of patients readmitted following coronary artery bypass graft (CABG) surgery. 

We also are proposing to refine the readmission measures and related methodology for 

FY 2015 and subsequent years payment determinations. In addition, we are proposing 

that the readmissions payment adjustment factors for FY 2015 can be no more than a 

3-percent reduction in accordance with the statute. We also are proposing to revise the 

calculation of aggregate payments for excess readmissions to include THA/TKA and 

COPD readmissions measures beginning in FY 2015. 

c. Hospital Value-Based Purchasing (VBP) Program 

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

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

are made in a fiscal year to hospitals meeting performance standards established for a 
 67 

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

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

 In this proposed rule, we are proposing to adopt quality measures for the 

FY 2017, FY 2019, and FY 2020 Hospital VBP Program years and to establish 

performance periods and performance standards for measures to be adopted for those 

fiscal years. We also are proposing to adopt additional policies related to performance 

standards and to revise the domain weighting previously adopted for the FY 2017 

Hospital VBP Program. 

d. Hospital-Acquired Condition (HAC) Reduction Program 

 In this proposed rule, we are proposing a change in the scoring methodology with 

the addition of a previously finalized measure for the FY 2016 payment adjustment under 

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

of the Affordable Care Act, establishes an adjustment to hospital payments for HACs, or 

a HAC Reduction program, under which payments to applicable hospitals are adjusted to 

provide an incentive to reduce HACs, effective for discharges beginning on 

October 1, 2014 and for subsequent program years. This 1-percent payment reduction 

applies to a hospital whose ranking is in the top quartile (25 percent) of all applicable 

hospitals, relative to the national average, of conditions acquired during the applicable 

period and on all of the hospital’s discharges for the specified fiscal year. The amount of 

payment shall be equal to 99 percent of the amount of payment that would otherwise 

apply to such discharges under section 1886(d) or 1814(b)(3) of the Act, as applicable. 
 68 

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

Payment for Uncompensated Care 

 Section 3133 of the Affordable Care Act modified the Medicare disproportionate 

share hospital (DSH) payment methodology beginning in FY 2014. Under section 

1886(r) of the Act, which was added by section 3133 of the Affordable Care Act, starting 

in FY 2014, DSHs will receive 25 percent of the amount they previously would have 

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

remaining amount, equal to 75 percent of what otherwise would have been paid as 

Medicare DSH payments, will be paid as additional payments after the amount is reduced 

for changes in the percentage of individuals that are uninsured. Each Medicare DSH 

hospital will receive its additional amount based on its share of the total amount of 

uncompensated care for all Medicare DSH hospitals for a given time period. In this 

proposed rule, we are proposing updates to the uncompensated care amount to be 

distributed for FY 2015, and we are proposing changes to the methodology to calculate 

the uncompensated care payment amounts to be distributed such that we combine 

uncompensated care data for hospitals that have underwent a merger in order to calculate 

their relative share of uncompensated care. 

f. Hospital Inpatient Quality Reporting (IQR) Program 

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

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

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

reporting and the process for submittal and validation of the data. 
 69 

 In this proposed rule, we are proposing to add nine new measures for the Hospital 

IQR Program for the FY 2017 payment determination and subsequent years. We are 

proposing to remove five measures for the FY 2016 payment determination and 

subsequent years. We also are proposing to remove 15 chart-abstracted measures from 

the FY 2016 payment determination’s measure set. However, we are proposing to retain 

an electronic clinical quality measure version of 10 of those chart-abstracted measures for 

the program. 

g. Proposed Changes to the LTCH PPS 

Section 1206(b) of the Pathway for SGR Reform Act provides for the retroactive 

reinstatement and extension, for an additional 4 years, of the moratorium on the full 

implementation of the 25-percent threshold payment adjustment under the LTCH PPS 

established under section 114(c) of the MMSEA, as further amended by subsequent 

legislation. In keeping with this mandate, we are proposing to reinstate this payment 

adjustment retroactively for LTCH cost reporting periods beginning on or after 

July 1, 2013 or October 1, 2013. 

 Section 1206(b)(2) of the Pathway for SGR Reform Act, as amended by section 

112(b) of the Protecting Access to Medicare Act of 2014, provides for new statutory 

moratoria on the establishment of new LTCHs and LTCH satellite facilities (subject to 

certain defined exceptions) and a new statutory moratorium on bed increases in existing 

LTCHs effective for the period beginning April 1, 2014 and ending September 30, 2017. 

 In accordance with section 1206(d) of the Pathway for SGR Reform Act of 2013, 

we are proposing to apply a payment adjustment under the LTCH PPS to subclause (II) 
 70 

LTCHs beginning in FY 2015 that would result in payments to this type of LTCH 

resembling reasonable cost payments under the TEFRA payment system model. 

 We also are proposing to make changes to the LTCH interruption of stay policy, 

which is a payment adjustment that is applied when, during the course of an LTCH 

hospitalization, a patient is discharged to an inpatient acute care hospital, an IRF, or a 

SNF for treatment or services not available at the LTCH for a specified period followed 

by readmittance to the same LTCH. 

3. Summary of Costs and Benefits 

● Proposed Adjustment for MS-DRG Documentation and Coding 

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

amount for FY 2015 to implement, in part, the requirement of section 631 of the ATRA 

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

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

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

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

the ATRA, this amount could not have been recovered under Pub. L. 110-90. 

 While our actuaries estimated that a –9.3 percent recoupment adjustment to the 

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

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

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

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

adopted in many similar cases and the adjustment we made for FY 2014, we are 
 71 

proposing to make a –0.8 percent recoupment adjustment to the standardized amount in 

FY 2015. We estimated that this level of adjustment, combined with leaving the -0.8 

percent adjustment made for FY 2014 in place, will recover up to $2 billion in FY 2015. 

Taking into account the approximately $1 billion recovered in FY 2014, this will leave 

approximately $8 billion remaining to be recovered by FY 2017.

● Reduction to Hospital Payments for Excess Readmissions. The 

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

Reduction Program are not budget neutral. For FY 2015, a hospital’s readmissions 

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

for excess readmissions to its aggregate payments for all discharges, or 0.97 (that is, or 

a 3-percent reduction). In this proposed rule, we estimate that the reduction to a 

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

selected applicable conditions under the Hospital Readmissions Reduction Program 

will result in a 0.2 percent decrease in payments to hospitals for FY 2015 relative to 

FY 2014. 

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

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

to the Hospital VBP Program for FY 2015 in the aggregate because, by law, the 

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

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

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

operating DRG payment amount reductions for FY 2015, and therefore the estimated 
 72 

amount available for value-based incentive payments for FY 2015 discharges, is 

approximately $1.4 billion. We believe that the program’s benefits will be seen in 

improved patient outcomes, safety, and in the patient’s experience of care. However, 

we cannot estimate these benefits in actual dollar and patient terms. 

● Proposed Payment Adjustment under the HAC Reduction Program for 

FY 2015. Under section 1886(p) of the Act, (as added by section 3008 of the Affordable 

Care Act), the incentive to reduce hospital-acquired conditions with a payment 

adjustment to applicable hospitals under the HAC Reduction Program is made beginning 

FY 2015. We estimate that, under this proposal, 753 hospitals would be subject to the 

1-percent reduction, and that overall payments will decrease approximately 0.3 percent or 

$330 million.

● Proposed Changes Relating to the Medicare DSH Payment Adjustment 

and Provision of Additional Payment for Uncompensated Care. Under section 

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

disproportionate share payments to hospitals under section 1886(d)(5)(F) of the Act are 

reduced and an additional payment to eligible hospitals is made beginning in FY 2014. 

Hospitals that receive Medicare DSH payments will receive 25 percent of the amount 

they previously would have received under the current statutory formula for Medicare 

DSH payments. The remainder, equal to 75 percent of what otherwise would have been 

paid as Medicare DSH payments, will be the basis for additional payments after the 

amount is reduced for changes in the percentage of individuals that are uninsured and 

additional statutory adjustments. Each hospital that receives Medicare DSH payments 
 73 

will receive an additional payment based on its share of the total uncompensated care 

amount reported by Medicare DSHs. The reduction to Medicare DSH payments is not 

budget neutral. 

 For FY 2015, we are proposing that the 75 percent of what otherwise would have 

been paid for Medicare DSH is adjusted to approximately 80.4 percent of the amount for 

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

adjustments. In other words, Medicare DSH payments prior to the application of section 

3133 of the Affordable Care Act are adjusted to approximately 60.3 percent (the product 

of 75 percent and 80.4 percent) and that resulting payment amount is used to create an 

additional payment for a hospital’s relative uncompensated care. As a result, we project 

that the proposed reduction of Medicare DSH payments and the inclusion of the 

additional payments for uncompensated care will reduced payments overall by 1.1 

percent as compared to the Medicare DSH payments and uncompensated care payments 

distributed in FY 2014. The proposed additional payments have redistributive effects 

based on a hospital’s uncompensated care amount relative to the uncompensated care 

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

payment amount is not tied to a hospital’s discharges. 

● Hospital Inpatient Quality Reporting (IQR) Program. In this proposed 

rule, we are proposing to add nine new measures for the FY 2017payment 

determination and subsequent years. We are proposing to remove five measures from 

the hospital IQR Program for the FY 2016 payment determination and subsequent 

years. We also are proposing to remove 15 chart-abstracted from the FY 2016 
 74 

payment determination’s measure set, but we are proposing to retain an electronic 

clinical quality measure version of 10 of those measures for the program. We estimate 

that our proposals for the adoption and removal of measures will decrease hospital 

costs by $39.8 million. 

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

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

database, we estimate that the proposed changes to the payment rates and factors we 

are presenting in the preamble and Addendum of this proposed rule, including the 

proposed update to the standard Federal rate for FY 2015, the proposed changes to the 

area wage adjustment for FY 2015, and the expected changes to short-stay outliers and 

high-cost outliers, would result in an increase in estimated payments from FY 2014 of 

approximately $44 million (or 0.8 percent). In addition, we estimate that net effect of 

the projected impact of certain other proposed LTCH PPS policy changes (that is, the 

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

payment adjustment; the reinstatement of the moratorium on the development of new 

LTCHs and LTCH satellite facilities and additional LTCH beds; the proposed revision of 

the “greater than 3-day interruption of stay” policy; the proposed revocation of onsite 

discharges and readmissions policy; and the proposed payment adjustment for “subclause 

(II)” LTCHs) is estimated to result in a reduction in LTCH PPS payments of 

approximately $14 million. 

 The impact analysis of the proposed payment rates and factors presented in this 

proposed rule under the LTCH PPS, in conjunction with the estimated payment impacts 
 75 

of certain other proposed LTCH PPS policy changes would result in a net increase of $30 

million to LTCH providers. Additionally, we estimate that the costs to LTCHs associated 

with the completion of the proposed data for the LTCHQR Program at $3.96 million or 

approximately $1 million more than FY 2014. 

B. Summary 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

payment, known as the disproportionate share hospital (DSH) adjustment, provides for a 
 76 

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

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

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

on the outcome of the statutory calculations. The Affordable Care Act revised the 

Medicare DSH payment methodology and provides for a new additional Medicare 

payment that considers the amount of uncompensated care beginning on October 1, 2013. 

 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 
 77 

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

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

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

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

including FY 2006, a Medicare-dependent, small rural hospital (MDH) received the 

higher of the Federal rate or the Federal rate plus 50 percent of the amount by which the 

Federal rate is exceeded by the higher of its FY 1982 or FY 1987 hospital-specific rate. 

As discussed below, for discharges occurring on or after October 1, 2007, but before 

April 1, 2015, an MDH will receive the higher of the Federal rate or the Federal rate plus 

75 percent of the amount by which the Federal rate is exceeded by the highest of its 

FY 1982, FY 1987, or FY 2002 hospital-specific rate. (We note that the statutory 

provision for payments to MDHs expires on March 31, 2015, under current law.) 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 
 78 

inpatient days or discharges in its cost reporting year beginning in FY 1987 or in two of 

its three most recently settled Medicare cost reporting years). Both of these categories of 

hospitals are afforded this special payment protection in order to maintain access to 

services for beneficiaries. 

 Section 1886(g) of the Act requires the Secretary to pay for the capital-related 

costs of inpatient hospital services “in accordance with a prospective payment system 

established by the Secretary.” The basic methodology for determining capital 

prospective payments is set forth in our regulations at 42 CFR 412.308 and 412.312. 

Under the capital IPPS, payments are adjusted by the same DRG for the case as they are 

under the operating IPPS. Capital IPPS payments are also adjusted for IME and DSH, 

similar to the adjustments made under the operating IPPS. In addition, hospitals may 

receive outlier payments for those cases that have unusually high costs. 

 The existing regulations governing payments to hospitals under the IPPS are 

located in 42 CFR Part 412, Subparts A through M. 

2. Hospitals and Hospital Units Excluded from the IPPS 

 Under section 1886(d)(1)(B) of the Act, as amended, certain hospitals and 

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

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

children’s hospitals; certain cancer hospitals; and short-tern acute care hospitals located 

in Guam, the U.S. Virgin Islands, the Northern Mariana Islands, and American Samoa. 

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 
 79 

Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced 

Budget Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the Medicare, Medicaid, 

and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA, Pub. L. 106-554) 

provide for the implementation of PPSs for rehabilitation hospitals and units (referred to 

as inpatient rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and units 

(referred to as inpatient psychiatric facilities (IPFs)). (We note that the annual updates to 

the LTCH PPS are now included as part of the IPPS annual update document. Updates to 

the IRF PPS and IPF PPS are issued as separate documents.) Children's hospitals, certain 

cancer hospitals, short-tern acute care hospitals located in Guam, the U.S. Virgin Islands, 

the Northern Mariana Islands, and American Samoa, and RNHCIs continue to be paid 

solely under a reasonable cost-based system subject to a rate-of-increase ceiling on 

inpatient operating costs, as updated annually by the percentage increase in the IPPS 

operating market basket. 

 The existing regulations governing payments to excluded hospitals and hospital 

units are located in 42 CFR Parts 412 and 413. 

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

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

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

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

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

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

payment under the PPS was based on an increasing proportion of the LTCH Federal rate 
 80 

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 FY 2009, 

annual updates to the LTCH PPS are published in the same documents that update the 

IPPS (73 FR 26797 through 26798). 

4. Critical Access Hospitals (CAHs) 

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

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

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

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

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

5. Payments for Graduate Medical Education (GME) 

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

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

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

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

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

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

governing payments to the various types of hospitals are located in 42 CFR Part 413. 
 81 

C. Summary of Provisions of Recent Legislation Discussed in this Proposed Rule 

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

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

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

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

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

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

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

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

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

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

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

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

changes related to certain IPPS provisions for FY 2013 in accordance with sections 605 

and 606 of Pub. L. 112-240 in a notice issued in the Federal Register on March 7, 2013 

(78 FR 14689). 

 The Pathway for SGR Reform Act of 2013 (Pub. L. 113-67), enacted on 

December 26, 2013, also made a number of changes that affect the IPPS and the LTCH 

PPS. We implemented changes related to the low-volume hospital payment adjustment 

and MDH provisions for FY 2014 in accordance with sections 1105 and 1106 of Pub. L. 

113-67 in an interim final rule with comment period that appeared in the Federal 

Register on March 18, 2014 (79 FR 15022). 
 82 

 The Protecting Access to Medicare Act of 2014 (Pub. L. 113-93), enacted on 

April 1, 2014, also made a number of changes that affect the IPPS and LTCH PPS. 

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

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

 In this proposed rule, we are proposing policy changes to implement (or, as 

applicable, continuing to implement in FY 2015) the following provisions (or portions of 

the following provisions) of the Affordable Care Act that are applicable to the IPPS, the 

LTCH PPS, and PPS-exempt cancer hospitals for FY 2015: 

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

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

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

performance period for that fiscal year. 

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

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

beginning with the FY 2014 rate year. 

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

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

for subsequent program years. 

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

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

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

October 1, 2014, and for subsequent program years. 
 83 

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

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

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

● Section 3133 of Pub. L. 111-148, as amended by section 10316 of Pub. L. 

111-148 and section 1104 of Pub,. L. 111-152, which modifies the methodologies for 

determining Medicare DSH payments and creates a new additional payment for 

uncompensated care effective for discharges beginning on or after October 1, 2013. 

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

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

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

hospitals located in frontier States. 

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

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

payment rates for FY 2015. 

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

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

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

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

resident caps. 
 84 

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

 In this proposed rule, we are proposing policy changes to implement section 631 

of the American Taxpayer Relief Act of 2012 that are applicable to the IPPS for FY 

2015, which amended section 7(b)(1)(B) of Pub. L. 110-90 and requires a recoupment 

adjustment to the standardized amounts under section 1886(d) of the Act based upon the 

Secretary’s estimates for discharges occurring in FY 2014 through FY 2017 to fully 

offset $11 billion (which represents the amount of the increase in aggregate payments 

from FYs 2008 through 2013 for which an adjustment was not previously applied). 

3. Pathway for SGR Reform Act of 2013 (Pub. L. 113-67) 

 In this proposed rule, we are proposing policy changes to implement, or the need 

for future policy changes, to carry out provisions under section 1206 of the Pathway for 

SGR Reform Act of 2013. These include: 

● Section 1206(a), which provides the establishment of patient criteria for “site 

neutral” payment rates under the LTCH PPS, portions of which will begin to be 

implemented in FY 2016. 

● Section 1206(b)(1), which further amended section 114(c) of the MMSEA, as 

amended by section 4302(a) of the ARRA and sections 3106(c) and 10312(a) of the 

Affordable Care Act by retroactively reestablishing, and extending, the statutory 

moratorium on the full implementation of the 25-percent threshold payment adjustment 

policy under the LTCH PPS so that the policy will be in effect for 9 years (except for 

grandfathered HwHs, which are permanently exempt from this policy). 
 85 

● Section 1206(b)(2), which amended section 114(d) of the MMSEA, as 

amended by section 4302(a) of the ARRA and sections 3106(c) and 10312(a) of the 

Affordable Care Act to establish new moratoria (subject to certain defined exceptions) on 

the development of new LTCHs and LTCH satellite facilities and a new moratorium on 

increases in the number of beds in existing LTCHs and LTCH satellite facilities. 

● Section 1206(d), which instructs the Secretary to evaluate payments to LTCHs 

classified under section 1886(d)(1)(B)(iv)(II) of the Act and to adjust payment rates in 

FY 2015 or 2016 under the LTCH PPS, as appropriate, based upon the evaluation 

findings. 

4. Protecting Access to Medicare Act of 2014 (Pub. L. 113-93) 

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

conforming changes to regulations in accordance with, the following provisions (or 

portions of the following provisions) of the Protecting Access to Medicare Act of 2014 

that are applicable to the IPPS and the LTCH PPS for FY 2015: 

● Section 105, which extends the temporary changes to the Medicare inpatient 

hospital payment adjustment for low-volume subsection (d) hospitals through 

March 31, 2015. 

● Section 106, which extends the MDH program through March 31, 2015. 

● Section 112, which makes certain changes to Medicare LTCH provisions, 

including modifications to the statutory moratoria on the establishment of new LTCHs 

and LTCH satellite facilities and on increases in bed size in LTCH and LTCH satellite 

facilities. 
 86 

● Section 212, which prohibits the Secretary from requiring implementation of 

ICD-10 code sets before October 1, 2015. 

D. Summary of the Provisions of this Proposed Rule 

 In this proposed rule, we are setting forth proposed changes to the Medicare IPPS 

for operating costs and for capital-related costs of acute care hospitals for FY 2015. We 

also are setting forth proposed changes relating to payments for IME and GME costs and 

payments to certain hospitals that continue to be excluded from the IPPS and paid on a 

reasonable cost basis. In addition, in this proposed rule, we are setting forth proposed 

changes to the payment rates, factors, and other payment rate policies under the LTCH 

PPS for FY 2015. 

 Below is a summary of the major changes that we are proposing to make: 

1. Proposed Changes to MS-DRG Classifications and Recalibrations of Relative Weights 

 In section II. of the preamble of this proposed rule, we include-- 

● Proposed changes to MS-DRG classifications based on our yearly review, 

including a discussion of the conversion of MS-DRGs to ICD-10 and the status of the 

implementation of the ICD-10-CM and ICD-10-PCS systems. 

● Proposed application of the documentation and coding adjustment for FY 2015 

resulting from implementation of the MS-DRG system. 

● Proposed recalibrations of the MS-DRG relative weights. 

● Proposed changes to hospital-acquired conditions (HACs) and a listing and 

discussion of HACs, including infections, that would be subject to the statutorily required 

adjustment in MS-DRG payments for FY 2015. 
 87 

● A discussion of the FY 2015 status of new technologies approved for add-on 

payments for FY 2014 and a presentation of our evaluation and analysis of the FY 2015 

applicants for add-on payments for high-cost new medical services and technologies 

(including public input, as directed by Pub. L. 108-173, obtained in a town hall meeting). 

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

 In section III. of the preamble to this proposed rule, we are proposing revisions to 

the wage index for acute care hospitals and the annual update of the wage data. Specific 

issues addressed include the following: 

● Proposed changes in CBSAs as a result of new OMB labor market area 

delineations and proposed policies related to the proposed changes in CBSAs. 

● The proposed FY 2015 wage index update using wage data from cost reporting 

periods beginning in FY 2011. 

● Analysis and implementation of the proposed FY 2015 occupational mix 

adjustment to the wage index for acute care hospitals, including the proposed application 

of the rural floor, the proposed imputed rural floor, and the proposed frontier State floor. 

● Proposed revisions to the wage index for acute care hospitals based on hospital 

redesignations and reclassifications. 

● The proposed adjustment to the wage index for acute care hospitals for 

FY 2015 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 2015 hospital wage index and proposed revisions to that timetable. 
 88 

● Determination of the labor-related share for the proposed FY 2015 wage index. 

3. Other Decisions and Proposed Changes to the IPPS for Operating Costs and GME 

Costs 

 In section IV. of the preamble of this proposed rule, we discuss proposed changes 

or clarifications of a number of the provisions of the regulations in 42 CFR Parts 412 and 

413, including the following: 

● Proposed changes in postacute care transfer policies as a result of proposed 

new MS-DRGs. 

● Proposed changes to the inpatient hospital updates for FY 2015, including 

incorporation of the adjustment for hospitals that are not meaningful EHR users under 

section 1886(b)(3)(B)(ix) of the Act. 

● The proposed updated national and regional case-mix values and discharges for 

purposes of determining RRC status. 

● Proposed payment adjustment for low-volume hospitals for FY 2015. 

● The statutorily required IME adjustment factor for FY 2015 and proposed IME 

Medicare Part C payments to SCHs that are paid according to their hospital-specific rates. 

● Effect of expiration of the MDH program on April 1, 2015. 

● Proposed changes to the methodologies for determining Medicare DSH 

payments and the additional payments for uncompensated care. 

● Proposed changes to the measures and payment adjustments under the Hospital 

Readmissions Reduction Program. 
 89 

● Proposed changes to the requirements and provision of value-based incentive 

payments under the Hospital Value-Based Purchasing Program. 

● Proposed requirements for payment adjustments to hospitals under the HAC 

Reduction Program for FY 2015. 

● Proposed IME and direct GME policy changes regarding the effective date of 

the FTE resident cap, 3-year rolling average, and IRB ratio cap in new programs in 

teaching hospitals; effect of new OMB labor market area delineations on certain teaching 

hospitals training residents in rural areas; clarification of effective date of provisions on 

counting resident time in nonprovider settings; proposed changes to the process for 

reviewing applications for and awarding slots made available under section 5506 of the 

Affordable Care Act by teaching hospitals that close; and clarification regarding direct 

GME payment to FQHCs and RHCs that train residents in approved programs. 

● Discussion of the Rural Community Hospital Demonstration Program and a 

proposal for making a budget neutrality adjustment for the demonstration program. 

● Discussion of the requirements for transparency of hospital charges under the 

Affordable Care Act. 

● Discussion of and solicitation of comments on an alternative payment 

methodology under the Medicare program for short inpatient hospital stays.

● Discussion of the process for submitting suggested exceptions to the 

2-midnight benchmark. 
 90 

4. Proposed FY 2015 Policy Governing the IPPS for Capital-Related Costs 

 In section V. of the preamble to this proposed rule, we discuss the proposed 

payment policy requirements for capital-related costs and capital payments to hospitals 

for FY 2015 and other related proposed policy changes. 

5. Proposed Changes to the Payment Rates for Certain Excluded Hospitals: 

Rate-of-Increase Percentages 

 In section VI. of the preamble of this proposed rule, we discuss— 

● Proposed changes to payments to certain excluded hospitals for FY 2015. 

● Proposed updates to the RCE limits for services furnished by physicians to 

excluded hospitals. 

● Proposed CAH related changes regarding reclassifications as rural. 

● Proposed changes to the physician certification requirements for services 

furnished in CAHs. 

6. Proposed Changes to the LTCH PPS 

 In section VII. of the preamble of this proposed rule, we set forth— 

● Proposed changes to the payment rates, factors, and other payment rate policies 

under the LTCH PPS for FY 2015. 

● Proposed revisions to the LTCH PPS geographic classifications based on the 

new OMB delineations. 

● Proposals to implement section 1206(b)(1) of the Pathway for SGR Reform 

Act, which provides for the retroactive reinstatement and extension, for an additional 4 

years, of the statutory moratorium on the full implementation of the 25-percent threshold 
 91 

payment adjustment established under section 114(c) of the MMSEA, as further amended 

by subsequent legislation. 

● Proposals to implement section 1206(b)(2) of the Pathway for SGR Reform 

Act, as amended by section 112(b) of the Protecting Access to Medicare Act of 2014, 

which provides for moratoria (subject to certain defined exceptions) on the establishment 

of new LTCHs and LTCH satellite facilities and a moratorium on bed increases in 

LTCHs effective for the period beginning April 1, 2014, and ending September 30, 2017. 

● Proposed changes to the LTCH interruption of stay policy by revising the 

fixed-day thresholds under the “greater than 3-day interruption of stay policy” to apply a 

uniform 30-day threshold as an “acceptable standard” for determining a linkage between 

an index discharge and a readmission. 

● Proposal to remove the discharge and readmission requirement, “Special 

Payment Provisions for Patients Who are Transferred to Onsite Providers and Readmitted 

to an LTCH” (the “5 percent payment threshold”) beginning in FY 2015. 

● Proposal to apply a payment adjustment under the LTCH PPS to subclause (II) 

LTCHs beginning in FY 2015 that would result in payments to this type of LTCH 

resembling reasonable cost payment under the TEFRA payment system model, consistent 

with the provisions of section 1206(d) of the Pathway for SGR Reform Act of 2013. 
 92 

7. Proposed Changes to Regulations Governing Administrative Appeals by Providers 

and Judicial Review of Provider Claims 

 In section VIII. of the preamble of this proposed rule, we set forth proposals to 

revise the regulations governing administrative appeals and judicial review of provider 

claims in Medicare cost reports. 

8. Proposed Changes Relating to Quality Data Reporting for Specific Providers and 

Suppliers 

 In section IX. of the preamble of this proposed rule, we address— 

● Proposed requirements for the Hospital Inpatient Quality Reporting (IQR) 

Program as a condition for receiving the full applicable percentage increase. 

● Proposed changes to the requirements for the quality reporting program for 

PPS-exempt cancer hospitals (PCHQR Program). 

● Proposed changes to the requirements under the LTCH Quality Reporting 

(LTCHQR) Program. 

9. Proposed Uses and Release of Medicare Advantage Risk Adjustment Data 

 In section X. of the preamble of this proposed rule, we set forth proposed 

regulatory revisions to broaden the specified uses of risk adjustment data and to specify 

the conditions for release of risk adjustment data to entities outside of CMS. 

10. Proposed Changes to Enforcement Provisions for Organ Transplant Centers 

 In section XI. of the preamble of this proposed rule, we are proposing to revise 

the regulations governing organ transplant centers that request approval, based on 
 93 

mitigating factors for initial approval and re-approval, for participation in Medicare when 

the centers have not met one or more of the conditions of participation. 

11. Determining Prospective Payment Operating and Capital Rates and Rate-of-Increase 

Limits for Acute Care Hospitals 

 In the Addendum to this proposed rule, we set forth proposed changes to the 

amounts and factors for determining the proposed FY 2015 prospective payment rates for 

operating costs and capital-related costs for acute care hospitals. We also are proposing 

to establish the threshold amounts for outlier cases. In addition, we addressed the 

proposed update factors for determining the rate-of-increase limits for cost reporting 

periods beginning in FY 2015 for certain hospitals excluded from the IPPS. 

12. Determining Prospective Payment Rates for LTCHs 

 In the Addendum to this proposed rule, we set forth proposed changes to the 

amounts and factors for determining the proposed FY 2015 LTCH PPS standard Federal 

rate. We are proposing to establish the adjustments for wage levels (including proposed 

changes to the LTCH PPS labor market area delineations based on the new OMB 

delineations), the labor-related share, the cost-of-living adjustment, and high-cost 

outliers, including the fixed-loss amount, and the LTCH cost-to-charge ratios (CCRs) 

under the LTCH PPS. 

13. Impact Analysis 

 In Appendix A of this proposed rule, we set forth an analysis of the impact that 

the proposed changes would have on affected acute care hospitals, LTCHs, and PCHs. 
 94 

14. Recommendation of Update Factors for Operating Cost Rates of Payment for 

Hospital Inpatient Services 

 In Appendix B of this proposed rule, as required by sections 1886(e)(4) and (e)(5) 

of the Act, we provided our recommendations of the appropriate percentage changes for 

FY 2015 for the following: 

● A single average standardized amount for all areas for hospital inpatient 

services paid under the IPPS for operating costs of acute care hospitals (and 

hospital-specific rates applicable to SCHs). 

● Target rate-of-increase limits to the allowable operating costs of hospital 

inpatient services furnished by certain hospitals excluded from the IPPS. 

● The standard Federal rate for hospital inpatient services furnished by LTCHs. 

15. Discussion of Medicare Payment Advisory Commission Recommendations 

 Under section 1805(b) of the Act, MedPAC is required to submit a report to 

Congress, no later than March 15 of each year, in which MedPAC reviews and makes 

recommendations on Medicare payment policies. MedPAC’s March 2014 

recommendations concerning hospital inpatient payment policies address the update 

factor for hospital inpatient operating costs and capital-related costs for hospitals under 

the IPPS. We address these recommendations in Appendix B of this proposed rule. For 

further information relating specifically to the MedPAC March 2014 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. 
 95 

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

Classifications and Relative Weights 

A. Background 

 Section 1886(d) of the Act specifies that the Secretary shall establish a 

classification system (referred to as diagnosis-related groups (DRGs)) for inpatient 

discharges and adjust payments under the IPPS based on appropriate weighting factors 

assigned to each DRG. Therefore, under the IPPS, Medicare pays for inpatient hospital 

services on a rate per discharge basis that varies according to the DRG to which a 

beneficiary’s stay is assigned. The formula used to calculate payment for a specific case 

multiplies an individual hospital’s payment rate per case by the weight of the DRG to 

which the case is assigned. Each DRG weight represents the average resources required 

to care for cases in that particular DRG, relative to the average resources used to treat 

cases in all DRGs. 

 Congress recognized that it would be necessary to recalculate the DRG relative 

weights periodically to account for changes in resource consumption. Accordingly, 

section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG 

classifications and relative weights at least annually. These adjustments are made to 

reflect changes in treatment patterns, technology, and any other factors that may change 

the relative use of hospital resources. 

B. MS-DRG Reclassifications 

 For general information about the MS-DRG system, including yearly reviews and 

changes to the MS-DRGs, we refer readers to the previous discussions in the FY 2010 
 96 

IPPS/RY 2010 LTCH PPS final rule (74 FR 43764 through 43766), the FY 2011 

IPPS/LTCH PPS final rule (75 FR 50053 through 50055), the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51485 through 51487), the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53273), and the FY 2014 IPPS/LTCH PPS final rule (78 FR 50512). 

C. Adoption of the MS-DRGs in FY 2008 

 For information on the adoption of the MS-DRGs in FY 2008, we refer readers to 

the FY 2008 IPPS final rule with comment period (72 FR 47140 through 47189). 

D. Proposed FY 2015 MS-DRG Documentation and Coding Adjustment 

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

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

 In the FY 2008 IPPS final rule with comment period (72 FR 47140 through 

47189), we adopted the MS-DRG patient classification system for the IPPS, effective 

October 1, 2007, to better recognize severity of illness in Medicare payment rates for 

acute care hospitals. The adoption of the MS-DRG system resulted in the expansion of 

the number of DRGs from 538 in FY 2007 to 745 in FY 2008. (In FY 2014, there are 

751 MS-DRGs.) By increasing the number of MS-DRGs and more fully taking into 

account patient severity of illness in Medicare payment rates for acute care hospitals, 

MS-DRGs encourage hospitals to improve their documentation and coding of patient 

diagnoses. 

 In the FY 2008 IPPS final rule with comment period (72 FR 47175 through 

47186), we indicated that the adoption of the MS-DRGs had the potential to lead to 

increases in aggregate payments without a corresponding increase in actual patient 
 97 

severity of illness due to the incentives for additional documentation and coding. In that 

final rule with comment period, we exercised our authority under 

section 1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget neutrality 

by adjusting the national standardized amount, to eliminate the estimated effect of 

changes in coding or classification that do not reflect real changes in case-mix. Our 

actuaries estimated that maintaining budget neutrality required an adjustment 

of -4.8 percent to the national standardized amount. We provided for phasing in 

this -4.8 percent adjustment over 3 years. Specifically, we established prospective 

documentation and coding adjustments of -1.2 percent for FY 2008, -1.8 percent for 

FY 2009, and -1.8 percent for FY 2010. 

 On September 29, 2007, Congress enacted the TMA [Transitional Medical 

Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension 

Act of 2007 (Pub. L. 110-90). Section 7(a) of Pub. L. 110-90 reduced the documentation 

and coding adjustment made as a result of the MS-DRG system that we adopted in the 

FY 2008 IPPS final rule with comment period to -0.6 percent for FY 2008 

and -0.9 percent for FY 2009, and we finalized the FY 2008 adjustment through 

rulemaking, effective October 1, 2007 (72 FR 66886). 

 For FY 2009, section 7(a) of Pub. L. 110-90 required a documentation and coding 

adjustment of -0.9 percent, and we finalized that adjustment through rulemaking effective 

October 1, 2008 (73 FR 48447). The documentation and coding adjustments established 

in the FY 2008 IPPS final rule with comment period, which reflected the amendments 

made by section 7(a) of Pub. L. 110-90, are cumulative. As a result, the -0.9 percent 
 98 

documentation and coding adjustment for FY 2009 was in addition to the -0.6 percent 

adjustment for FY 2008, yielding a combined effect of -1.5 percent. 

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

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

 Section 7(b)(1)(A) of Pub. L. 110-90 requires that, if the Secretary determines 

that implementation of the MS–DRG system resulted in changes in documentation and 

coding that did not reflect real changes in case-mix for discharges occurring during 

FY 2008 or FY 2009 that are different than the prospective documentation and coding 

adjustments applied under section 7(a) of Pub. L. 110-90, the Secretary shall make an 

appropriate adjustment under section 1886(d)(3)(A)(vi) of the Act. 

Section 1886(d)(3)(A)(vi) of the Act authorizes adjustments to the average standardized 

amounts for subsequent fiscal years in order to eliminate the effect of such coding or 

classification changes. These adjustments are intended to ensure that future annual 

aggregate IPPS payments are the same as the payments that otherwise would have been 

made had the prospective adjustments for documentation and coding applied in FY 2008 

and FY 2009 reflected the change that occurred in those years. 

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

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

 If, based on a retroactive evaluation of claims data, the Secretary determines that 

implementation of the MS–DRG system resulted in changes in documentation and coding 

that did not reflect real changes in case-mix for discharges occurring during FY 2008 or 

FY 2009 that are different from the prospective documentation and coding adjustments 
 99 

applied under section 7(a) of Pub. L. 110-90, section 7(b)(1)(B) of Pub. L. 110-90 

requires the Secretary to make an additional adjustment to the standardized amounts 

under section 1886(d) of the Act. This adjustment must offset the estimated increase or 

decrease in aggregate payments for FYs 2008 and 2009 (including interest) resulting 

from the difference between the estimated actual documentation and coding effect and 

the documentation and coding adjustment applied under section 7(a) of Pub. L. 110-90. 

This adjustment is in addition to making an appropriate adjustment to the standardized 

amounts under section 1886(d)(3)(A)(vi) of the Act as required by section 7(b)(1)(A) of 

Pub. L. 110-90. That is, these adjustments are intended to recoup (or repay, in the case of 

underpayments) spending in excess of (or less than) spending that would have occurred 

had the prospective adjustments for changes in documentation and coding applied in 

FY 2008 and FY 2009 matched the changes that occurred in those years. Pub. L. 110-90 

requires that the Secretary only make these recoupment or repayment adjustments for 

discharges occurring during FYs 2010, 2011, and 2012. 

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

 In order to implement the requirements of section 7 of Pub. L. 110-90, we 

performed a retrospective evaluation of the FY 2008 data for claims paid through 

December 2008 using the methodology first described in the FY 2009 IPPS/LTCH PPS 

final rule (73 FR 43768 and 43775) and later discussed in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 43768 through 43772). We performed the same analysis for 

FY 2009 claims data using the same methodology as we did for FY 2008 claims 

(75 FR 50057 through 50068). The results of the analysis for the FY 2011 IPPS/LTCH 
 100 

PPS proposed and final rules, and subsequent evaluations in FY 2012, supported that the 

5.4 percent estimate accurately reflected the FY 2009 increases in documentation and 

coding under the MS-DRG system. We were persuaded by both MedPAC’s analysis (as 

discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50064 through 50065)) and 

our own review of the methodologies recommended by various commenters that the 

methodology we employed to determine the required documentation and coding 

adjustments was sound. 

 As in prior years, the FY 2008, FY 2009, and FY 2010 MedPAR files are 

available to the public to allow independent analysis of the FY 2008 and FY 2009 

documentation and coding effects. Interested individuals may still order these files 

through the CMS Web site at: http://www.cms.gov/Research-Statistics-Data-andSystems/Files-for-Order/LimitedDataSets/ by clicking on MedPAR Limited Data Set 

(LDS)-Hospital (National). This CMS 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 (refer to the Website for the required payment 

amount) 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. 
 101 

 Mailing address if using express mail: 

 Centers for Medicare & Medicaid Services, 

 OFM/Division of Accounting – RDDC, 

 7500 Security Boulevard, C3-07-11, 

 Baltimore, MD 21244-1850. 

4. Prospective Adjustments for FY 2008 and FY 2009 Authorized by Section 7(b)(1)(A) 

of Pub. L. 110-90 

 In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43767 through 

43777), we opted to delay the implementation of any documentation and coding 

adjustment until a full analysis of case-mix changes based on FY 2009 claims data could 

be completed. We refer readers to the FY 2010 IPPS/RY LTCH PPS final rule for a 

detailed description of our proposal, responses to comments, and finalized policy. After 

analysis of the FY 2009 claims data for the FY 2011 IPPS/LTCH PPS final rule 

(75 FR 50057 through 50073), we found a total prospective documentation and coding 

effect of 5.4 percent. After accounting for the -0.6 percent and the -0.9 percent 

documentation and coding adjustments in FYs 2008 and 2009, we found a remaining 

documentation and coding effect of 3.9 percent. As we have discussed, an additional 

cumulative adjustment of -3.9 percent would be necessary to meet the requirements of 

section 7(b)(1)(A) of Pub. L. 110-90 to make an adjustment to the average standardized 

amounts in order to eliminate the full effect of the documentation and coding changes 

that do not reflect real changes in case-mix on future payments. Unlike section 

7(b)(1)(B) of Pub. L. 110-90, section 7(b)(1)(A) does not specify when we must apply 

the prospective adjustment, but merely requires us to make an “appropriate” adjustment. 
 102 

Therefore, as we stated in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50061), we 

believed the law provided some discretion as to the manner in which we applied the 

prospective adjustment of -3.9 percent. As we discussed extensively in the FY 2011 

IPPS/LTCH PPS final rule, it has been our practice to moderate payment adjustments 

when necessary to mitigate the effects of significant downward adjustments on hospitals, 

to avoid what could be widespread, disruptive effects of such adjustments on hospitals. 

Therefore, we stated that we believed it was appropriate to not implement the -3.9 percent 

prospective adjustment in FY 2011 because we finalized a -2.9 percent recoupment 

adjustment for that fiscal year. Accordingly, we did not propose a prospective 

adjustment under section 7(b)(1)(A) of Pub. L. 110-90 for FY 2011 (75 FR 23868 

through 23870). We noted that, as a result, payments in FY 2011 (and in each future 

fiscal year until we implemented the requisite adjustment) would be higher than they 

would have been if we had implemented an adjustment under section 7(b)(1)(A) of 

Pub. L. 110-90. 

 In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51489 and 51497), we 

indicated that, because further delay of this prospective adjustment would result in a 

continued accrual of unrecoverable overpayments, it was imperative that we implement a 

prospective adjustment for FY 2012, while recognizing CMS’ continued desire to 

mitigate the effects of any significant downward adjustments to hospitals. Therefore, we 

implemented a -2.0 percent prospective adjustment to the standardized amount instead of 

the full -3.9 percent. 
 103 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53274 through 53276), we 

completed the prospective portion of the adjustment required under section 7(b)(1)(A) of 

Pub. L. 110-90 by finalizing a -1.9 percent adjustment to the standardized amount for 

FY 2013. We stated that this adjustment would remove the remaining effect of the 

documentation and coding changes that do not reflect real changes in case-mix that 

occurred in FY 2008 and FY 2009. We believed that it was imperative to implement the 

full remaining adjustment, as any further delay would result in an overstated standardized 

amount in FY 2013 and any future fiscal years until a full adjustment was made. 

 We noted again that delaying full implementation of the prospective portion of the 

adjustment required under section 7(b)(1)(A) of Pub. L. 110-90 until FY 2013 resulted in 

payments in FY 2010 through FY 2012 being overstated. These overpayments could not 

be recovered by CMS as section 7(b)(1)(B) of Pub. L. 110-90 limited recoupments to 

overpayments made in FY 2008 and FY 2009. 

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

Pub. L. 110-90 

 Section 7(b)(1)(B) of Pub. L. 110-90 requires the Secretary to make an adjustment 

to the standardized amounts under section 1886(d) of the Act to offset the estimated 

increase or decrease in aggregate payments for FY 2008 and FY 2009 (including interest) 

resulting from the difference between the estimated actual documentation and coding 

effect and the documentation and coding adjustments applied under section 7(a) of Pub. 

L. 110-90. This determination must be based on a retrospective evaluation of claims 

data. Our actuaries estimated that there was a 5.8 percentage point difference resulting in 
 104 

an increase in aggregate payments of approximately $6.9 billion. Therefore, as discussed 

in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50062 through 50067), we determined 

that an aggregate adjustment of -5.8 percent in FYs 2011 and 2012 would be necessary in 

order to meet the requirements of section 7(b)(1)(B) of Pub. L. 110-90 to adjust the 

standardized amounts for discharges occurring in FYs 2010, 2011, and/or 2012 to offset 

the estimated amount of the increase in aggregate payments (including interest) in 

FYs 2008 and 2009. 

 It is often our practice to phase in payment rate adjustments over more than one 

year in order to moderate the effect on payment rates in any one year. Therefore, 

consistent with the policies that we have adopted in many similar cases, in the FY 2011 

IPPS/LTCH PPS final rule, we made an adjustment to the standardized amount 

of -2.9 percent, representing approximately half of the aggregate adjustment required 

under section 7(b)(1)(B) of Pub. L. 110-90, for FY 2011. An adjustment of this 

magnitude allowed us to moderate the effects on hospitals in one year while 

simultaneously making it possible to implement the entire adjustment within the 

timeframe required under section 7(b)(1)(B) of Pub. L. 110-90 (that is, no later than FY 

2012). For FY 2012, in accordance with the timeframes set forth by section 7(b)(1)(B) of 

Pub. L. 110-90, and consistent with the discussion in the FY 2011 IPPS/LTCH PPS final 

rule, we completed the recoupment adjustment by implementing the remaining -2.9 

percent adjustment, in addition to removing the effect of the -2.9 percent adjustment to 

the standardized amount finalized for FY 2011 (76 FR 51489 and 51498). Because these 

adjustments, in effect, balanced out, there was no year-to-year change in the standardized 
 105 

amount due to this recoupment adjustment for FY 2012. In the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53276), we made a final +2.9 percent adjustment to the 

standardized amount, completing the recoupment portion of section 7(b)(1)(B) of Pub. L. 

110-90. We note that with this positive adjustment, according to our estimates, all 

overpayments made in FY 2008 and FY 2009 have been fully recaptured with 

appropriate interest, and the standardized amount has been returned to the appropriate 

baseline. 

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

Taxpayer Relief Act of 2012 (ATRA) 

 Section 631 of the ATRA amended section 7(b)(1)(B) of Pub. L. 110-90 to 

require the Secretary to make a recoupment adjustment or adjustments totaling 

$11 billion by FY 2017. This adjustment represents the amount of the increase in 

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

under section 7(b)(1)(A) of Pub. L. 110-90 until FY 2013. As discussed earlier, this 

delay in implementation resulted in overstated payment rates in FYs 2010, 2011, and 

2012. The resulting overpayments could not have been recovered under Pub. L. 110-90. 

 Similar to the adjustments authorized under section 7(b)(1)(B) of Pub. L. 110-90, 

the adjustment required under section 631 of the ATRA is a one-time recoupment of a 

prior overpayment, not a permanent reduction to payment rates. Therefore, any 

adjustment made to reduce payment rates in one year would eventually be offset by a 

positive adjustment, once the necessary amount of overpayment is recovered. 
 106 

 As we stated in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50515 through 

50517), our actuaries estimate that a -9.3 percent adjustment to the standardized amount 

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

section 631 of the ATRA in FY 2014. It is often our practice to phase in payment rate 

adjustments over more than one year, in order to moderate the effect on payment rates in 

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

similar cases, and after consideration of the public comments we received, in the 

FY 2014 IPPS/LTCH PPS final rule (78 FR 50515 through 50517), we implemented 

a -0.8 percent recoupment adjustment to the standardized amount in FY 2014. We stated 

that if adjustments of approximately -0.8 percent are implemented in FYs 2014, 2015, 

2016, and 2017, using standard inflation factors, we estimate that the entire $11 billion 

will be accounted for by the end of the statutory 4-year timeline. As estimates of any 

future adjustments are subject to slight variations in total savings, we did not provide for 

specific adjustments for FYs 2015, 2016, or 2017 at that time. We stated that we 

believed that this level of adjustment for FY 2014 was a reasonable and fair approach that 

satisfies the requirements of the statute while mitigating extreme annual fluctuations in 

payment rates. In addition, we again noted that this -0.8 percent recoupment adjustment, 

and future adjustments under this authority, will be eventually offset by an equivalent 

positive adjustment once the full $11 billion recoupment requirement has been realized. 

 Consistent with the approach discussed in the FY 2014 rulemaking for recouping 

the $11 billion required by section 631 of the ATRA, we are proposing an additional -0.8 

percent recoupment adjustment to the standardized amount for FY 2015. We estimated 
 107 

that this level of adjustment, combined with leaving the -0.8 percent adjustment made for 

FY 2014 in place, will recover up to $2 billion in FY 2015. Taking into account the 

approximately $1 billion recovered in FY 2014, this will leave approximately $8 billion 

remaining to be recovered by FY 2017. We continue to believe that if adjustments of 

approximately -0.8 percent are implemented in FYs 2014, 2015, 2016, and 2017, using 

standard inflation factors, the entire $11 billion will be accounted for by the end of the 

statutory 4-year timeline. As we explained in the FY 2014 rulemaking, estimates of any 

future adjustments are subject to slight variations in total savings; therefore, we are not 

proposing specific adjustments for FY 2016 and FY 2017 at this time. We continue to 

believe that our proposed -0.8 percent adjustment for FY 2015 is a reasonable and fair 

approach that will help satisfy the requirements of the statute while mitigating extreme 

annual fluctuations in payment rates. In addition, we again note that this -0.8 percent 

recoupment adjustment, and future adjustments under this authority, will be eventually 

offset by an equivalent positive adjustment once the full $11 billion recoupment 

requirement has been realized. 

7. Prospective Adjustment for the MS-DRG Documentation and Coding Effect Through 

FY 2010 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50515 through 50517), we 

discussed the possibility of applying an additional prospective adjustment to account for 

the cumulative MS-DRG documentation and coding effect through FY 2010. In that final 

rule, we stated that if we were to apply such an adjustment, we believe the most 

appropriate additional adjustment is -0.55 percent. However, we decided not to apply 
 108 

such an adjustment in FY 2014, in light of the need to make the retrospective adjustments 

required by the ATRA. We continue to believe that if we were to apply an additional 

prospective adjustment for the cumulative MS-DRG documentation and coding effect 

through FY 2010, the most appropriate additional adjustment is -0.55 percent. However, 

we are not proposing such an adjustment in FY 2015, in light of the ongoing recoupment 

required by the ATRA. We will consider whether such an additional adjustment is 

appropriate in future years’ rulemaking. 

E. Refinement of the MS-DRG Relative Weight Calculation 

1. Background 

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

report data instead of charge information. We refer readers to the FY 2007 IPPS final 

rule (71 FR 47882) for a detailed discussion of our final policy for calculating the 

cost-based DRG relative weights and to the FY 2008 IPPS final rule with comment 

period (72 FR 47199) for information on how we blended relative weights based on the 

CMS DRGs and MS-DRGs. 

 As we implemented cost-based relative weights, some public commenters raised 

concerns about potential bias in the weights due to “charge compression,” which is the 

practice of applying a higher percentage charge markup over costs to lower cost items 

and services, and a lower percentage charge markup over costs to higher cost items and 

services. As a result, the cost-based weights would undervalue high-cost items and 

overvalue low-cost items if a single CCR is applied to items of widely varying costs in 

the same cost center. To address this concern, in August 2006, we awarded a contract to 
 109 

the Research Triangle Institute, International (RTI) to study the effects of charge 

compression in calculating the relative weights and to consider methods to reduce the 

variation in the cost-to-charge ratios (CCRs) across services within cost centers. For a 

detailed summary of RTI’s findings, recommendations, and public comments that we 

received on the report, we refer readers to the FY 2009 IPPS/LTCH PPS final rule 

(73 FR 48452 through 48453). In addition, we refer readers to RTI’s July 2008 final 

report titled “Refining Cost to Charge Ratios for Calculating APC and MS-DRG Relative 

Payment Weights” (http://www.rti.org/reports/cms/HHSM-500-2005-

0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf). 

 In the FY 2009 IPPS final rule (73 FR 48458 through 48467), in response to the 

RTI’s recommendations concerning cost report refinements, we discussed our decision to 

pursue changes to the cost report to split the cost center for Medical Supplies Charged to 

Patients into one line for “Medical Supplies Charged to Patients” and another line for 

“Implantable Devices Charged to Patients.” We acknowledged, as RTI had found, that 

charge compression occurs in several cost centers that exist on the Medicare cost report. 

However, as we stated in the FY 2009 IPPS final rule, we focused on the CCR for 

Medical Supplies and Equipment because RTI found that the largest impact on the 

MS-DRG relative weights could result from correcting charge compression for devices 

and implants. In determining the items that should be reported in these respective cost 

centers, we adopted the commenters’ recommendations that hospitals should use revenue 

codes established by the AHA’s National Uniform Billing Committee to determine the 

items that should be reported in the “Medical Supplies Charged to Patients” and the 
 110 

“Implantable Devices Charged to Patients” cost centers. Accordingly, a new subscripted 

line for “Implantable Devices Charged to Patients” was created in July 2009. This new 

subscripted cost center has been available for use for cost reporting periods beginning on 

or after May 1, 2009. 

 As we discussed in the FY 2009 IPPS final rule (73 FR 48458) and in the 

CY 2009 OPPS/ASC final rule with comment period (73 FR 68519 through 68527), in 

addition to the findings regarding implantable devices, RTI also found that the costs and 

charges of computed tomography (CT) scans, magnetic resonance imaging (MRI), and 

cardiac catheterization differ significantly from the costs and charges of other services 

included in the standard associated cost center. RTI also concluded that both the IPPS 

and the OPPS relative weights would better estimate the costs of those services if CMS 

were to add standard cost centers for CT scans, MRIs, and cardiac catheterization in order 

for hospitals to report separately the costs and charges for those services and in order for 

CMS to calculate unique CCRs to estimate the costs from charges on claims data. In the 

FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080), we finalized our 

proposal to create standard cost centers for CT scans, MRIs, and cardiac catheterization, 

and to require that hospitals report the costs and charges for these services under new cost 

centers on the revised Medicare cost report Form CMS-2552-10. (We refer readers to the 

FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080) for a detailed 

discussion of the reasons for the creation of standard cost centers for CT scans, MRIs, 

and cardiac catheterization.) The new standard cost centers for CT scans, MRIs, and 
 111 

cardiac catheterization are effective for cost reporting periods beginning on or after 

May 1, 2010, on the revised cost report Form CMS-2552-10. 

 In the FY 2009 IPPS final rule (73 FR 48468), we stated that, due to what is 

typically a 3-year lag between the reporting of cost report data and the availability for use 

in ratesetting, we anticipated that we might be able to use data from the new “Implantable 

Devices Charged to Patients” cost center to develop a CCR for “Implantable Devices 

Charged to Patients” in the FY 2012 or FY 2013 IPPS rulemaking cycle. However, as 

noted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43782), due to delays 

in the issuance of the revised cost report Form CMS 2552-10, we determined that a new 

CCR for “Implantable Devices Charged to Patients” might not be available before 

FY 2013. Similarly, when we finalized the decision in the FY 2011 IPPS/LTCH PPS 

final rule to add new cost centers for CT scans, MRIs, and cardiac catheterization, we 

explained that data from any new cost centers that may be created will not be available 

until at least 3 years after they are first used (75 FR 50077). In preparation for the 

FY 2012 IPPS/LTCH PPS rulemaking, we checked the availability of data in the 

“Implantable Devices Charged to Patients” cost center on the FY 2009 cost reports, but 

we did not believe that there was a sufficient amount of data from which to generate a 

meaningful analysis in this particular situation. Therefore, we did not propose to use data 

from the “Implantable Devices Charged to Patients” cost center to create a distinct CCR 

for “Implantable Devices Charged to Patients” for use in calculating the MS-DRG 

relative weights for FY 2012. We indicated that we would reassess the availability of 

data for the “Implantable Devices Charged to Patients” cost center for the FY 2013 
 112 

IPPS/LTCH PPS rulemaking cycle and, if appropriate, we would propose to create a 

distinct CCR at that time. 

 During the development of the FY 2013 IPPS/LTCH PPS proposed and final 

rules, hospitals were still in the process of transitioning from the previous cost report 

Form CMS-2552-96 to the new cost report Form CMS-2552-10. Therefore, we were 

able to access only those cost reports in the FY 2010 HCRIS with fiscal year begin dates 

on or after October 1, 2009, and before May 1, 2010; that is, those cost reports on Form 

CMS-2552-96. Data from the Form CMS-2552-10 cost reports were not available 

because cost reports filed on the Form CMS-2552-10 were not accessible in the HCRIS. 

Further complicating matters was that, due to additional unforeseen technical difficulties, 

the corresponding information regarding charges for implantable devices on hospital 

claims was not yet available to us in the MedPAR file. Without the breakout in the 

MedPAR file of charges associated with implantable devices to correspond to the costs of 

implantable devices on the cost report, we believed that we had no choice but to continue 

computing the relative weights with the current CCR that combines the costs and charges 

for supplies and implantable devices. We stated in the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53281 through 53283) that when we do have the necessary data for supplies 

and implantable devices on the claims in the MedPAR file to create distinct CCRs for the 

respective cost centers for supplies and implantable devices, we hoped that we would also 

have data for an analysis of creating distinct CCRs for CT scans, MRIs, and cardiac 

catheterization, which could then be finalized through rulemaking. In the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53281), we stated that prior to proposing to create 
 113 

these CCRs, we would first thoroughly analyze and determine the impacts of the data, 

and that distinct CCRs for these new cost centers would be used in the calculation of the 

relative weights only if they were first finalized through rulemaking. 

 At the time of the development of the FY 2014 IPPS/LTCH PPS proposed rule 

(78 FR 27506 through 27507), we had a substantial number of hospitals completing all, 

or some, of these new cost centers on the FY 2011 Medicare cost reports, compared to 

prior years. We stated that we believed that the analytic findings described using the 

FY 2011 cost report data and FY 2012 claims data supported our original decision to 

break out and create new cost centers for implantable devices, MRIs, CT scans, and 

cardiac catheterization, and we saw no reason to further delay proposing to implement the 

CCRs of each of these cost centers. Therefore, beginning in FY 2014, we proposed to 

calculate the MS–DRG relative weights using 19 CCRs, creating distinct CCRs from cost 

report data for implantable devices, MRIs, CT scans, and cardiac catheterization 

(78 FR 27509). 

 We refer readers to the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27507 

through 27509) and final rule (78 FR 50518 through 50523) in which we presented data 

analyses using distinct CCRs for implantable devices, MRIs, CT scans, and cardiac 

catheterization. The FY 2014 IPPS/LTCH PPS final rule also set forth our responses to 

public comments we received on our proposal to implement these CCRs. As explained in 

more detail in the FY 2014 IPPS/LTCH PPS final rule, we finalized our proposal to use 

19 CCRs to calculate MS-DRG relative weights beginning in FY 2014--the then existing 

15 cost centers and the 4 new CCRs for implantable devices, MRIs, CT scans, and 
 114 

cardiac catheterization. Therefore, beginning in FY 2014, we calculated the IPPS 

MS-DRG relative weights using 19 CCRs, creating distinct CCRs for implantable 

devices, MRIs, CT scans, and cardiac catheterization. 

2. Discussion for FY 2015 

 To calculate the proposed MS–DRG relative weights for FY 2015, we use two 

data sources: the MedPAR file as the claims data source and the HCRIS as the cost 

report data source. We adjust the charges from the claims to costs by applying the 19 

national average CCRs developed from the cost reports. The description of the 

calculation of the proposed 19 CCRs and the proposed MS-DRG relative weights for 

FY 2015 is included in section II.H. of the preamble of this proposed rule. 
 115 

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

(HACs), Including Infections for FY 2015 

1. Background 

 Section 1886(d)(4)(D) of the Act addresses certain hospital-acquired conditions 

(HACs), including infections. This provision is part of an array of Medicare tools that we 

are using to promote increased quality and efficiency of care. Under the IPPS, hospitals 

are encouraged to treat patients efficiently because they receive the same DRG payment 

for stays that vary in length and in the services provided, which gives hospitals an 

incentive to avoid unnecessary costs in the delivery of care. In some cases, conditions 

acquired in the hospital do not generate higher payments than the hospital would 

otherwise receive for cases without these conditions. To this extent, the IPPS encourages 

hospitals to avoid complications. 

 However, the treatment of certain conditions can generate higher Medicare 

payments in two ways. First, if a hospital incurs exceptionally high costs treating a 

patient, the hospital stay may generate an outlier payment. Because the outlier payment 

methodology requires that hospitals experience large losses on outlier cases before outlier 

payments are made, hospitals have an incentive to prevent outliers. Second, under the 

MS-DRG system that took effect in FY 2008 and that has been refined through 

rulemaking in subsequent years, certain conditions can generate higher payments even if 

the outlier payment requirements are not met. Under the MS-DRG system, there are 

currently 261 sets of MS-DRGs that are split into 2 or 3 subgroups based on the presence 

or absence of a complication or comorbidity (CC) or a major complication or 
 116 

comorbidity (MCC). The presence of a CC or an MCC generally results in a higher 

payment. 

 Section 1886(d)(4)(D) of the Act specifies that, by October 1, 2007, the Secretary 

was required to select, in consultation with the Centers for Disease Control and 

Prevention (CDC), at least two conditions that: (a) are high cost, high volume, or both; 

(b) are assigned to a higher paying MS-DRG when present as a secondary diagnosis (that 

is, conditions under the MS-DRG system that are CCs or MCCs); and (c) could 

reasonably have been prevented through the application of evidence-based guidelines. 

Section 1886(d)(4)(D) of the Act also specifies that the list of conditions may be revised, 

again in consultation with the CDC, from time to time as long as the list contains at least 

two conditions. 

 Effective for discharges occurring on or after October 1, 2008, under the authority 

of section 1886(d)(4)(D) of the Act, Medicare no longer assigns an inpatient hospital 

discharge to a higher paying MS-DRG if a selected condition is not present on admission 

(POA). Thus, if a selected condition that was not POA manifests during the hospital stay, 

it is considered a HAC and the case is paid as though the secondary diagnosis was not 

present. However, even if a HAC manifests during the hospital stay, if any nonselected 

CC or MCC appears on the claim, the claim will be paid at the higher MS-DRG rate. In 

addition, Medicare continues to assign a discharge to a higher paying MS-DRG if a 

selected condition is POA. When a HAC is not POA, payment can be affected in a 

manner shown in the diagram below. 
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proposed rule (76 FR 25810 through 25816) and final rule (76 FR 51504 through 51522); 

the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27892 through 27898) and final rule 

(77 FR 53283 through 53303); and the FY 2014 IPPS/LTCH PPS proposed rule 

(78 FR 27509 through 27512) and final rule (78 FR 50523 through 50527). A complete 

list of the 11 current categories of HACs is included on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalAcqCond/Hospital-Acquired_Conditions.html. 

3. Present on Admission (POA) Indicator Reporting 

 Collection of POA indicator data is necessary to identify which conditions were 

acquired during hospitalization for the HAC payment provision as well as for broader 

public health uses of Medicare data. In previous rulemaking, we provided both CMS and 

CDC Web site resources that are available to hospitals for assistance in this reporting 

effort. For detailed information regarding these sites and materials, including the 

application and use of POA indicators, we refer the reader to the FY 2012 IPPS/LTCH 

PPS final rule (76 FR 51506 through 51507). 

 Currently, as we have discussed in the prior rulemaking cited under section II.I.2. 

of the preamble of this proposed rule, the POA indicator reporting requirement only 

applies to IPPS hospitals because they are subject to this HAC provision. Non-IPPS 

hospitals, including CAHs, LTCHs, IRFs, IPFs, cancer hospitals, children’s hospitals, 

RNHCIs, and the Department of Veterans Affairs/Department of Defense hospitals, are 

exempt from POA reporting. 
 119 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50525), we noted that hospitals 

in Maryland operating under a statutory waiver are not paid under the IPPS, but rather 

were paid under the provisions of section 1814(b)(3) of the Act and therefore exempt 

from reporting POA indicators. However, we believed it was appropriate to require them 

to use POA indicator reporting on their claims so that we can include their data and have 

as complete a dataset as possible when we analyze trends and make further payment 

policy determinations, such as those authorized under section 1886(p) of the Act. 

Therefore, in the FY 2014 IPPS/LTCH PPS final rule, we finalized our policy that 

hospitals in Maryland that formerly operated under section 1814(b)(3) of the Act were no 

longer exempted from the POA indicator reporting requirement beginning with claims 

submitted on or after October 1, 2013, including all claims for discharges on or after 

October 1, 2013. We note that, while this requirement was not effective until 

October 1, 2013, hospitals in Maryland could submit data with POA indicators before 

that date with the expectation that these data will be accepted by Medicare’s claims 

processing systems. (We refer readers to the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50707 through 50712) for a discussion of our FY 2014 final policies to implement 

section 1886(p) of the Act that are applicable to Maryland hospitals.) 

 Subsequent to our FY 2014 rulemaking, the State of Maryland entered into an 

agreement with CMS, effective January 1, 2014, to participate in CMS’ new Maryland 

All-Payer Model, a 5-year hospital payment model. This model is being implemented 

under section 1115A of the Act, as added by section 3021 of the Affordable Care Act, 

which authorizes the testing of innovative payment and service delivery models, 
 120 

including models that allow States to “test and evaluate systems of all-payer payment 

reform for the medical care of residents of the State, including dual eligible individuals.” 

Section 1115A of the Act authorizes the Secretary to waive such requirements of titles XI 

and XVIII of the Act as may be necessary solely for purposes of carrying out section 

1115A of the Act with respect to testing models. 

 Under the agreement with CMS, Maryland will limit per capita total hospital cost 

growth for all payers, including Medicare. In order to implement the new model, 

effective January 1, 2014, Maryland elected to no longer have Medicare make payments 

to Maryland hospitals in accordance with section 1814(b)(3) of the Act. Maryland also 

represented that it is no longer in continuous operation of a demonstration project 

reimbursement system since July 1, 1977, as specified under section 1814(b)(3) of the 

Act. Because Maryland hospitals are no longer paid under section 1814(b)(3) of the Act, 

they are no longer subject to those provisions of the Act and related implementing 

regulations that are specific to section 1814(b)(3) hospitals. Although CMS has waived 

certain provisions of the Act for Maryland hospitals, as set forth in the agreement 

between CMS and Maryland and subject to Maryland’s compliance with the terms of the 

agreement, CMS has not waived the POA indicator reporting requirement. In other 

words, the changes to the status of Maryland hospitals under section 1814(b)(3) of the 

Act as described above do not in any way change the POA indicator reporting 

requirement for Maryland hospitals.

 There are currently four POA indicator reporting options, “Y”, “W”, “N”, and 

“U”, as defined by the ICD-9-CM Official Guidelines for Coding and Reporting. We 
 121 

note that prior to January 1, 2011, we also used a POA indicator reporting option “1”. 

However, beginning on or after January 1, 2011, hospitals were required to begin 

reporting POA indicators using the 5010 electronic transmittal standards format. The 

5010 format removes the need to report a POA indicator of “1” for codes that are exempt 

from POA reporting. We issued CMS instructions on this reporting change as a 

One-Time Notification, Pub. No. 100-20, Transmittal No. 756, Change Request 7024, 

effective on August 13, 2010, which can be located at the following link on the CMS 

Web site: http://www.cms.gov/manuals/downloads/Pub100_20.pdf.) The POA indicator 

reporting process will not change when ICD-10-CM and ICD-10-PCS are implemented 

on October 1, 2014. The current POA indicators and their descriptors are shown in the 

chart below: 

Indicator Descriptor 

Y Indicates that the condition was present on admission. 

W Affirms that the hospital has determined that, based on data and clinical 

judgment, it is not possible to document when the onset of the condition 

occurred. 

N Indicates that the condition was not present on admission. 

U Indicates that the documentation is insufficient to determine if the 

condition was present at the time of admission. 

 Under the HAC payment policy, we treat HACs coded with “Y” and “W” 

indicators as POA and allow the condition on its own to cause an increased payment at 

the CC and MCC level. We treat HACs coded with “N” and “U” indicators as Not 

Present on Admission (NPOA) and do not allow the condition on its own to cause an 

increased payment at the CC and MCC level. We refer readers to the following rules for 

a detailed discussion of POA indicator reporting: the FY 2009 IPPS proposed rule 
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(73 FR 23559) and final rule (73 FR 48486 through 48487); the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule (74 FR 24106) and final rule (74 FR 43784 through 43785); the 

FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23881 through 23882) and final rule 

(75 FR 50081 through 50082); the FY 2012 IPPS/LTCH PPS proposed rule 

(76 FR 25812 through 25813) and final rule (76 FR 51506 through 51507); the FY 2013 

IPPS/LTCH PPS proposed rule (77 FR 27893 through 27894) and final rule 

(77 FR 53284 through 53285); and the FY 2014 IPPS/LTCH PPS proposed rule 

(78 FR 27510 through 27511) and final rule (78 FR 50524 through 50525). 

 In addition, as discussed previously in the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53324), the 5010 format allows the reporting and, effective January 1, 2011, the 

processing of up to 25 diagnoses and 25 procedure codes. As such, it is necessary to 

report a valid POA indicator for each diagnosis code, including the principal diagnosis 

and all secondary diagnoses up to 25. 

4. HACs and POA Reporting in Preparation for Transition to ICD-10-CM and 

ICD-10-PCS 

 In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51506 and 51507), in 

preparation for the transition to the ICD-10-CM and ICD-10-PCS code sets, we indicated 

that further information regarding the use of the POA indicator with the 

ICD-10-CM/ICD-10-PCS classifications as they pertain to the HAC policy would be 

discussed in future rulemaking. 

 At the March 5, 2012 and the September 19, 2012 meetings of the ICD-9-CM 

Coordination and Maintenance Committee, an announcement was made with regard to 
 123 

the availability of the ICD-9-CM HAC list translation to ICD-10-CM and ICD-10-PCS 

code sets. Participants were informed that the list of the ICD-9-CM selected HACs has 

been translated into codes using the ICD-10-CM and ICD-10-PCS classification system. 

It was recommended that the public review this list of ICD-10-CM/ICD-10-PCS code 

translations of the selected HACs available on the CMS Web site at: 

http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-ConversionProject.html. The translations can be found under the link titled “ICD-10-CM/PCS 

MS-DRG v30 Definitions Manual Table of Contents - Full Titles - HTML Version in 

Appendix I - Hospital Acquired Conditions (HACs).” This CMS Web site regarding the 

ICD-10-MS-DRG Conversion Project is also available on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalAcqCond/icd10_hacs.html. We encouraged the public to submit 

comments on these translations through the HACs Web page using the CMS 

ICD-10-CM/PCS HAC Translation Feedback Mailbox that was set up for this purpose 

under the Related Links section titled “CMS HAC Feedback.” 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50525), we stated that the final 

HAC list translation from ICD-9-CM to ICD-10-CM/ICD-10-PCS would be subject to 

formal rulemaking. We encouraged readers to review the educational materials and draft 

code sets available for ICD-10-CM/ICD-10-PCS on the CMS Web site at: 

http://www.cms.gov/ICD10/. In addition, we stated that the draft 

ICD-10-CM/ICD-10-PCS Coding Guidelines could be viewed on the CDC Web site at: 

http://www.cdc.gov/nchs/icd/icd10cm.htm. 
 124 

 The HACs code translation list from ICM-9-CM to ICD-10-CM/ICD-10-PCS is 

available to the public on the CMS Web site at: 

http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-ConversionProject.html. We note that Appendix I of the ICD-10 MS-DRGs Version 31.0-R file 

posted on the Web site contains the DRA HACs translated to ICD-10. 

 We note that section 212 of the Protecting Access to Medicare Act of 2014 (Pub. 

L. 113-93), enacted on April 1, 2014, delayed the transition from the ICD-9-CM to the 

ICD-10 code set. 

5. Proposals Regarding Current HACs and Previously Considered Candidate HACs 

 In this FY 2015 IPPS/LTCH PPS proposed rule, we are not proposing to add or 

remove categories of the HACs. However, we continue to encourage public dialogue 

about refinements to the HAC list by written stakeholder comments about both 

previously selected and potential candidate HACs. We refer readers to section II.F.6. of 

the FY 2008 IPPS final rule with comment period (72 FR 47202 through 47218) and to 

section II.F.7. of the FY 2009 IPPS final rule (73 FR 48774 through 48491) for detailed 

discussion supporting our determination regarding each of these conditions. We also 

refer readers to section II.F.5. of the FY 2013 IPPS/LTCH PPS proposed rule 

(77 FR 27892 through 27898), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53285 

through 53292) for the HAC policy for FY 2013, and the FY 2014 IPPS/LTCH PPS 

proposed rule (78 FR 27509 through 27512) and the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50523 through 50527) for the HAC policy for FY 2014. 

6. RTI Program Evaluation 
 125 

 On September 30, 2009, a contract was awarded to RTI to evaluate the impact of 

the Hospital-Acquired Condition-Present on Admission (HAC-POA) provisions on the 

changes in the incidence of selected conditions, effects on Medicare payments, impacts 

on coding accuracy, unintended consequences, and infection and event rates. This was an 

intra-agency project with funding and technical support from CMS, OPHS, AHRQ, and 

CDC. The evaluation also examined the implementation of the program and evaluated 

additional conditions for future selection. The contract with RTI ended on 

November 30, 2012. Summary reports of RTI’s analysis of the FYs 2009, 2010, and 

2011 MedPAR data files for the HAC-POA program evaluation were included in the 

FY 2011 IPPS/LTCH PPS final rule (75 FR 50085 through 50101), the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51512 through 51522), and the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53292 through 53302). Summary and detailed data also were made 

publicly available on the CMS Web site at: 

http://www.cms.gov/HospitalAcqCond/01_Overview .asp and the RTI Web site at: 

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

 In addition to the evaluation of HAC and POA MedPAR claims data, RTI also 

conducted analyses on readmissions due to HACs, the incremental costs of HACs to the 

health care system, a study of spillover effects and unintended consequences, as well as 

an updated analysis of the evidence-based guidelines for selected and previously 

considered HACs. Reports on these analyses have been made publicly available on the 

CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalAcqCond/index.html. 
 126 

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

Guidelines 

 The RTI program evaluation includes a report that provides references for all 

evidence-based guidelines available for each of the selected and previously considered 

candidate HACs that provide recommendations for the prevention of the corresponding 

conditions. Guidelines were primarily identified using the AHRQ National Guidelines 

Clearing House (NGCH) and the CDC, along with relevant professional societies. 

Guidelines published in the United States were used, if available. In the absence of U.S. 

guidelines for a specific condition, international guidelines were included. 

 Evidence-based guidelines that included specific recommendations for the 

prevention of the condition were identified for each of the selected conditions. In 

addition, evidence-based guidelines also were found for the previously considered 

candidate conditions. RTI prepared a final report to summarize its findings regarding 

evidence-based guidelines. This report can be found on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalAcqCond/Downloads/Evidence-Based-Guidelines.pdf. Subsequent to 

this final report, RTI was awarded an FY 2014 Evidence-Based Guidelines Monitoring 

contract. Under the contract, RTI will provide a summary report of all evidence-based 

guidelines available for each of the selected and previously considered candidate HACs 

that provide recommendations for the prevention of the corresponding conditions. This 

report is usually delivered to CMS annually in a May/June timeframe. Updates to the 

guidelines will be made available to the public.
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G. Proposed Changes to Specific MS-DRG Classifications 

1. Discussion of Changes to Coding System and Basis for Proposed MS-DRG Updates 

a. Conversion of MS-DRGs to the International Classification of Diseases, 10th Revision 

(ICD-10) 

 Providers use the code sets under the ICD-9-CM coding system to report 

diagnoses and procedures for Medicare hospital inpatient services under the MS-DRG 

system. The ICD-10 coding system includes the International Classification of Diseases, 

10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding and the 

International Classification of Diseases, 10th Revision, Procedure Coding System 

(ICD-10-PCS) for inpatient hospital procedure coding, as well as the Official 

ICD-10-CM and ICD-10-PCS Guidelines for Coding and Reporting. The ICD-10 coding 

system was initially adopted for transactions conducted on or after October 1, 2013, as 

described in the Health Insurance Portability and Accountability Act of 1996 (HIPAA) 

Administrative Simplification: Modifications to Medical Data Code Set Standards to 

Adopt ICD-10-CM and ICD-10-PCS Final Rule published in the Federal Register on 

January 16, 2009 (74 FR 3328 through 3362) (hereinafter referred to as the “ICD-10-CM 

and ICD-10-PCS final rule”). However, the Secretary of Health and Human Services 

issued a final rule that delays the compliance date for ICD-10 from October 1, 2013, to 

October 1, 2014. That final rule, entitled “Administrative Simplification: Adoption of a 

Standard for a Unique Health Plan Identifier; Addition to the National Provider Identifier 

Requirements; and a Change to the Compliance Date for ICD-10-CM and ICD-10-PCS 

Medical Data Code Sets,” CMS-0040-F, was published in the Federal Register on 
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September 5, 2012 (77 FR 54664) and is available for viewing on the Internet at: 

http://www.gpo.gov/fdsys/pkg/FR-2012-09-05/pdf/2012-21238.pdf. On April 1, 2014, the 

Protecting Access to Medicare Act of 2014 (Pub. L. 113-93) was enacted. Section 212 of 

Pub. L. 113-93, titled “Delay in Transition from ICD-9 to ICD-10 Code Sets,” provides 

that “[t]he Secretary of Health and Human Services may not, prior to October 1, 2015, 

adopt ICD-10 code sets as the standard for code sets under section 1173(c) of the Social 

Security Act (42 U.S.C. 1320d-2(c)) and section 162.1002 of title 45, Code of Federal 

Regulations.” As of now, the Secretary has not implemented this provision under 

HIPPA. 

 The anticipated move to ICD-10 necessitated the development of an 

ICD-10-CM/ICD-10-PCS version of the MS-DRGs. CMS began a project to convert the 

ICD-9-CM-based MS-DRGs to ICD-10 MS-DRGs. In response to the FY 2011 

IPPS/LTCH PPS proposed rule, we received public comments on the creation of the 

ICD-10 version of the MS-DRGs, which will be implemented at the same time as ICD-10 

(75 FR 50127 and 50128). While we did not propose an ICD-10 version of the 

MS-DRGs in the FY 2011 IPPS/LTCH PPS proposed rule, we noted that we have been 

actively involved in converting current MS-DRGs from ICD-9-CM codes to ICD-10 

codes and sharing this information through the ICD-10 (previously ICD-9-CM) 

Coordination and Maintenance Committee. We undertook this early conversion project 

to assist other payers and providers in understanding how to implement their own 

conversion projects. We posted ICD-10 MS-DRGs based on Version 26.0 (FY 2009) of 

the MS-DRGs. We also posted a paper that describes how CMS went about completing 
 129 

this project and suggestions for other payers and providers to follow. Information on the 

ICD-10 MS-DRG conversion project can be found on the ICD-10 MS-DRG Conversion 

Project Web site at: http://cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRGConversion-Project.html. We have continued to keep the public updated on our 

maintenance efforts for ICD-10-CM and ICD-10-PCS coding systems, as well as the 

General Equivalence Mappings that assist in conversion through the ICD-10 (previously 

ICD-9-CM) Coordination and Maintenance Committee. Information on these committee 

meetings can be found on the CMS Web site at: 

http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html. 

 During FY 2011, we developed and posted Version 28.0 of the ICD-10 MS-DRGs 

based on the FY 2011 MS-DRGs (Version 28.0) that we finalized in the FY 2011 

IPPS/LTCH PPS final rule on the CMS Web site. This ICD-10 MS-DRGs Version 28.0 

also included the CC Exclusion List and the ICD-10 version of the hospital-acquired 

conditions (HACs), which was not posted with Version 26.0. We also discussed this 

update at the September 15-16, 2010 and the March 9-10, 2011 meetings of the 

ICD-9-CM Coordination and Maintenance Committee. The minutes of these two 

meetings are posted on the CMS Web site at: 

http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html. 

 We reviewed comments on the ICD-10 MS-DRGs Version 28.0 and made 

updates as a result of these comments. We called the updated version the ICD-10 

MS-DRGs Version 28-R1. We posted a Definitions Manual of ICD-10 MS-DRGs 

Version 28-R1 on our ICD-10 MS-DRG Conversion Project Web site. To make the 
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review of Version 28-R1 updates easier for the public, we also made available pilot 

software on a CD ROM that could be ordered through the National Technical 

Information Service (NTIS). A link to the NTIS ordering page was provided on the CMS 

ICD-10 MS-DRGs Web page. We stated that we believed that, by providing the ICD-10 

MS-DRGs Version 28-R1 Pilot Software (distributed on CD ROM), the public would be 

able to more easily review and provide feedback on updates to the ICD-10 MS-DRGs. 

We discussed the updated ICD-10 MS-DRGs Version 28-R1 at the September 14, 2011 

ICD-9-CM Coordination and Maintenance Committee meeting. We encouraged the 

public to continue to review and provide comments on the ICD-10 MS-DRGs so that 

CMS could continue to update the system. 

 In FY 2012, we prepared the ICD-10 MS-DRGs Version 29.0, based on the 

FY 2012 MS-DRGs (Version 29.0) that we finalized in the FY 2012 IPPS/LTCH PPS 

final rule. We posted a Definitions Manual of ICD-10 MS-DRGs Version 29.0 on our 

ICD-10 MS-DRG Conversion Project Web site. We also prepared a document that 

describes changes made from Version 28.0 to Version 29.0 to facilitate a review. The 

ICD-10 MS-DRGs Version 29.0 was discussed at the ICD-9-CM Coordination and 

Maintenance Committee meeting on March 5, 2012. Information was provided on the 

types of updates made. Once again the public was encouraged to review and comment on 

the most recent update to the ICD-10 MS-DRGs. 

 CMS prepared the ICD-10 MS-DRGs Version 30.0 based on the FY 2013 

MS-DRGs (Version 30.0) that we finalized in the FY 2013 IPPS/LTCH PPS final rule. 

We posted a Definitions Manual of the ICD-10 MS-DRGs Version 30.0 on our ICD-10 
 131 

MS-DRG Conversion Project Web site. We also prepared a document that describes 

changes made from Version 29.0 to Version 30.0 to facilitate a review. We produced 

mainframe and computer software for Version 30.0, which was made available to the 

public in February 2013. Information on ordering the mainframe and computer software 

through NTIS was posted on the ICD-10 MS-DRG Conversion Project Web site. The 

ICD-10 MS-DRGs Version 30.0 computer software facilitated additional review of the 

ICD-10 MS-DRGs conversion. 

 We provided information on a study conducted on the impact of converting 

MS-DRGs to ICD-10. Information on this study is summarized in a paper entitled 

“Impact of the Transition to ICD-10 on Medicare Inpatient Hospital Payments.” This 

paper was posted on the CMS ICD-10 MS-DRGs Conversion Project Web site and was 

distributed and discussed at the September 15, 2010 ICD-9-CM Coordination and 

Maintenance Committee meeting. The paper described CMS’ approach to the conversion 

of the MS-DRGs from ICD-9-CM codes to ICD-10 codes. The study was undertaken 

using the ICD-9-CM MS-DRGs Version 27.0 (FY 2010) which was converted to the 

ICD-10 MS-DRGs Version 27.0. The study estimated the impact on aggregate payment 

to hospitals and the distribution of payments across hospitals. The impact of the 

conversion from ICD-9-CM to ICD-10 on Medicare MS-DRG hospital payments was 

estimated using FY 2009 Medicare claims data. The study found a hospital payment 

increase of 0.05 percent using the ICD-10 MS-DRGs Version 27.0. 

 CMS provided an overview of this hospital payment impact study at the 

March 5, 2012 ICD-9-CM Coordination and Maintenance Committee meeting. This 
 132 

presentation followed presentations on the creation of ICD-10 MS-DRGs Version 29.0. 

A summary report of this meeting can be found on the CMS Web site at: 

http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html. 

At this March 2012 meeting, CMS announced that it would produce an update on this 

impact study based on an updated version of the ICD-10 MS-DRGs. This update of the 

impact study was presented at the March 5, 2013 ICD-9-CM Coordination and 

Maintenance Committee meeting. The study found that moving from an 

ICD-9-CM-based system to an ICD-10 MS-DRG replicated system would lead to DRG 

reassignments on only 1 percent of the 10 million MedPAR sample records used in the 

study. Ninety-nine percent of the records did not shift to another MS-DRG when using 

an ICD-10 MS-DRG system. For the 1 percent of the records that shifted, 45 percent of 

the shifts were to a higher weighted MS-DRG, while 55 percent of the shifts were to 

lower weighted MS-DRGs. The net impact across all MS-DRGs was a reduction by 

4/10000 or minus 4 pennies per $100. The updated paper is posted on the CMS Web site 

at: http://cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-ConversionProject.html under the “Downloads” section. Information on the March 5, 2013 

ICD-9-CM Coordination and Maintenance Committee meeting can be found on the CMS 

Web site at: http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-

CM-C-and-M-Meeting-Materials.html. This update of the impact paper and the ICD-10 

MS-DRG Version 30.0 software provided additional information to the public who were 

evaluating the conversion of the MS-DRGs to ICD-10 MS-DRGs. 
 133 

 CMS prepared the ICD-10 MS-DRGs Version 31.0 based on the FY 2014 

MS-DRGs (Version 31.0) that we finalized in the FY 2014 IPPS/LTCH PPS final rule. 

In November 2013, we posted a Definitions Manual of the ICD-10 MS-DRGs Version 

31.0 on the ICD-10 MS-DRG Conversion Project Web site at: 

http://www.cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. 

We also prepared a document that described changes made from Version 30.0 to Version 

31.0 to facilitate a review. We produced mainframe and computer software for Version 

31.0, which was made available to the public in December 2013. Information on 

ordering the mainframe and computer software through NTIS was posted on the CMS 

Web site at: http://cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-ConversionProject.html under the “Related Links” section. This ICD-10 MS-DRGs Version 31.0 

computer software facilitated additional review of the ICD-10 MS-DRGs conversion. 

We encouraged the public to submit to CMS any comments on areas where they believed 

the ICD-10 MS-DRGs did not accurately reflect grouping logic found in the ICD-9-CM 

MS-DRGs Version 31.0. 

 We reviewed comments received and developed an update of ICD-10 MS-DRGs 

Version 31.0, which we called ICD-10 MS-DRGs Version 31.0-R. We have posted a 

Definitions Manual of the ICD-10 MS-DRGs Version 31.0-R on the ICD-10 MS-DRG 

Conversion Project Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-

MS-DRG-Conversion-Project.html. We also prepared a document that describes changes 

made from Version 31.0 to Version 31.0-R to facilitate a review. We will continue to 

share ICD-10-MS-DRG conversion activities with the public through this Web site. 
 134 

b. Basis for FY 2015 MS-DRG Updates 

 CMS encourages input from our stakeholders concerning the annual IPPS updates 

when that input is made available to us by December 7 of the year prior to the next 

annual proposed rule update. For example, to be considered for any updates or changes 

in FY 2016, comments and suggestions should be submitted by December 7, 2014. The 

comments that were submitted in a timely manner for FY 2015 are discussed below in 

this section. 

 Following are the changes we are proposing to the MS-DRGs. We are inviting 

public comment on each of the MS-DRG classification proposed changes described 

below, as well as our proposals to maintain certain existing MS-DRG classifications, 

which also are discussed below. In some cases, we are proposing changes to the 

MS-DRG classifications based on our analysis of claims data. In other cases, we are 

proposing to maintain the existing MS-DRG classification based on our analysis of 

claims data. For this FY 2015 proposed rule, our MS-DRG analysis is based on claims 

data from the December 2013 update of the FY 2013 MedPAR file, which contains 

hospital bills received through September 30, 2013, for discharges occurring through 

September 30, 2013. In our discussion of the proposed MS-DRG reclassification changes 

that follows, we refer to our analysis of claims data from the “December 2013 update of 

the FY 2013 MedPAR file.” For the FY 2015 final rule, we intend to calculate the final 

relative weights on claims data from the March 2014 update of the FY 2013 MedPAR 

file, which will contain hospital bills received through December 31, 2013, for discharges 

occurring through December 31, 2013. 
 135 

 As explained in previous rulemaking (76 FR 51487), in deciding whether to 

propose 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 costs and lengths of stay and relied on the judgment of our clinical 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 costs between the cases we selected for review and the remainder of cases in 

the MS-DRG. We also considered variation in costs within these groups; that is, whether 

observed average differences were consistent across patients or attributable to cases that 

were extreme in terms of costs 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. 

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

a. Intracerebral Therapies: Gliadel® Wafer 

 During the comment period for the FY 2014 IPPS/LTCH PPS proposed rule, we 

received a public comment that we considered to be outside the scope of that proposed 

rule. We stated in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50550) that we would 

consider this issue in future rulemaking as part of our annual review process. The 

commenter requested that a new MS-DRG be created for intracerebral therapies, 

including implantation of chemotherapeutic agents. Specifically, the commenter referred 
 136 

to the Gliadel® Wafer for the treatment of High-Grade Malignant Gliomas (HGGs) 

defined as aggressive tumors originating in the brain. 

 The Gliadel® Wafer has been discussed in prior rulemaking, including the 

FY 2004 IPPS proposed rule (68 FR 27187) and final rule (68 FR 45354 through 45355 

and 68 FR 45391 through 45392); the FY 2005 IPPS proposed rule (69 FR 28221 through 

28222) and final rule (69 FR 48957 through 48971); and the FY 2008 IPPS/LTCH PPS 

final rule (72 FR 47252 through 47253). We refer readers to these prior discussions for 

further background information regarding the Gliadel® Wafer. 

 Effective October 1, 2002, ICD-9-CM procedure code 00.10 (Implantation of 

chemotherapeutic agent) was created to identify and describe insertion of the Gliadel® 

Wafer. This procedure code is assigned to MS-DRG 023 (Craniotomy with Major 

Device Implant/Acute Complex Central Nervous System (CNS) PDX with MCC or 

Chemo Implant) in MDC 1. According to the commenter, this current MS-DRG 

assignment does not compensate providers adequately for the expenses incurred to 

perform the surgery and implantation of the wafer device. The commenter noted that 

MS-DRG 023 has a national average payment rate of approximately $28,016. However, 

the commenter stated, “the acquisition cost for 1 box of the Gliadel® Wafer alone (typical 

utilization per procedure is 8 wafers or 1 box) is $29, 035.” 

 We conducted an analysis using claims data from the December 2013 update of 

the FY 2013 MedPAR file. Our findings are shown in the table below. 

MS-DRG Number 

of cases 

Average 

Length 

of Stay 

Average 

Costs 

MS-DRG 023 - All cases 5,383 10.98 $36,982
 137 

MS-DRG Number 

of cases 

Average 

Length 

of Stay 

Average 

Costs 

MS-DRG 023 - Cases with procedure code 00.10 158 7.0 $34,027

 As shown in the table above, there were a total of 5,383 cases in MS-DRG 023 

with an average length of stay of 10.98 days and average costs of $36,982. The number 

of cases reporting procedure code 00.10 in MS-DRG 023 totaled 158, with an average 

length of stay of 7.0 days and average costs of $34,027. 

 The data clearly demonstrate that the volume of cases reporting procedure code 

00.10 within MS-DRG 023 have a shorter average length of stay and are lower in average 

costs in comparison to all the cases in the MS-DRG. Given the low volume of cases, 

shorter average length of stay, and lower average costs, the data do not support the 

creation of a new MS-DRG for cases utilizing the Gliadel® Wafer. In addition, our 

clinical advisors determined that cases reporting procedure code 00.10 are appropriately 

assigned within MS-DRG 023. As discussed in the FY 2005 IPPS final rule 

(69 FR 48959), Gliadel® Wafer cases were assigned to a new DRG that was clinically 

coherent and reflected the resources used to treat those cases, which appropriately 

addressed the concerns of commenters who raised questions regarding DRG assignment 

for those cases at that time. Subsequently, with the adoption of the MS-DRGs, in the FY 

2008 IPPS/LTCH PPS final rule (72 FR 47252 through 47253), we assigned all cases 

utilizing the Gliadel® Wafer technology to MS-DRG 023, the higher severity level, and 

revised the title of this MS-DRG in recognition of the complexity and costs associated 

with the implantation. Our clinical advisors continue to support this assignment for these 
 138 

same reasons. Therefore, we are not proposing to create a new MS-DRG for FY 2015 for 

cases where ICD-9-CM procedure code 00.10 is reported. We are inviting public 

comments on our proposal to maintain the current MS-DRG structure. 

b. Endovascular Embolization or Occlusion of Head and Neck 

 We received a request to change the MS-DRG assignment for the following three 

ICD-9-CM procedure codes representing endovascular embolization or occlusion 

procedures of the head and neck: 

● 39.72 (Endovascular (total) embolization or occlusion of head and neck 

vessels); 

● 39.75 (Endovascular embolization or occlusion of vessel(s) of head or neck 

using bare coils); and 

● 39.76 (Endovascular embolization or occlusion of vessel(s) of head or neck 

using bioactive coils). 

 These three procedure codes are currently assigned to the following eight 

MS-DRGs under MDC 1. Cases assigned to MS-DRGs 020, 021, and 022 require a 

principal diagnosis of hemorrhage. Cases assigned to MS-DRGs 023 and 024 require the 

insertion of a major implant or an acute complex central nervous system (CNS) principal 

diagnosis. Cases assigned to MS-DRGs 025, 026, and 027 do not have a principal 

diagnosis of hemorrhage, an acute complex CNS principal diagnosis, or a major device 

implant. 

● MS-DRG 020 (Intracranial Vascular Procedures with Principal Diagnosis of 

Hemorrhage with MCC) 
 139 

● MS-DRG 021 (Intracranial Vascular Procedures with Principal Diagnosis of 

Hemorrhage with CC) 

● MS-DRG 022 (Intracranial Vascular Procedures with Principal Diagnosis of 

Hemorrhage without CC/MCC) 

● MS-DRG 023 (Craniotomy with Major Device Implant/Acute Complex CNS 

Principal Diagnosis with MCC or Chemo Implant) 

● MS-DRG 024 (Craniotomy with Major Device Implant/Acute Complex CNS 

Principal Diagnosis without MCC) 

● MS-DRG 025 (Craniotomy & Endovascular Intracranial Procedures with 

MCC) 

● MS-DRG 026 (Craniotomy & Endovascular Intracranial Procedures with CC) 

● MS-DRG 027 (Craniotomy & Endovascular Intracranial Procedures without 

CC/MCC) 

 The requestor recommended that cases with procedure codes 39.72, 39.75, and 

39.76 be moved from MS-DRGs 025, 026, and 027 to MS-DRGs 023 and 024, even 

when there is no reported acute complex CNS principal diagnosis or a major device 

implant. The requestor stated that unruptured aneurysms can be treated by a minimally 

invasive technique utilizing endovascular coiling. The requester noted that a 

microcatheter is inserted into a groin artery and navigated through the vascular system to 

the location of the aneurysm. The coils are inserted through the microcatheter into the 

aneurysm in order to occlude (fill) the aneurysm from inside the blood vessel. Once the 

coils are implanted, the blood flow pattern within the aneurysm is altered. The requestor 
 140 

stated that these cases do not have a principal diagnosis of hemorrhage because the 

treatment is for an unruptured aneurysm which has not hemorrhaged. Furthermore, the 

requestor stated that only a few of these cases without hemorrhage have a complex CNS 

principal diagnosis. Therefore, the requester believed that most of the cases should be 

assigned to MS-DRGs 025, 026, and 027. 

 The requestor stated that the average costs of coil cases captured by procedure 

codes 39.72, 39.75, and 39.76 are significantly higher than other cases within MS-DRGs 

025, 026, and 027 where most of the coil cases are assigned. As stated earlier, the 

requester recommended that cases with procedure codes 39.72, 39.75, and 39.76 be 

moved to MS-DRGs 023 and 024, even when there is not an acute complex CNS 

principal diagnosis or a major device implant reported. 

 We examined claims data from the December 2013 update of the FY 2013 

MedPAR file for cases of endovascular embolization or occlusion of head and neck. The 

table below shows our findings. For MS-DRGs 025, 026, and 027, the cases identified 

by procedure code 39.72, 39.75, or 39.76 (endovascular embolization or occlusion of 

head and neck) have higher average costs and shorter lengths of stay in comparison to all 

the cases within each of those respective MS-DRGs. The average costs of cases in 

MS-DRG 024 are $4,049 higher than the average costs of the 1,731 endovascular 

embolization or occlusion of head and neck procedures cases in MS-DRG 027 ($26,250 

versus $22,201). The findings also show that the 524 cases with procedure code 39.72, 

39.75, or 39.76 with average costs of $41,030 in MS-DRG 025 are closer to the average 

costs of $36,982 for cases in MS-DRG 023. Lastly, we found that the 721 endovascular 
 141 

embolization or occlusion of head and neck procedure cases in MS-DRG 026 have 

average costs of $27,998 compared to average costs of $26,250 for cases in 

MS-DRG 024. 

MS-DRG Number 

of Cases

Average 

Length 

of Stay 

Average 

Costs 

MS-DRG 23 - All cases 5,383 10.98 $36,982

MS-DRG 24 - All cases 1,745 6.30 $26,250

MS-DRG 25 - All cases 15,937 9.68 $29,722

MS-DRG 25 - Cases with procedure code 39.72, 

39.75, or 39.76 524 7.97 $41,030

MS-DRG 26 - All cases 8,520 6.16 $21,194

MS-DRG 26 - Cases with procedure code 39.72, 

39.75, or 39.76 721 3.14 $27,998

MS-DRG 27 - All cases 10,326 3.30 $16,389

MS-DRG 27 - Cases with procedure code 39.72, 

39.75, or 39.76 1,731 1.66 $22,201

 

 Our clinical advisors reviewed the results of our examination and determined that 

the endovascular embolization or occlusion of head and neck procedures are 

appropriately classified within MS-DRGs 025, 026, and 027 because they do not have an 

acute complex CNS principal diagnosis or a major device implant which would add to 

their clinical complexity. Cases in MS-DRG 024 have average costs that are $4,049 

higher than cases in MS-DRG 027 with procedure code 39.72, 39.75, or 39.76. We 

acknowledge that the 1,245 cases with procedure code 39.72, 39.75, or 39.76 in 

MS-DRGs 025 and 026 have average costs that are closer to those in MS-DRGs 024 and 

025. However, these cases are 1,245 of the total 2,976 cases that would be involved if we 

moved all MS-DRGs 025, 026, and 027 cases with procedure code 39.72, 39.75, or 39.76 
 142 

to MS-DRGs 024 and 025, even if they did not have an acute complex CNS principal 

diagnosis or a major device implant. Based on these findings and the recommendations 

from our clinical advisors, we have determined that proposing to move endovascular 

embolization or occlusion of head and neck procedures from MS-DRGs 025, 026, and 

027 to MS-DRGs 023 and 024 is not warranted. Therefore, we are proposing to maintain 

the current MS-DRG assignments for endovascular embolization or occlusion of head 

and neck procedures. We are inviting public comments on our proposal. 

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

Breathing Pacemaker System 

 We received a request to create a new MS-DRG for the Avery Breathing 

Pacemaker System. This system is also called a diaphragmatic pacemaker and is 

captured by ICD-9-CM procedure code 34.85 (Implantation of diaphragmatic 

pacemaker). The requestor stated that the diaphragmatic pacemaker is indicated for adult 

and pediatric patients with chronic respiratory insufficiency that would otherwise be 

dependent on ventilator support. The procedure consists of surgically implanted 

receivers and electrodes mated to an external transmitter by antennas worn over the 

implanted receivers. The external transmitter and antennas send radiofrequency energy 

to the implanted receivers under the skin. The receivers then convert the radio waves into 

stimulating pulses sent down the electrodes to the phrenic nerves, causing the diaphragm 

to contract. The requestor stated that this normal pattern is superior to mechanical 

ventilators that force air into the chest. The requestor also stated that the system is 

expensive; the device cost is approximately $57,000. According to the requestor, given 
 143 

the cost of the device, hospitals are reluctant to use it. The requestor did not make a 

specific MS-DRG reassignment request. 

 When used for a respiratory failure patient, procedure code 34.85 is assigned to 

MS-DRGs 163, 164, and 165 (Major Chest Procedures with MCC, with CC, and without 

CC/MCC, respectively). 

 We examined claims data from the December 2013 update of the FY 2013 

MedPAR file for diaphragmatic pacemaker cases. The following table shows our 

findings. 

MS-DRG Number 

of Cases

Average 

Length 

of Stay 

Average 

Costs 

MS-DRG 163 – All cases 11,766 13.13 $34,308

MS-DRG 163 – Cases with procedure code 34.85 13 2.23 $29,406

MS-DRG 164 – All cases 16,087 6.58 $18,352

MS-DRG 164 – Cases with procedure code 34.85 34 1.71 $23,406

MS-DRG 165 – All cases 9,207 3.91 $13,081

MS-DRG 165 – Cases with procedure code 34.85 1 1.00 $22,977

 There were only 48 cases of diaphragmatic pacemakers within MS-DRGs 163, 

164, and 165. The average costs of these diaphragmatic pacemaker cases ranged from 

$22,977 for the single case in MS-DRG 165 to $29,406 for the cases in MS-DRG 163, 

compared to the average costs for all cases in MS-DRGs 163, 164, and 165, which range 

from $13,081 to $34,308. The average cost for diaphragmatic pacemaker cases in 

MS-DRG 163 was lower than that for all cases in MS-DRG 163, $29,406 compared to 

$34,308 for all cases. The average cost for diaphragmatic pacemaker cases was higher 

for MS-DRG 164, $23,406 compared to $18,352 for all cases. While the average cost for 
 144 

the single diaphragmatic pacemaker case was significantly higher for MS-DRG 165, 

$22,977 compared to $13,081, we were unable to determine if additional factors might 

have impacted the higher cost for this single case. 

 Given the small number of diaphragmatic pacemaker cases that we found, we do 

not believe that there is justification for creating a new MS-DRG. Basing a new MSDRG on such a small number of cases could lead to distortions in the relative payment 

weights for the MS-DRG because several expensive cases could impact the overall 

relative payment weight. Having larger clinical cohesive groups within an MS-DRG 

provides greater stability for annual updates to the relative payment weights. We note 

that, as discussed in section II.G.4.c. of the preamble of this proposed rule, one of the 

criteria we apply in evaluating whether to create new severity subgroups within an 

MS-DRG is whether there are at least 500 cases in the CC or MCC subgroup. While this 

criterion is used to evaluate whether to create a severity subgroup within an MS-DRG, 

applying it here suggests that creating a new MS-DRG for only 48 cases would not be 

appropriate. Although the average costs of these diaphragmatic pacemaker cases are 

higher than the average costs of all cases in MS-DRGs 163 and 164, we believe the 

current MS-DRG assignment is appropriate and that the data do not support creating an 

MS-DRG because there are so few cases. 

 Our clinical advisors reviewed this issue and determined that the diaphragmatic 

pacemaker cases are appropriately classified within MS-DRGs 163, 164, and 165 because 

they are clinically similar to other cases of patients with major chest procedures within 
 145 

MS-DRGs 163, 164, and 165. Our clinical advisors did not support creating a new 

MS-DRG for such a small number of cases. 

 Based on the results of the examination of the claims data, the recommendations 

from our clinical advisors, and the small number of diaphragmatic pacemaker cases, we 

are not proposing to create a new MS-DRG for diaphragmatic pacemaker cases at this 

time. We are proposing to maintain the current MS-DRG assignments for diaphragmatic 

pacemaker cases. We are inviting public comments on our proposal. 

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

a. Exclusion of Left Atrial Appendage 

 We received a request to move the exclusion of the left atrial appendage 

procedure, which is a non-O.R. procedure and captured by ICD-9-CM procedure code 

37.36 (Excision, destruction or exclusion of left atrial appendage (LAA)), from 

MS-DRGs 250 (Percutaneous Cardiovascular without Coronary Artery Stent with MCC) 

and 251 (Percutaneous Cardiovascular without Coronary Artery Stent without MCC) to 

MS-DRGs 237 (Major Cardiovascular Procedures with MCC) and 238 (Major 

Cardiovascular Procedures without MCC). The requestor stated that the exclusion of the 

left atrial appendage procedure code 37.36 is not clinically coherent with the other 

procedures in MS-DRGs 250 and 251 and that this current assignment to MS-DRGs 250 

and 251 does not compensate providers adequately for the expenses incurred to perform 

this procedure and placement of the device. 

 The exclusion of the left atrial appendage procedure involves a percutaneous 

placement of a snare/suture around the left atrial appendage to close it off. The exclusion 
 146 

of the left atrial appendage procedure takes place in the cardiac catheterization laboratory 

under general anesthesia and is a catheter based closed-chest procedure instead of an 

open heart surgical technique to treat the same clinical condition, with the same intended 

results. The procedure can be performed by either an interventional cardiologist or an 

electrophysiologist. 

 We analyzed claims data from the December 2013 update of the FY 2013 

MedPAR file for cases assigned to MS-DRGs 250 and 251 and MS-DRGs 237 and 238. 

Our findings are shown in the table below. 

MS-DRG Number 

of Cases

Average 

Length 

of Stay 

Average 

Costs 

MS-DRG 250 – All cases 9,174 6.90 $21,319

MS-DRG 250 – Cases with procedure code 37.36 61 7.21 $29,637

MS-DRG 251 – All cases 26,331 3.01 $14,614

MS-DRG 251 – Cases with procedure code 37.36 341 3.01 $18,298

MS-DRG 237 – All cases 17,813 9.66 $35,642

MS-DRG 238 – All cases 33,644 3.73 $24,511

 The data in the table above show that, while the average costs of the atrial 

appendage exclusion procedures are higher ($29,637) than those for all cases ($21,319) 

within MS-DRG 250 and are higher ($18,298) than for all cases ($14,614) within 

MS-DRG 251, they are lower than those in MS-DRGs 237 ($35,642) and 238 ($24,511). 

Our clinical advisors reviewed this issue and recommended not moving these stand-alone 

percutaneous cases to MS-DRGs 237 and 238 because they do not consider them to be 

major cardiovascular procedures. Our clinical advisors stated that cases reporting 

ICD-9-CM procedure code 37.36 are appropriately assigned within MS-DRG 250 and 

251 because they are percutaneous cardiovascular procedures and are clinically similar to 
 147 

other procedures within the MS-DRG. Therefore, we are not proposing to reassign 

exclusion of atrial appendage procedure cases from MS-DRGs 250 and 251 to MS-DRGs 

237 and 238 for FY 2015. We are inviting public comments on our proposal to maintain 

the current MS-DRG structure for the exclusion of the left atrial appendage. 

b. Transcatheter Mitral Valve Repair: MitraClip®

The MitraClip® System (hereafter referred to as MitraClip®) for transcatheter 

mitral valve repair has been discussed in extensive detail in previous rulemaking, 

including the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25822) and final rule 

(76 FR 51528 through 51529) and the FY 2013 IPPS/LTCH PPS proposed rule 

(77 FR 27902 through 27903) and final rule (77 FR 53308 through 53310), in response to 

requests for MS-DRG reclassification, as well as, in the FY 2014 IPPS/LTCH PPS 

proposed rule (78 FR 27547 through 27552) under the new technology add-on payment 

policy. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50575), the application for a 

new technology add-on payment for MitraClip® was unable to be considered further due 

to lack of FDA approval by the July 1, 2013 deadline. 

 Subsequently, on October 24, 2013, MitraClip® received FDA approval. As a 

result, the manufacturer has submitted new requests for both an MS-DRG reclassification 

and new technology add-on payment for FY 2015. We refer readers to section II.I. of the 

preamble of this proposed rule for discussion regarding the application for MitraClip® 

under the new technology add-on payment policy. Below we discuss the MS-DRG 

reclassification request. 
 148 

 The manufacturer’s request for MS-DRG reclassification involves two 

components. The first component consists of reassigning cases reporting a transcatheter 

mitral valve repair using the MitraClip® from MS-DRGs 250 and 251(Percutaneous 

Cardiovascular Procedure without Coronary Artery Stent with MCC and without MCC, 

respectively) to MS-DRGs 216 (Cardiac Valve & Other Major Cardiothoracic Procedures 

with Cardiac Catheterization with MCC), 217 (Cardiac Valve & Other Major 

Cardiothoracic Procedures with Cardiac Catheterization with CC), 218 (Cardiac Valve & 

Other Major Cardiothoracic Procedures with Cardiac Catheterization without CC/MCC), 

219 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac 

Catheterization with MCC), 220 (Cardiac Valve & Other Major Cardiothoracic 

Procedures without Cardiac Catheterization with CC), and 221 (Cardiac Valve & Other 

Major Cardiothoracic Procedures without Cardiac Catheterization without CC/MCC). 

The second component of the manufacturer’s request was for CMS to examine the 

creation of a new base MS-DRG for transcatheter valve therapies. 

 Effective October 1, 2010, ICD-9-CM procedure code 35.97 (Percutaneous mitral 

valve repair with implant) was created to identify and describe the MitraClip®

technology. 

 To address the first component of the manufacturer’s request, we conducted an 

analysis of claims data from the December 2013 update of the FY 2013 MedPAR file for 

cases reporting procedure code 35.97 in MS-DRGs 250 and 251. The table below shows 

our findings. 

MS-DRG Number 

of cases 

Average 

Length 

Average 

Costs 
 149 

of Stay 

MS-DRG 250 – All cases 9,174 6.90 $21,319

MS-DRG 250 – Cases with procedure code 35.97 67 8.48 $39,103

MS-DRG 251 – All cases 26,331 3.01 $14,614

MS-DRG 251 – Cases with procedure code 35.97 127 3.94 $25,635

 As displayed in the table above, the data demonstrate that, for MS-DRG 250, 

there were a total of 9,174 cases with an average length of stay of 6.90 days and average 

costs of $21,319. The number of cases reporting the ICD-9-CM procedure code 35.97 in 

MS-DRG 250 totaled 67 with an average length of stay of 8.48 days and average costs of 

$39,103. For MS-DRG 251, there were a total of 26,331 cases with an average length of 

stay of 3.01 days and average costs of $14,614. There were 127 cases found in MS-DRG 

251 reporting the procedure code 35.97 with an average length of stay of 3.94 days and 

average costs of $25,635. We recognize that the cases reporting procedure code 35.97 

have a longer length of stay and higher average costs in comparison to all the cases 

within MS-DRGs 250 and 251. However, as stated in prior rulemaking (77 FR 53309), it 

is a fundamental principle of an averaged payment system that half of the procedures in a 

group will have above average costs. It is expected that there will be higher cost and 

lower cost subsets, especially when a subset has low numbers. 

 We also evaluated the claims data from the December 2013 update of the 

FY 2013 MedPAR file for MS-DRGs 216 through 221. Our findings are shown in the 

table below. 

MS-DRG Number 

of cases 

Average 

Length 

of Stay 

Average 

Costs 
 150 

MS-DRG Number 

of cases 

Average 

Length 

of Stay 

Average 

Costs 

MS-DRG 216 – All cases 10,131 15.41 $65,478

MS-DRG 217 – All cases 5,374 9.51 $44,695

MS-DRG 218 – All cases 882 6.88 $39,470

MS-DRG 219 – All cases 17,856 11.63 $54,590

MS-DRG 220 – All cases 21,059 7.13 $38,137

MS-DRG 221 – All cases 4,586 5.32 $34,310

 The data in our findings do not warrant reassignment of cases reporting use of the 

MitraClip®. If we were to propose reassignment of cases reporting procedure code 35.97 

to MS-DRGs 216 through 221, they would be significantly overpaid, as the average costs 

range from $34,310 to $65,478 for those MS-DRGs. In addition, our clinical advisors do 

not support reassigning these cases. They noted that the current MS-DRG assignment is 

appropriate for the reasons stated in the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53309). To reiterate, our clinical advisors note that the current MS-DRG 

assignment is reasonable because the operating room resource utilizations of 

percutaneous procedures, such as those found in MS-DRGs 250 and 251, tend to group 

together, and are generally less costly than open procedures, such as those found in 

MS-DRGs 216 through 221. Percutaneous procedures by organ system represent groups 

that are reasonably clinically coherent. More significantly, our clinical advisors state that 

postoperative resource utilization is significantly higher for open procedures with much 

greater morbidity and consequent recovery needs. Because the equipment, technique, 

staff, patient populations, and physician specialty all tend to group by type of procedure 

(percutaneous or open), separately grouping percutaneous procedures and open 
 151 

procedures is more clinically consistent. Therefore, we are not proposing to modify the 

current MS-DRG assignment for cases reporting procedure code 35.97 from MS-DRGs 

250 and 251 to MS-DRGs 216 through 221 for FY 2015. We are inviting public 

comments on our proposal to not make any modifications to the current MS-DRG logic 

for these cases. 

 As indicated above, the second component of the manufacturer’s request involved 

the creation of a new base MS-DRG for transcatheter valve therapies. We also received a 

similar request from another manufacturer recommending that we create a new MS-DRG 

for procedures referred to as endovascular cardiac valve replacement procedures. We 

reviewed each of these requests using the same data analysis, as set forth below. The 

discussion for endovascular cardiac valve replacement procedures is included in section 

II.G.4.c. of the preamble of this proposed rule and includes findings from the analysis and 

our proposals for each of these similar, but distinct requests. 

c. Endovascular Cardiac Valve Replacement Procedures 

 As noted in the previous section related to the MitraClip® technology, we received 

two requests to create a new base MS-DRG for what was referred to as “transcatheter 

valve therapies” by one manufacturer and “endovascular cardiac valve replacement” 

procedures by another manufacturer. Below we summarize the details of each request 

and review results of the data analysis that was performed. 

Transcatheter Valve Therapies 

 The request related to transcatheter valve therapies consisted of creating a new 

MS-DRG that would include the MitraClip® technology (ICD-9-CM procedure code 
 152 

35.97 (Percutaneous mitral valve repair with implant)), along with the following list of 

ICD-9-CM procedure codes that identify the various types of valve replacements 

performed by an endovascular or transcatheter technique: 

● 35.05 (Endovascular replacement of aortic valve); 

● 35.06 (Transapical replacement of aortic valve); 

● 35.07 (Endovascular replacement of pulmonary valve); 

● 35.08 (Transapical replacement of pulmonary valve); and 

● 35.09 (Endovascular replacement of unspecified valve). 

 We performed analysis of claims data from the December 2013 update of the 

FY 2013 MedPAR file for both the percutaneous mitral valve repair and the 

transcatheter/endovascular cardiac valve replacement codes in their respective 

MS-DRGs. The percutaneous mitral valve repair with implant (MitraClip®) procedure 

code is currently assigned to MS-DRGs 250 and 251, while the 

transcatheter/endovascular cardiac valve replacement procedure codes are currently 

assigned to MS-DRGs 216, 217, 218, 219, 220, and 221. As illustrated in the table 

below, the data demonstrate that, for MS-DRGs 250 and 251, there were a total of 194 

cases reporting procedure code 35.97, with an average length of stay of 5.5 days and 

average costs of $30,286. 

MS-DRG Number 

of cases 

Average 

Length 

of Stay 

Average 

Costs 

MS-DRG 250 through 251 - Cases with procedure 

code 35.97 194 5.5 $30,286
 153 

 Upon analysis of cases in MS-DRGs 216 through 221 reporting the cardiac valve 

replacement procedure codes, we found a total of 7,287 cases with an average length of 

stay of 8.1 days and average costs of $53,802, as shown in the table below. 

MS-DRG Number 

of cases 

Average 

Length 

of Stay 

Average 

Costs 

MS-DRGs 216 through 221 –Cases with procedure 

codes 35.05, 35.06, 35.07, 35.08 and 35.09 7,287 8.1 $53,802

MS-DRGs 216 through 221 – Cases without 

procedure codes 35.05, 35.06, 35.07, 35.08 and 

35.09 52,601 10.1 $47,177

 The data clearly demonstrate that the volume of cases for the 

transcatheter/endovascular cardiac valve replacement procedures are much higher in 

comparison to the volume of cases for the percutaneous mitral valve repair (MitraClip®)

procedure (7,287 compared to 194). In addition, the average costs of the 

transcatheter/endovascular cardiac valve replacement procedures are significantly higher 

than the average costs of the percutaneous mitral valve repair with implant ($53,802 

compared to $30,286). 

 Our clinical advisors do not support grouping a percutaneous valve repair 

procedure with transcatheter/endovascular valve replacement procedures. They do not 

believe that these procedures are clinically coherent or similar in terms of resource 

consumption because the MitraClip® technology identified by procedure code 35.97 is 

utilized for a percutaneous mitral valve repair, while the other technologies, identified by 

procedure codes 35.05 through 35.09, are utilized for transcatheter/endovascular cardiac 

valve replacements. Consequently, the data analysis and our clinical advisors do not 
 154 

support the creation of a new MS-DRG. Therefore, for FY 2015, we are not proposing to 

create a new MS-DRG to group cases reporting the percutaneous mitral valve repair 

(MitraClip®) procedure with transcatheter/endovascular cardiac valve replacement 

procedures. We are inviting public comments on our proposal. 

Endovascular Cardiac Valve Replacement 

 The similar but separate request relating to endovascular cardiac valve 

replacement procedures consisted of creating a new MS-DRG that would only include the 

various types of cardiac valve replacements performed by an endovascular or 

transcatheter technique. In other words, this request specifically did not include the 

MitraClip® technology (ICD-9-CM procedure code 35.97 (Percutaneous mitral valve 

repair with implant)) and only included the list of ICD-9-CM procedure codes that 

identify the various types of valve replacements performed by an endovascular or 

transcatheter technique (ICD-9-CM procedure codes 35.05 through 35.09) as described 

earlier in this section. 

 The human heart contains four major valves--the aortic, mitral, pulmonary, and 

tricuspid valves. These valves function to keep blood flowing through the heart. When 

conditions such as stenosis or insufficiency/regurgitation occur in one or more of these 

valves, valvular heart disease may result. Cardiac valve replacement surgery is 

performed in an effort to correct these diseased or damaged heart valves. The 

endovascular or transcatheter technique presents a viable option for high-risk patients 

who are not candidates for the traditional open surgical approach. 
 155 

 We reviewed the claims data from the December 2013 update of the FY 2013 

MedPAR file for cases in MS-DRGs 216 through 221. Our findings are shown in the 

chart below. The data analysis shows that cardiac valve replacements performed by an 

endovascular or transcatheter technique represent a total of 7,287 of the cases in MSDRGs 216 through 221, with an average length of stay of 8.1 days and higher average 

costs ($53,802 compared to $47,177) in comparison to all of the cases in MS-DRGs 216 

through 221. 

MS-DRG Number 

of cases 

Average 

Length 

of Stay 

Average 

Costs 

MS-DRGs 216 through 221 – Cases with procedure 

codes 35.05, 35.06, 35.07, 35.08 and 35.09 7,287 8.1 $53,802

MS-DRGs 216 through 221 – Cases without 

procedure codes 35.05, 35.06, 35.07, 35.08 and 

35.09 52,601 10.1 $47,177

 As the data appear to indicate support for the creation of a new base MS-DRG, 

based on our evaluation of resource consumption, patient characteristics, volume, and 

costs between the cardiac valve replacements performed by an endovascular or 

transcatheter technique and the open surgical technique, we then applied our established 

criteria to determine if these cases would meet the requirements to create subgroups. We 

use five criteria established in the FY 2008 IPPS final rule (72 FR 47169) to review 

requests involving the creation of a new CC or an MCC subgroup within a base MSDRG. As outlined in the FY 2012 IPPS proposed rule (76 FR 25819), the original 

criteria were based on average charges but were later converted to average costs. In order 
 156 

to warrant creation of a CC or an MCC subgroup within a base MS-DRG, this subgroup 

must meet all of the following five criteria: 

● A reduction in variance of costs of at least 3 percent. 

● At least 5 percent of the patients in the MS-DRG fall within the CC or the 

MCC subgroup. 

● At least 500 cases are in the CC or the MCC subgroup. 

● There is at least a 20-percent difference in average costs between subgroups. 

● There is a $2,000 difference in average costs between subgroups. 

 In applying the five criteria, we found that the data support the creation of a new 

MS-DRG subdivided into two severity levels. We also consulted with our clinical 

advisors. Our clinical advisors stated that patients receiving endovascular cardiac valve 

replacements are significantly different from those patients who undergo an open chest 

cardiac valve replacement. They noted that patients receiving endovascular cardiac valve 

replacements are not eligible for open chest cardiac valve procedures because of a variety 

of health constraints. This highlights the fact that peri-operative complications and 

post-operative morbidity have significantly different profiles for open chest procedures 

compared with endovascular interventions. This is also substantiated by the different 

average lengths of stay demonstrated by the two cohorts. Our clinical advisors further 

noted that separately grouping these endovascular valve replacement procedures provides 

greater clinical cohesion for this subset of high-risk patients. 

 We are proposing to create the following MS-DRGs for endovascular cardiac 

valve replacements: 
 157 

● Proposed new MS-DRG 266 (Endovascular Cardiac Valve Replacement with 

MCC); and 

● Proposed new MS-DRG 267 (Endovascular Cardiac Valve Replacement 

without MCC). 

Proposed New MS-DRGs for Endovascular 

Cardiac Valve Replacement 

Number 

of Cases 

Average 

Length 

of Stay 

Average 

Costs 

Proposed New MS-DRG 266 with MCC 3,516 10.6 $61,891

Proposed New MS-DRG 267 without MCC 3,771 5.7 $46,259

 We are inviting public comments on our proposal to create these new MS-DRGs 

for FY 2015. 

d. Abdominal Aorta Graft 

 We received a request that we change the MS-DRG assignment for procedure 

code 39.71 (Endovascular implantation of other graft in abdominal aorta), which is 

assigned to MS-DRGs 237 and 238 (Major Cardiovascular Procedures with MCC and 

without MCC, respectively). The requestor asked that we reassign procedure code 39.71 

to MS-DRGs 228, 229, and 230 (Other Cardiothoracic Procedures with MCC, with CC, 

and without CC/MCC, respectively). The requestor stated that the average cost of 

endovascular abdominal aorta graft implantation cases is significantly higher than other 

cases in MS-DRGs 237 and 238. The requestor stated that the average cost of 

endovascular abdominal aorta graft implantation cases is closer to those in MS-DRGs 

228, 229, and 230. 
 158 

 The requestor stated that the goal of endovascular repair for abdominal aneurysm 

is to isolate the diseased, aneurismal portion of the aorta and common iliac arteries from 

continued exposure to systemic blood pressure. The procedure involves the delivery and 

deployment of endovascular prostheses, also referred to as a graft, as required to isolate 

the aneurysm above and below the extent of the disease. The requestor stated that this 

significantly reduces patient morbidity and death caused by leakage and/or sudden 

rupture of an untreated aneurysm. 

 We examined claims data from the December 2013 update of the FY 2013 

MedPAR file for cases of endovascular abdominal aorta graft implantations. The 

following table shows our findings. 

MS-DRG Number 

of Cases 

Average 

Length 

of Stay 

Average 

Costs 

MS-DRG 237 – All cases 17,813 9.66 $35,642

MS-DRG 237 – Cases with procedure code 39.71 2,093 8.30 $44,898

MS-DRG 238 – All cases 33,644 3.73 $24,511

MS-DRG 238 – Cases with procedure code 39.71 15,483 2.30 $28,484

MS-DRG 228 – All cases 1,543 13.48 $52,315

MS-DRG 229 – All cases 2,003 7.47 $32,070

MS-DRG 230 – All cases 493 4.95 $29,281

 As this table shows, endovascular abdominal aorta graft implantation cases have 

higher average costs and shorter lengths of stay than all cases within MS-DRGs 237 and 

238. The average cost for endovascular abdominal aorta graft implantation cases in 

MS-DRG 237 is $9,256 greater than that for all cases in MS-DRG 237 ($44,898 

compared to $35,642). The average cost for endovascular abdominal aorta graft 
 159 

implantation cases in MS-DRG 238 is $3,973 higher than that for all cases in MS-DRG 

238 ($28,484 compared to $24,511). Cases in MS-DRG 228 have average costs that are 

$7,417 higher than the endovascular abdominal aorta graft implantation cases in 

MS-DRG 237 ($52,315 compared to $44,898). MS-DRG 228 and MS-DRG 237 both 

contain cases with MCCs. Cases in MS-DRG 229, which contain a CC, have average 

costs that are $3,586 higher than average costs of the endovascular abdominal aorta graft 

implantation cases in MS-DRG 238, which do not contain an MCC ($32,070 compared to 

$28,484). Cases in MS-DRG 230, which have neither an MCC nor a CC, have average 

costs that are $797 higher than the endovascular abdominal aorta graft implantation cases 

in MS-DRG 238 ($29,281 compared to $28,484). While the average costs were higher 

for endovascular abdominal aorta graft implantation cases compared to all cases within 

MS-DRGs 237 and 238, each MS-DRG has some cases that are higher and some cases 

that are lower than the average costs for the entire MS-DRG. MS-DRGs were developed 

to capture cases that are clinically consistent with similar overall average resource 

requirements. This results in some cases within an MS-DRG having costs that are higher 

than the overall average and other cases having costs that are lower than the overall 

average. This may be due to specific types of cases included within the MS-DRGs or to 

the fact that some cases will simply require additional resources on a specific admission. 

However, taken as a whole, the hospital will be paid an appropriate amount for the group 

of cases that are assigned to the MS-DRG. We believe the endovascular abdominal aorta 

graft implantation cases are appropriately grouped with other procedures within 

MS-DRGs 237 and 238. 
 160 

 Our clinical advisors reviewed this issue and determined that the endovascular 

abdominal aorta graft implantation cases are appropriately classified within MS-DRGs 

237 and 238 because they are clinically similar to the other procedures in MS-DRGs 237 

and 238, which include other procedures on the aorta. While the endovascular abdominal 

aorta graft implantation cases have higher average costs than the average for all cases 

within MS-DRGs 237 and 238, our clinical advisors do not believe this justifies moving 

the cases to MS-DRGs 228, 229 and 230, which involve a different set of cardiothoracic 

surgeries. 

 Based on the results of examination of the claims data and the recommendations 

of our clinical advisors, we do not believe that proposing to reclassify endovascular 

abdominal aorta graft implantation cases from MS-DRGs 237 and 238 is warranted. We 

are proposing to maintain the current MS-DRG assignments for endovascular abdominal 

aorta graft implantation cases. We are inviting public comments on our proposal. 

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

Tissue) 

a. Shoulder Replacement Procedures 

 We received a request to change the MS-DRG assignment for shoulder 

replacement procedures. This request involved the following two procedure codes: 

● 81.88 (Reverse total shoulder replacement); and 

● 81.97 (Revision of joint replacement of upper extremity). 

 With respect to procedure code 81.88, the requestor asked that reverse total 

shoulder replacements be reassigned from MS-DRGs 483 and 484 (Major Joint/Limb 
 161 

Reattachment Procedure of Upper Extremities with CC/MCC and without CC/MCC, 

respectively) to MS-DRG 483 only. The reassignment of procedure code 81.88 from 

MS-DRGs 483 and 484 was discussed previously in the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50534 through 50536). The result of reassigning reverse shoulder 

replacements from MS-DRGs 483 and 484 to MS-DRG 483 only would be that this 

procedure would be assigned to MS-DRG 483 whether or not the case had a CC or an 

MCC. The requestor stated that reverse shoulder replacement procedures are more 

clinically cohesive with higher severity MS-DRGs due to the complexity and resource 

consumption of these procedures. We refer readers to the FY 2014 IPPS/LTCH PPS 

final rule (78 FR 50534 through 50536) for a discussion of the reverse total shoulder 

replacement. 

 The requestor also recommended that we reassign what it described as another 

shoulder procedure involving procedure code 81.97, which is assigned to MS-DRGs 515, 

516, and 517 (Other Musculoskeletal System and Connective Tissue O.R. Procedures 

with MCC, with CC, and without CC/MCC, respectively), to MS-DRG 483. We point 

out that MS-DRG 483 contains upper joint replacements, including shoulder 

replacements. MS-DRG 483 does not contain any joint revision procedures. Similar to 

the request for reassignment of procedure code 81.88, this would mean that procedure 

code 81.97 would be assigned to MS-DRG 483 whether or not the case had a CC or an 

MCC. If CMS did not support this recommendation for moving procedure code 81.97 to 

MS-DRG 483, the requestor recommended an alternative reassignment to MS-DRG 515 
 162 

(Other Musculoskeletal System and Connective Tissue O.R. procedures with MCC) even 

if the case had no MCC. 

 We point out that, while the requestor refers to procedure code 81.97 as a 

shoulder procedure, the code description actually includes revisions of joint replacements 

of a variety of upper extremity joints, including those in the elbow, hand, shoulder, and 

wrist. 

 As stated earlier, reverse shoulder replacements are assigned to MS-DRGs 483 

and 484. Revisions of upper joint replacements are assigned to MS-DRGs 515, 516, and 

517. We examined claims data from the December 2013 update of the FY 2013 

MedPAR file for MS-DRGs 483 and 484. The following table shows our findings of 

cases of reverse shoulder replacement. 

MS-DRG 

Number 

of Cases

Average 

Length 

of Stay 

Average 

Costs 

MS-DRG 483 – All cases 14,220 3.20 $18,807

MS-DRG 483 – Cases with procedure code 81.88 7,086 3.19 $20,699

MS-DRG 484 – All cases 23,183 1.95 $16,354

MS-DRG 484 – Cases with procedure code 81.88 9,633 2.03 $18,719

 

Proposed Revised MS-DRG 483 with all severity 

levels included 

37,403 2.4 $17,287

 As the above table shows, MS-DRG 484 reverse shoulder replacement cases have 

similar average costs to those in MS-DRG 483 ($18,719 for reverse shoulder 

replacements in MS-DRG 484 compared to $18,807 for all cases in MS-DRG 483). 

However, in reviewing the data, we observed that the claims data no longer support two 

severity levels for MS-DRGs 483 and 484. 
 163 

 We use the five criteria established in FY 2008 (72 FR 47169) to review requests 

involving the creation of a new CC or MCC subgroup within a base MS-DRG. As 

outlined in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25819), the original 

criteria were based on average charges but were later converted to average costs. In order 

to warrant creation of a CC or an MCC subgroup within a base MS-DRG, the subgroup 

must meet all of the following five criteria: 

 • A reduction in variance of costs of at least 3 percent. 

 • At least 5 percent of the patients in the MS-DRG fall within the CC or MCC 

subgroup. 

 • At least 500 cases are in the CC or MCC subgroup. 

 • There is at least a 20-percent difference in average costs between subgroups. 

 • There is a $2,000 difference in average costs between subgroups. 

 We found through our examination of the claims data from the December 2013 

update of the FY 2013 MedPAR file that the two severity subgroups of MS-DRG 483 

and 484 no longer meet the fourth criterion of at least a 20-percent difference in average 

costs between subgroups. We found that there is a $2,453 difference in average costs 

between MS-DRG 483 and MS-DRG 484. The difference in average costs would need to 

be $3,761 to meet the fourth criterion. Therefore, our claims data support collapsing 

MS-DRGs 483 and 484 into a single MS-DRG. Our clinical advisors reviewed this issue 

and agree that there is no longer enough difference between the two severity levels to 

justify separate severity subgroups for MS-DRGs 483 and 484, which include a variety of 
 164 

upper joint replacements. Therefore, our clinical advisors support our recommendation 

to collapse MS-DRGs 483 and 484 into a single MS-DRG. 

 Based on the results of examination of the claims data and the advice of our 

clinical advisors, we are proposing to collapse MS-DRGs 483 and 484 into a single 

MS-DRG by deleting MS-DRG 484 and revising the title of MS-DRG 483 to read 

“Major Joint/Limb Reattachment Procedure of Upper Extremities”. 

 The following table shows our findings of cases of revisions of upper joint 

replacement from the December 2013 update of the FY 2013 MedPAR file. 

MS-DRG 

Number 

of Cases

Average 

Length 

of Stay 

Average 

Costs 

MS-DRG 515 – All cases 3,407 9.22 $22,191

MS-DRG 515 – Cases with procedure code 81.97 88 5.66 $22,085

MS-DRG 516 – All cases 8,502 5.34 $14,356

MS-DRG 516 – Cases with procedure code 81.97 799 2.84 $18,214

MS-DRG 517 – All cases 5,794 3.28 $12,172

MS-DRG 517 – Cases with procedure code 81.97 1,256 2.07 $15,920

MS-DRG 483 – All cases 14,220 3.20 $18,807

 Cases identified by code 81.97 in MS-DRGs 515, 516, and 517 have lower 

average costs and shorter lengths of stay than all cases in MS-DRG 515. The average 

costs of cases in MS-DRG 515 are $3,977 higher than the average costs of the cases with 

procedure code 81.97 in MS-DRG 516 ($22,191 compared to $18,214). The average 

costs of cases in MS-DRG 515 are $6,271 higher than cases with procedure code 81.97 in 

MS-DRG 517 ($22,191 compared to $15,920). 

 The table above shows that the average costs of cases in MS-DRG 483 are $3,278 

lower than the average costs of cases with procedure code 81.97 in MS-DRG 515 
 165 

($18,807 compared to $22,085). The average costs of cases in MS-DRG 483 are $593 

higher than the average costs of cases with procedure code 81.97 in MS-DRG 516 

($18,807 compared to $18,214). The average costs of cases in MS-DRG 483 are $2,887 

higher than the average costs of cases with procedure code 81.97 in MS-DRG 517 

($18,807 compared to $15,920). 

 The claims data do not support moving all procedure code 81.97 cases to 

MS-DRG 515 or MS-DRG 483, whether or not there is a CC or an MCC. We also point 

out once again that procedure code 81.97 is a nonspecific code that captures revisions to 

not only the shoulder, but also a variety of upper extremity joints including those in the 

elbow, hand, shoulder, and wrist. Therefore, we have no way of determining how many 

cases reporting procedure code 81.97 were actually shoulder procedures as opposed to 

procedures on the elbow, hand, or wrist. 

 Our clinical advisors reviewed this issue and determined that the revisions of 

upper joint replacement procedures are appropriately classified within MS-DRGs 515, 

516, and 517, which include other joint revision procedures. They do not support moving 

revisions of upper joint replacement procedures to MS-DRG 515, whether or not there is 

an MCC. They support the current classification, which bases the severity level on the 

presence of a CC or an MCC. They also do not support moving revisions of upper joint 

replacement procedures to MS-DRG 483, whether or not there is a CC or an MCC, 

because these revisions are not joint replacements. Based on the results of our 

examination and the advice of our clinical advisors, we are not proposing moving 
 166 

revisions of upper joint replacement procedures to MS-DRG 515 or MS-DRG 483, 

whether or not there is a CC or an MCC. 

 In summation, we are proposing to collapse MS-DRGs 483 and 484 into a single 

MS-DRG by deleting MS-DRG 484 and revising the title of MS-DRG 483 to read 

“Major Joint/Limb Reattachment Procedure of Upper Extremities”. We are proposing to 

maintain the current MS-DRG assignments for revisions of upper joint replacement 

procedures in MS-DRGs 515, 516, and 517. We are inviting public comments on our 

proposals. 

b. Ankle Replacement Procedures 

 We received a request to change the MS-DRG assignment for two ankle 

replacement procedures. The request involved the following two procedure codes: 

● 81.56 (Total ankle replacement); and 

● 81.59 (Revision of joint replacement of lower extremity, not elsewhere 

classified). 

 The reassignment of procedure code 81.56 from MS-DRGs 469 and 470 (Major 

Joint Replacement or Reattachment of Lower Extremity with CC and without MCC, 

respectively) to a new MS-DRG or, alternatively, to MS-DRG 469 was discussed in the 

FY 2014 IPPS/LTCH PPS final rule (78 FR 50536 through 50537). We refer readers to 

this final rule for a discussion of ankle replacement procedures. The requestor asked that 

we again evaluate reassigning total ankle replacement procedures. The requestor also 

asked that we reassign what it referred to as another ankle replacement revision 

procedure captured by procedure code 81.59 (Revision of joint replacement of lower 
 167 

extremity, not elsewhere classified), which is assigned to MS-DRGs 515, 516, and 517 

(Other Musculoskeletal System and Connective Tissue O.R. Procedures with MCC, with 

CC, and without CC/MCC, respectively). 

 The requestor asked that we reassign procedure code 81.56 from MS-DRGs 469 

and 470 to MS-DRG 483 (Major Joint/Limb Reattachment Procedure of Upper 

Extremities with CC/MCC) and rename the MS-DRG to better capture the additional 

lower extremity cases. The requestor stated that the result would be assignment of lower 

joint procedures to an MS-DRG that currently captures only upper extremity cases and 

assignment to the highest severity level even if the case did not have a CC or an MCC. If 

CMS did not find this acceptable, the requestor made an alternative recommendation of 

assigning procedure code 81.56 to MS-DRG 469 and renaming the MS-DRG to better 

capture the additional cases. Cases would be assigned to the highest severity level 

whether or not the case had an MCC. 

 The requestor also recommended that procedure code 81.59, which is assigned to 

MS-DRGs 515, 516, and 517 be reassigned to MS-DRG 483 and that the MS-DRG be 

given a new title to better capture the additional lower extremity cases. The requestor 

stated that the result would be assignment of lower joint procedures to an MS-DRG that 

currently captures only upper extremity cases and assignment to the highest severity level 

even if the patient did not have a CC or an MCC. If CMS did not support this 

recommendation, the requestor suggested two additional recommendations. One 

involves moving procedure code 81.59 to MS-DRG 515 even when the case had no 
 168 

MCC. The other recommendation was to move procedure code 81.59 to MS-DRG 469, 

whether or not the case had a MCC. 

 We point out that while the requestor refers to procedure code 81.59 as a revision 

of an ankle replacement, the code actually includes revisions of joint replacements of a 

variety of lower extremity joints including the ankle, foot, and toe. 

 The following table shows the number of total ankle replacement cases, average 

length of stay, and average costs for procedure code 81.56 in MS-DRGs 469 and 470 

found in claims data from the December 2013 update of the FY 2013 MedPAR file 

compared to all cases within MS-DRGs 469, 470, and 483. 

MS-DRG Number 

of Cases 

Average 

Length of 

Stay 

Average 

Costs 

MS-DRG 469 – All cases 25,916 722 $22,548

MS-DRG 469 – Cases with procedure code 81.56 32 6.19 $27,419

MS-DRG 470 – All cases 406,344 3.25 $15,119

MS-DRG 470 – Cases with procedure code 81.56 1,379 2.13 $19,332

MS-DRG 483 14,220 3.20 $18,807

 In summary, the requestor asked us to reassign procedure code 81.56 in 

MS-DRGs 469 and 470 to one of the following two options: MS-DRG 483 (highest 

severity level); or MS-DRG 469 (highest severity level). 

 As the table for total ankle replacement above shows, the average cost of cases 

with procedure code 81.56 in MS-DRG 469 is $27,419 and $19,332 in MS-DRG 470. 

This compares with the average costs of all cases in MS-DRGs 469 and 470 of $22,548 

and $15,119, respectively. While the average cost of cases reporting procedure code 

81.56 in MS-DRG 469 is $4,871 higher than the average cost for all cases in MS-DRG 
 169 

469, we point out that there were only 32 cases. The relatively small number of cases 

may have been impacted by other factors such as complications or comorbidities. 

Several expensive cases could impact the average costs for a very small number of 

patients. The average cost of cases reporting procedure code 81.56 in MS-DRG 470 is 

$4,213 higher than the average cost for all cases in MS-DRG 470. While the average 

costs are higher, within all MS-DRGs, some cases have higher and some cases have 

lower average costs. MS-DRGs are groups of clinically similar cases that have similar 

overall costs. Within a group of cases, one would expect that some cases have costs that 

are higher than the overall average and some cases have costs that are lower than the 

overall average. 

 MS-DRG 469 ankle replacement cases have average costs that are $8,612 higher 

than the average costs of all cases in MS-DRG 483 ($27,419 compared to $18,807). 

Moving these cases (procedure code 81.56) to MS-DRG 483 would result in payment 

below average costs compared to the current MS-DRG assignment in MS-DRG 469. 

Furthermore, as noted earlier, moving total ankle replacement cases to MS-DRG 483 

would result in a lower extremity procedure being added to what is now an upper 

extremity MS-DRG. This would significantly disrupt the clinical cohesion of MS-DRG 

483. 

 The average costs of all cases in MS-DRG 469 are $3,216 higher than the average 

costs of those cases with procedure code 81.56 in MS-DRG 470 ($22,548 compared to 

$19,332) The data do not support moving procedure code 81.56 cases to MS-DRG 483 

or 469 because it would not result in payments that more accurately reflect their current 
 170 

average costs. Our clinical advisors reviewed this issue and determined that the ankle 

replacement cases are appropriately classified within MS-DRGs 469 and 470 with the 

severity level leading to the MS-DRG assignment. They do not support moving these 

cases to MS-DRG 483 because ankle replacements, which are lower joint procedures, are 

not clinically similar to upper joint replacement procedures. Based on the results of 

examination of the claims data, the issue of clinical cohesion, and the recommendations 

from our clinical advisors, we are not proposing to move total ankle procedures to MSDRG 483 or MS-DRG 469 when there is no MCC. We are proposing to maintain the 

current MS-DRG assignments for ankle replacement cases. We are inviting public 

comments on our proposal. 

 The following table shows our findings from examination of the claims data from 

the December 2013 update of the FY 2013 MedPAR file for the number of cases 

reporting procedure code 81.59 in MS-DRGs 515, 516, and 517 (revision of joint 

replacement of lower extremity) and their average length of stay and average costs as 

compared to all cases within MS-DRGs 515, 516, and 517 (where procedure code 81.59 

is currently assigned), as well as data for MS-DRGs 469 and 483. 

MS-DRG Number 

of Cases

Average 

length of 

Stay 

Average 

Costs 

MS-DRG 515 – All cases 3,407 9.22 $22,191

MS-DRG 515 – Cases with procedure code 81.59 5 6.00 $16,988

MS-DRG 516 – All cases 8,502 5.34 $14,356

MS-DRG 516 – Cases with procedure code 81.59 16 3.00 $16,998

MS-DRG 517 – All cases 5,794 3.28 $12,172

MS-DRG 517 – Cases with procedure code 81.59 40 1.80 $13,704

MS-DRG 483 – All cases 25,916 722 $22,548
 171 

MS-DRG Number 

of Cases

Average 

length of 

Stay 

Average 

Costs 

MS- DRG 469 – All cases 14,220 3.20 $18,807

 The requestor asked that all cases with procedure code 81.59 in MS-DRGs 515, 

516, and 517 be assigned to one of the following three choices: 

● MS-DRG 483 (highest severity level); 

● MS-DRG 515 (highest severity level) whether or not there is an MCC; or 

● MS-DRG 469 (highest severity level). 

 Our review of data from the above revision of joint replacement of lower 

extremity table shows that cases in MS-DRG 483 have average costs that are $5,560 

higher than the average costs of cases with procedure code 81.59 in MS-DRG 515; 

$5,550 greater than those in MS-DRG 516; and $8,844 greater than those in MS-DRG 

517 ($22,548 compared to $16,988; $22,548 compared to $16,998, and $22,548 

compared to $13,704, respectively). As mentioned earlier, MS-DRG 483 is currently 

composed of only upper extremity procedures. Moving lower extremity procedures into 

this MS-DRG would disrupt the clinical cohesiveness of MS-DRG 483. 

 The average costs of all cases in MS-DRG 469 are $18,807, compared to average 

costs of $16,988, $16,998, and $13,703 for procedure code 81.59 cases in MS-DRGs 515, 

516, and 517, respectively. The data do not support moving all procedure code 81.59 

cases to MS-DRG 469 even when there is no MCC. We also point out that moving cases 

with procedure code 81.59 to MS-DRG 469 would disrupt the clinical cohesiveness of 

MS-DRG 469, which currently captures major joint replacement or reattachment 
 172 

procedures of the lower extremity. Procedure code 81.59 includes revisions of joint 

replacements of a variety of lower extremity joints including the ankle, foot, and toe. 

This nonspecific code would not be considered a major joint procedure. The code 

captures revisions of an ankle replacement as well as a more minor revision of the toe. 

 Our clinical advisors reviewed this issue and determined that the revision of joint 

replacement of lower extremity cases are appropriately classified within MS-DRGs 515, 

516, and 517 where revisions of other joint replacements are captured. They support the 

current severity levels in MS-DRGs 515, 516, and 517, which allow the presence of a CC 

or an MCC to determine the severity level assignment. They do not support moving 

these cases to MS-DRG 483, which is applied to upper extremity procedures because 

these procedures are not clinically consistent with revisions of lower joint procedures. 

They also do not support moving these cases to MS-DRG 469 when there is no MCC 

because these procedures are not joint replacement procedures. Based on the findings of 

our examination of the claims data, the issue of clinical cohesion, and the 

recommendations from our clinical advisors, we are not proposing to move the revision 

of joint replacement of lower extremity cases to MS-DRGs 483 or 469, whether or not 

there is an MCC. We are proposing to maintain the current MS-DRG assignments for 

revision of joint replacement of lower extremity cases. 

 In summary, we are proposing to maintain the current MS-DRG assignment for 

total ankle replacements in MS-DRGs 469 and 470 and revision of joint replacement of 

lower extremity procedures in MS-DRGs 515, 516, and 517. We are inviting public 

comments on our proposals. 
 173 

c. Back and Neck Procedures 

 We received a request to reassign cases identified with a complication or 

comorbidity (CC) in MS-DRG 490 (Back & Neck Procedures Except Spinal Fusion with 

CC/MCC or Disc Device/Neurostimulator) to MS-DRG 491 (Back & Neck Procedures 

Except Spinal Fusion without CC/MCC or Disc Device/Neurostimulator). The requester 

suggested that we create a new MS-DRG that would be subdivided based solely on the 

“with MCC or Disc Device/Neurostimulator” and the “without MCC” (and no device) 

criteria. 

 For the FY 2008 rulemaking cycle, we performed a comprehensive analysis of all 

the spinal DRGs as we proposed (72 FR 24731 through 24735) and finalized 

(72 FR 47226 through 47232) adoption of the MS-DRGs. With the revised spinal 

MS-DRGs, we were better able to identify a patient’s level of severity, complexity of 

service, and utilization of resources. This was primarily attributed to the new structure 

for the severity level designations of “with MCC,” “with CC,” and “non-CC” (or without 

CC/MCC). Another contributing factor was that we incorporated specific procedures and 

technologies into the GROUPER logic for some of those spinal MS-DRGs. Specifically, 

as noted above, in the title of MS-DRG 490, we accounted for disc devices and 

neurostimulators because the data demonstrated that the procedures utilizing those 

technologies were more complex and required greater utilization of resources. 

 According to the requester, since that time, concerns have been expressed in the 

provider community regarding inadequate payment for MS-DRG 490 when these 

technologies are utilized. An analysis conducted by the requester alleged that the subset 
 174 

of patients identified in the “with MCC or disc device/neurostimulator” group are 

different with regard to resource use from the “without CC/MCC” (and no device) patient 

group. 

 We examined claims data from the December 2013 update of the FY 2013 

MedPAR file for MS-DRGs 490 and 491. The table below shows our findings. 

MS-DRG Number 

of cases 

Average 

Length of 

Stay 

Average 

Costs 

MS-DRG 490 – All cases 16,930 4.53 $13,727

MS-DRG 491 – All cases 25,778 2.20 $8,151

 As shown in the table above, there were a total of 16,930 cases in MS-DRG 490 

with an average length of stay of 4.53 days and average costs of $13,727. For MS-DRG 

491, there were a total of 25,778 cases with an average length of stay of 2.20 days and 

average costs of $8,151. 

 We then analyzed the data for MS-DRGs 490 and 491 by subdividing cases based 

on the “with MCC or Disc Device/Neurostimulator” and the “without MCC” (and no 

device) criteria. We found a total of 3,379 cases with an average length of stay of 6.6 

days and average costs of $21,493 in the “with MCC or Disc Device/Neurostimulator” 

group and a total of 39,329 cases with an average length of stay of 2.8 days and average 

costs of $9,405 in the “without MCC” and no device group. Due to the wide range in the 

volume of cases, length of stay, and average costs between these two subgroups, we 

concluded that further analysis of the data using a separate “with CC” (and no device) 

subset of patients was warranted. 
 175 

 Therefore, we evaluated the data using a three-way severity level split that 

consisted of the three subgroups shown in the table below. 

Additional Analysis for Back & Neck Procedures Except Spinal Fusion: 

Disc Device/Neurostimulator 

Severity Level Split Number of 

cases 

Average 

Length of Stay 

Averag

e Costs 

 - With MCC or disc device/neurostimulator 3,379 6.6 $21,493

 - With CC 13,551 3.9 $11,791

 - Without CC/MCC 25,778 2.2 $8,151

 For the first subgroup, “with MCC or Disc Device/Neurostimulator,” we found a 

total of 3,379 cases with an average length of stay of 6.6 days and average costs of 

$21,493. In the second subgroup, “with CC” (no device), we found a total of 13,551 

cases with an average length of stay of 3.9 days and average costs of $11,791. In the 

third subgroup, “without CC/MCC” (no device), we found a total of 25,778 cases with an 

average length of stay of 2.2 days and average costs of $8,151. 

 The results of this additional data analysis demonstrate a better distribution of 

cases with regard to length of stay and average costs. Our clinical advisors agree that a 

patient’s severity of illness is captured more appropriately with this subdivision. The 

data also meet the established criteria for creating subgroups within a base MS-DRG as 

discussed earlier in this proposed rule. 

 As the subdivision of the claims data based on these subgroups better captures a 

patient’s severity level and utilization of resources and is supported by our clinical 

advisors, we are proposing to create three new MS-DRGs and to delete MS-DRGs 490 
 176 

and 491. These proposed new MS-DRGs would be titled as follows and would be 

effective as of October 1, 2014: 

● Proposed new MS-DRG 518 (Back & Neck Procedures Except Spinal Fusion 

with MCC or Disc Device/Neurostimulator); 

● Proposed new MS-DRG 519 (Back & Neck Procedures Except Spinal Fusion 

with CC); and 

● Proposed new MS-DRG 520 (Back & Neck Procedures Except Spinal Fusion 

without CC/MCC). 

 We are inviting public comments on our proposal to create these proposed new 

MS-DRGs for FY 2015. 

6. MDC 10 (Endocrine, Nutritional and Metabolic Diseases and Disorders): Disorders 

of Porphyrin Metabolism 

 We received a comment on the FY 2014 IPPS/LTCH PPS proposed rule that we 

considered out of scope for the proposed rule. We stated in the FY 2014 IPPS/LTCH 

PPS final rule (78 FR 50550) that we would consider this issue in future rulemaking as 

part of our annual review process. The request was for the creation of a new MS–DRG to 

better identify cases where patients with disorders of porphyrin metabolism exist, to 

recognize the resource requirements in caring for these patients, to ensure appropriate 

payment for these cases, and to preserve patient access to necessary treatments. This 

issue has been discussed previously in the FY 2013 IPPS/LTCH PPS proposed rule (77 

FR 27904 and 27905) and final rule (77 FR 53311 through 53313). 
 177 

 Porphyria is defined as a group of rare disorders (“porphyrias”) that interfere with 

the production of hemoglobin that is needed for red blood cells. While some of these 

disorders are genetic (inborn) and others can be acquired, they all result in the abnormal 

accumulation of hemoglobin building blocks, called porphyrins, which can be deposited 

in the tissues where they particularly interfere with the functioning of the nervous system 

and the skin. Treatment for patients suffering from disorders of porphyrin metabolism 

consists of an intravenous injection of Panhematin® (hemin for injection). In 1984, this 

pharmaceutical agent became the first approved drug for a rare disease to be designated 

under the Orphan Drug Act. The requestor stated that it is the only FDA-approved 

prescription treatment for acute intermittent porphyria. ICD–9–CM diagnosis code 277.1 

(Disorders of porphyrin metabolism) describes these cases, which are currently assigned 

to MS–DRG 642 (Inborn and Other Disorders of Metabolism). 

 We analyzed claims data from the December 2013 update of the FY 2013 

MedPAR file for cases assigned to MS-DRG 642. Our findings are shown in the table 

below. 

MS-DRG 

Number 

of Cases 

Average 

Length of 

Stay 

Average 

Costs 

MS-DRG 642 – All cases 1,486 4.61 $8,151

MS-DRG 642 - Cases with principal diagnosis code 

277.1 299 5.98 $13,303

 As shown in the table above, we found a total of 1,486 cases in MS–DRG 642, 

with an average length of stay of 4.61 days and average costs of $8,151. We then 

analyzed the data for cases reporting diagnosis code 277.1 as the principal diagnosis in 
 178 

this same MS–DRG. We found a total of 299 cases, with an average length of stay of 

5.98 days and average costs of $13,303. 

 While the data show that the average costs for the 299 cases reporting a principal 

diagnosis code of 277.1 were higher than the average costs for all cases in MS–DRG 642 

($13,303 compared to $8,151), the number of cases is small. Given the small number of 

porphyria cases, we do not believe there is justification for creating a new MS-DRG. 

Basing a new MS-DRG on such a small number of cases could lead to distortions in the 

relative payment weights for the MS-DRG because several expensive cases could impact 

the overall relative payment weight. Having larger clinical cohesive groups within an 

MS-DRG provides greater stability for annual updates to the relative payment weights. 

In addition, as discussed earlier, one of the criteria we apply in evaluating whether to 

create new severity subgroups within an MS-DRG is whether there are at least 500 cases 

in the CC or MCC subgroup. While this criterion is used to evaluate whether to create a 

severity subgroup within an MS-DRG, applying it here suggests that creating a new MSDRG for cases reporting a principal diagnosis of code 277.1 would not be appropriate. 

Our clinical advisors reviewed this issue and recommended no MS-DRG change for 

porphyria cases because they fit clinically within MS-DRG 642. 

 In summary, we are not proposing to create a new MS–DRG for porphyria cases. 

We are inviting public comments on our proposal to maintain porphyria cases in 

MS-DRG 642. 
 179 

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

Period) 

 We received a request to evaluate the MS–DRG assignment of seven ICD–9–CM 

diagnosis codes in MS-DRG 794 (Neonate with Other Significant Problems) under 

MDC 15. The requestor stated that these codes have no bearing on the infant, and are not 

representative of a neonate with a significant problem. The requestor recommended that 

we change the MS-DRG logic so that the following seven ICD-9-CM codes would not 

lead to assignment of MS–DRG 794. The requestor recommended that the diagnoses be 

added to the “only secondary diagnosis” list under MS-DRG 795 (Normal newborn) so 

that the case would be assigned to MS-DRG 795 (Normal newborn). 

● V17.0 (Family history of psychiatric condition) 

● V17.2 (Family history of other neurological Diseases) 

● V17.49 (Family history of other cardiovascular diseases) 

● V18.0 (Family history of diabetes mellitus) 

● V18.19 (Family history of other endocrine and metabolic diseases) 

● V18.8 (Family history of infectious and parasitic diseases) 

● V50.3 (Ear piercing) 

 In the case of a newborn with one of these diagnosis codes reported as a 

secondary diagnosis, the case would be assigned to MS–DRG 794. The commenter 

believed that any of these seven diagnosis codes (noted above), when reported as a 

secondary diagnosis for a newborn case, should be assigned to MS–DRG 795 instead of 

MS–DRG 794. 
 180 

 Our clinical advisors reviewed this request and concur with the commenter that 

the seven ICD-9-CM diagnosis codes noted above should not continue to be assigned to 

MS–DRG 794, as there is no clinically usable information reported in those codes 

identifying significant problems. Therefore, for FY 2015, we are proposing to reassign 

these following seven diagnoses to the “only secondary diagnosis list” under MS–DRG 

795 so that the case would be assigned to MS–DRG 795. 

● V17.0 (Family history of psychiatric condition) 

● V17.2 (Family history of other neurological diseases) 

● V17.49 (Family history of other cardiovascular diseases) 

● V18.0 (Family history of diabetes mellitus) 

● V18.19 (Family history of other endocrine and metabolic diseases) 

● V18.8 (Family history of infectious and parasitic diseases) 

● V50.3 (Ear piercing) 

 We are inviting public comments on this proposal. 

8. Proposed Medicare Code Editor (MCE) Changes 

 The Medicare Code Editor (MCE) is a software program that detects and reports 

errors in the coding of Medicare claims data. Patient diagnoses, procedure(s), and 

demographic information are entered into the Medicare claims processing systems and 

are subjected to a series of automated screens. The MCE screens are designed to identify 

cases that require further review before classification into an MS-DRG. 

 As discussed in section II.G.1.a. of the preamble of this proposed rule, we 

developed an ICD-10 version of the current MS-DRGs, which are based on ICD-9-CM 
 181 

codes. We refer to this version of the MS-DRGs as the ICD-10 MS-DRGs Version 

31.0-R. In November 2013, we also posted a Definitions of Medicare Code Edits Manual 

of the ICD-10 MCE Version 31.0 on the ICD-10 MS-DRG Conversion Project Web site 

at: http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. 

We produced mainframe and computer software for Version 31.0 of the MS-DRG 

GROUPER with Medicare Code Editor, which was made available to the public in 

December 2013. Information on ordering the mainframe and computer software through 

NTIS was posted on the CMS Web site at: 

http://www.cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html

under the “Related Links” section. This ICD-10 MS-DRG GROUPER with Medicare 

Code Editor Version 31.0 computer software facilitated additional review of the ICD-10 

MS-DRGs conversion. We encouraged the public to submit to CMS any comments on 

areas where they believed the ICD-10 MS-DRG GROUPER and MCE did not accurately 

reflect the logic and edits found in the ICD-9-CM MS-DRG GROUPER and MCE 

Version 31.0. 

 We also have posted an ICD-10 version of the current MCE, which is based on 

ICD-9-CM codes, and refer to that version of the MCE as the ICD-10 MCE Version 

31.0-R. Both of these documents are posted on our ICD-10 MS-DRG Conversion Project 

Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRGConversion-Project.html. We will continue to share ICD-10 MS-DRG and MCE 

conversion activities with the public through this Web site. 

 For FY 2015, we are proposing to remove extracranial-intracranial (EC-IC) 

bypass surgery from the “Noncovered Procedure” edit code list for Version 32.0 of the 
 182 

MCE. This procedure is identified by ICD-9-CM procedure code 39.28 (Extracranialintracranial (EC-IC) vascular bypass). 

 Because of the complexity of appropriately classifying the circumstances under 

which the EC-IC bypass surgery may, or may not, be considered reasonable and 

necessary for certain conditions, we are proposing to remove the MCE “Noncovered 

Procedure” edit for EC-IC bypass surgery from the “Noncovered Procedure” edit code 

list for Version 32.0 of the MCE. We are inviting public comments on this proposal. 

9. Proposed Changes to Surgical Hierarchies 

 Some inpatient stays entail multiple surgical procedures, each one of which, 

occurring by itself, could result in assignment of the case to a different MS-DRG within 

the MDC to which the principal diagnosis is assigned. Therefore, it is necessary to have 

a decision rule within the GROUPER by which these cases are assigned to a single 

MS-DRG. The surgical hierarchy, an ordering of surgical classes from most 

resource-intensive to least resource-intensive, performs that function. Application of this 

hierarchy ensures that cases involving multiple surgical procedures are assigned to the 

MS-DRG associated with the most resource-intensive surgical class. 

 Because the relative resource intensity of surgical classes can shift as a function 

of MS-DRG reclassification and recalibrations, for FY 2015, 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 
 183 

652) and the class “major bladder procedures” consists of three MS-DRGs (MS-DRGs 

653, 654, and 655). Consequently, in many cases, the surgical hierarchy has an impact 

on more than one MS-DRG. The methodology for determining the most 

resource-intensive surgical class involves weighting the average resources for each 

MS-DRG by frequency to determine the weighted average resources for each surgical 

class. For example, assume surgical class A includes MS-DRGs 001 and 002 and 

surgical class B includes MS-DRGs 003, 004, and 005. Assume also that the average 

costs of MS-DRG 001 are higher than that of MS-DRG 003, but the average costs of 

MS-DRGs 004 and 005 are higher than the average costs of MS-DRG 002. To determine 

whether surgical class A should be higher or lower than surgical class B in the surgical 

hierarchy, we would weigh the average costs of each MS-DRG in the class by frequency 

(that is, by the number of cases in the MS-DRG) to determine average resource 

consumption for the surgical class. The surgical classes would then be ordered from the 

class with the highest average resource utilization to that with the lowest, with the 

exception of “other O.R. procedures” as discussed below. 

 This methodology may occasionally result in assignment of a case involving 

multiple procedures to the lower-weighted MS-DRG (in the highest, most 

resource-intensive surgical class) of the available alternatives. However, given that the 

logic underlying the surgical hierarchy provides that the GROUPER search for the 

procedure in the most resource-intensive surgical class, in cases involving multiple 

procedures, this result is sometimes unavoidable. 
 184 

 We note that, notwithstanding the foregoing discussion, there are a few instances 

when a surgical class with a lower average cost is ordered above a surgical class with a 

higher average cost. For example, the “other O.R. procedures” surgical class is 

uniformly ordered last in the surgical hierarchy of each MDC in which it occurs, 

regardless of the fact that the average costs for the MS-DRG or MS-DRGs in that 

surgical class may be higher than those for other surgical classes in the MDC. The “other 

O.R. procedures” class is a group of procedures that are only infrequently related to the 

diagnoses in the MDC, but are still occasionally performed on patients with cases 

assigned to the MDC with these diagnoses. Therefore, assignment to these surgical 

classes should only occur if no other surgical class more closely related to the diagnoses 

in the MDC is appropriate. 

 A second example occurs when the difference between the average costs for two 

surgical classes is very small. We have found that small differences generally do not 

warrant reordering of the hierarchy because, as a result of reassigning cases on the basis 

of the hierarchy change, the average costs are likely to shift such that the higher-ordered 

surgical class has lower average costs than the class ordered below it. 

 Based on the changes that we are proposing to make for FY 2015, as discussed in 

sections II.G.4.c., II.G.5.a., and II.G.5.c. of the preamble of this FY 2015 IPPS/LTCH 

PPS proposed rule, we are proposing to revise the surgical hierarchy for MDC 5 

(Diseases and Disorders of the Circulatory System) and MDC 8 (Diseases and Disorders 

of the Musculoskeletal System and Connective Tissue) as follows: 
 185 

 In MDC 5, we are proposing to sequence proposed new MS-DRG 266 

(Endovascular Cardiac Valve Replacement with MCC) and proposed new MS-DRG 267 

(Endovascular Cardiac Valve Replacement without MCC) above MS-DRG 222 (Cardiac 

Defibrillator Implant with Cardiac Catheterization with AMI/HF/Shock with MCC). 

 In MDC 8, we are proposing to delete MS-DRGs 490 (Back & Neck Procedures 

Except Spinal Fusion with CC/MCC or Disc Device/Neurostimulator) and MS-DRG 491 

(Back & Neck Procedures Except Spinal Fusion without CC/MCC or Disc 

Device/Neurostimulator) from the surgical hierarchy. We are proposing to sequence 

proposed new MS-DRG 518 (Back & Neck Procedure Except Spinal Fusion with MCC 

or Disc Device/Neurostimulator), proposed new MS-DRG 519 (Back & Neck Procedure 

Except Spinal Fusion with CC), and proposed new MS-DRG 520 (Back & Neck 

Procedure Except Spinal Fusion without CC/MCC) above MS-DRG 492 (Lower 

Extremity and Humerus Procedure Except Hip, Foot, Femur with MCC). 

 We are inviting public comments on our proposals. 

10. Proposed Changes to the MS-DRG Diagnosis Codes for FY 2015 

a. Major Complications or Comorbidities (MCCs) and Complications or Comorbidities 

(CC) Severity Levels for FY 2015 

 A complete updated MCC, CC, and Non-CC Exclusion List is available via the 

Internet on the CMS Web site at: http://cms.hhs.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html as follows: 

● Table 6I (Complete MCC list); 

● Table 6J (Complete CC list); and 
 186 

● Table 6K (Complete list of CC Exclusions). 

b. Coronary Atherosclerosis Due to Calcified Coronary Lesion 

 We received a request that we change the severity level for ICD–9–CM diagnosis 

code 414.4 (Coronary atherosclerosis due to calcified coronary lesion) from a non-CC to 

an MCC. This issue was previously discussed in the FY 2014 IPPS/LTCH PPS proposed 

rule (78 FR 27522) and the FY 2014 IPPS/LTCH PPS final rule (78 FR 50541 through 

50542). 

 We examined claims data from the December 2013 update of the FY 2013 

MedPAR file for ICD-9-CM diagnosis code 414.4. The following chart shows our 

findings. 

Code Diagnosis 

description 

CC 

Level 

Cnt 

1 

Cnt 1 

Impact

Cnt 2 Cnt 2 

Impact 

Cnt 3 Cnt 3 

Impact 

414.4 Coronary 

atherosclerosis 

due to calcified 

lesion. 

NonCC 1,796 1.16 3,056 2.18 2,835 3.01

 We ran the above data as described in the FY 2008 IPPS final rule with comment 

period (72 FR 47158 through 47161). The C1 value reflects a patient with no other 

secondary diagnosis or with all other secondary diagnoses that are non-CCs. The C2 

value reflects a patient with at least one other secondary diagnosis that is a CC, but none 

that is an MCC. The C3 value reflects a patient with at least one other secondary 

diagnosis that is an MCC. 

 The chart above shows that the C1 finding is 1.16. A value close to 1.0 in the C1 

field suggests that the diagnosis produces the same expected value as a non-CC. A value 
 187 

close to 2.0 suggests the condition is more like a CC than a non-CC, but not as significant 

in resource usage as an MCC. A value close to 3.0 suggests the condition is expected to 

consume resources more similar to an MCC than a CC or a non-CC. The C2 finding was 

2.18. A C2 value close to 2.0 suggests the condition is more like a CC than a non-CC, 

but not as significant in resource usage as an MCC when there is at least one other 

secondary diagnosis that is a CC but none that is an MCC. While the C1 value of 1.16 is 

above the 1.0 value for a non-CC, it does not support reclassification to an MCC. As 

stated earlier, a value close to 3.0 suggests the condition is expected to consume 

resources more similar to an MCC than a CC or a non-CC. The C2 finding of 2.18 also 

does not support reclassifying this diagnosis code to an MCC. Our clinical advisors 

reviewed the data and evaluated this condition. They recommended that we not change 

the severity level of diagnosis code 414.4 from a non-CC to an MCC. They do not 

believe that this diagnosis would increase the severity level of patients. They pointed out 

that a similar code, diagnosis code 414.2 (Chronic total occlusion of coronary artery), is a 

non-CC. Our clinical advisors believe that diagnosis code 414.4 represents patients who 

are less severe than diagnosis code 414.2. Considering the C1 and C2 ratings and the 

input from our clinical advisors, we are not proposing to reclassify diagnosis code 414.4 

to an MCC; the diagnosis code would continue to be considered a non-CC. 

 Therefore, based on the data and clinical analysis, we are proposing to maintain 

diagnosis code 414.4 as a non-CC. We are inviting public comments on our proposal. 

11. Complications or Comorbidity (CC) Exclusions List 

a. Background of the CC List and the CC Exclusions List 
 188 

 Under the IPPS MS-DRG classification system, we have developed a standard list 

of diagnoses that are considered CCs. Historically, we developed this list using physician 

panels that classified each diagnosis code based on whether the diagnosis, when present 

as a secondary condition, would be considered a substantial complication or comorbidity. 

A substantial complication or comorbidity was defined as a condition that, because of its 

presence with a specific principal diagnosis, would cause an increase in the length of stay 

by at least 1 day in at least 75 percent of the patients. However, depending on the 

principal diagnosis of the patient, some diagnoses on the basic list of complications and 

comorbidities may be excluded if they are closely related to the principal diagnosis. In 

FY 2008, we evaluated each diagnosis code to determine its impact on resource use and 

to determine the most appropriate CC subclassification (non-CC, CC, or MCC) 

assignment. We refer readers to sections II.D.2. and 3. of the preamble of the FY 2008 

IPPS final rule with comment period for a discussion of the refinement of CCs in relation 

to the MS-DRGs we adopted for FY 2008 (72 FR 47152 through 47171). 

b. Proposed CC Exclusions List for FY 2015 

 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 
 189 

in a pair. As we indicated above, we developed a list of diagnoses, using physician 

panels, to include those diagnoses that, when present as a secondary condition, would be 

considered a substantial complication or comorbidity. In previous years, we have made 

changes to the list of CCs, either by adding new CCs or deleting CCs already on the list. 

 In the May 19, 1987 proposed notice (52 FR 18877) and the September 1, 1987 

final notice (52 FR 33154), we explained that the excluded secondary diagnoses were 

established using the following five principles: 

● Chronic and acute manifestations of the same condition should not be 

considered CCs for one another; 

● Specific and nonspecific (that is, not otherwise specified (NOS)) diagnosis 

codes for the same condition should not be considered CCs for one another; 

● Codes for the same condition that cannot coexist, such as partial/total, 

unilateral/bilateral, obstructed/unobstructed, and benign/malignant, should not be 

considered CCs for one another; 

● Codes for the same condition in anatomically proximal sites should not be 

considered CCs for one another; and 

● Closely related conditions should not be considered CCs for one another. 

 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 
 190 

and to remove diagnoses from the master list that have been shown not to meet the 

definition of a CC.1

 For FY 2015, we are not proposing any changes to the CC Exclusion List. 

Therefore, we are not developing or publishing Tables 6G (Additions to the CC 

Exclusion List) or Table 6H (Deletions from the CC Exclusion List). We have developed 

Table 6K (Complete List of CC Exclusions), which is available only via the Internet on 

the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html. Because of the length of Table 6K, we are not 

publishing it in the Addendum to this proposed rule. Each of these principal diagnosis 

codes for which there is a CC exclusion is shown 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. Beginning with discharges on or after October 1 of each 

year, the indented diagnoses are not recognized by the GROUPER as valid CCs for the 

asterisked principal diagnoses. 

 

1 We refer readers to the FY 1989 final rule (53 FR 38485, September 30, 1988) for the revision made for the discharges occurring in 

FY 1989; the FY 1990 final rule (54 FR 36552, September 1, 1989) for the FY 1990 revision; the FY 1991 final rule (55 FR 36126,

September 4, 1990) for the FY 1991 revision; the FY 1992 final rule (56 FR 43209, August 30, 1991) for the FY 1992 revision; the 

FY 1993 final rule (57 FR 39753, September 1, 1992) for the FY 1993 revision; the FY 1994 final rule (58 FR 46278, 

September 1, 1993) for the FY 1994 revisions; the FY 1995 final rule (59 FR 45334, September 1, 1994) for the FY 1995 revisions; 

the FY 1996 final rule (60 FR 45782, September 1, 1995) for the FY 1996 revisions; the FY 1997 final rule (61 FR 46171, 

August 30, 1996) for the FY 1997 revisions; the FY 1998 final rule (62 FR 45966, August 29, 1997) for the FY 1998 revisions; the 

FY 1999 final rule (63 FR 40954, July 31, 1998) for the FY 1999 revisions; the FY 2001 final rule (65 FR 47064, August 1, 2000) for 

the FY 2001 revisions; the FY 2002 final rule (66 FR 39851, August 1, 2001) for the FY 2002 revisions; the FY 2003 final rule 

(67 FR 49998, August 1, 2002) for the FY 2003 revisions; the FY 2004 final rule (68 FR 45364, August 1, 2003) for the FY 2004 

revisions; the FY 2005 final rule (69 FR 49848, August 11, 2004) for the FY 2005 revisions; the FY 2006 final rule (70 FR 47640, 

August 12, 2005) for the FY 2006 revisions; the FY 2007 final rule (71 FR 47870) for the FY 2007 revisions; the FY 2008 final rule 

(72 FR 47130) for the FY 2008 revisions; the FY 2009 final rule (73 FR 48510); the FY 2010 final rule (74 FR 43799); the FY 2011 

final rule (75 FR 50114); the FY 2012 final rule (76 FR 51542); the FY 2013 final rule (77 FR 53315); and the FY 2014 final rule 

(78 FR 50541). 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.
 191 

 A complete updated MCC, CC, and Non-CC Exclusions List is available via the 

Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html. 

 Because there are no proposed new, revised, or deleted diagnosis or procedure 

codes for FY 2015, we are not developing 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), and Table 6F (Revised 

Procedure Codes) to this proposed rule and they are not published as part of this proposed 

rule. 

 We are proposing no additions or deletions to the MS-DRG MCC List for 

FY 2015 and no additions or deletions to the MS-DRG CC List for FY 2015. Therefore, 

we are not developing Tables 6I.1 (Additions to the MCC List), 6I.2 (Deletions to the 

MCC List), 6J.1 (Additions to the CC List), and 6J.2 (Deletions to the CC List), and they 

are not published as part of this proposed rule. 

 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 31.0, is 

available on a CD for $225.00. This manual 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. Version 32.0 of this manual, which 
 192 

will include the final FY 2015 MS-DRG changes, will be available after publication of 

the FY 2015 final rule on a CD for $225.00. This manual may be obtained by writing 

3M/HIS at the address provided above; or by calling (203) 949-0303; or by obtaining an 

order form at the Web site at: http://www/3MHIS.com. Please specify the revision or 

revisions requested. 

12. Review of Procedure Codes in MS DRGs 981 through 983; 984 through 986; and 

987 through 989 

 Each year, we review cases assigned to former CMS DRG 468 (Extensive O.R. 

Procedure Unrelated to Principal Diagnosis), CMS DRG 476 (Prostatic O.R. Procedure 

Unrelated to Principal Diagnosis), and CMS DRG 477 (Nonextensive O.R. Procedure 

Unrelated to Principal Diagnosis) to determine whether it would be appropriate to change 

the procedures assigned among these CMS DRGs. Under the MS-DRGs that we adopted 

for FY 2008, CMS DRG 468 was split three ways and became MS-DRGs 981, 982, and 

983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, 

and without CC/MCC, respectively). CMS DRG 476 became MS-DRGs 984, 985, and 

986 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and 

without CC/MCC, respectively). CMS DRG 477 became MS-DRGs 987, 988, and 989 

(Nonextensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and 

without CC/MCC, respectively). 

 MS-DRGs 981 through 983, 984 through 986, and 987 through 989 (formerly 

CMS DRGs 468, 476, and 477, respectively) are reserved for those cases in which none 

of the O.R. procedures performed are related to the principal diagnosis. These MS-DRGs 
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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); and 
 194 

● 60.99 (Other operations on prostate). 

 All remaining O.R. procedures are assigned to MS-DRGs 981 through 983 and 

987 through 989, with MS-DRGs 987 through 989 assigned to those discharges in which 

the only procedures performed are nonextensive procedures that are unrelated to the 

principal diagnosis.2

 Our review of MedPAR claims data showed that there were no cases that merited 

movement or should logically be assigned to any of the other MDCs. Therefore, for 

FY 2015, we are not proposing to change the procedures assigned among these 

MS-DRGs. 

a. Moving Procedure Codes from MS-DRGs 981 through 983 or MS-DRGs 987 through 

989 into MDCs 

 We annually conduct a review of procedures producing assignment to MS-DRGs 

981 through 983 (Extensive O.R. procedure unrelated to principal diagnosis with MCC, 

 

2

The original list of the ICD-9-CM procedure codes for the procedures we consider nonextensive 

procedures, if performed with an unrelated principal diagnosis, was published in Table 6C in section IV. of 

the Addendum to the FY 1989 final rule (53 FR 38591). As part of the FY 1991 final rule (55 FR 36135), 

the FY 1992 final rule (56 FR 43212), the FY 1993 final rule (57 FR 23625), the FY 1994 final rule 

(58 FR 46279), the FY 1995 final rule (59 FR 45336), the FY 1996 final rule (60 FR 45783), the FY 1997 

final rule (61 FR 46173), and the FY 1998 final rule (62 FR 45981), we moved several other procedures 

from DRG 468 to DRG 477, and some procedures from DRG 477 to DRG 468. No procedures were 

moved in FY 1999, as noted in the final rule (63 FR 40962), in the FY 2000 (64 FR 41496), in the FY 2001 

(65 FR 47064), or in the FY 2002 (66 FR 39852). In the FY 2003 final rule (67 FR 49999), we did not 

move any procedures from DRG 477. However, we did move procedure codes from DRG 468 and placed 

them in more clinically coherent DRGs. In the FY 2004 final rule (68 FR 45365), we moved several 

procedures from DRG 468 to DRGs 476 and 477 because the procedures are nonextensive. In the FY 2005 

final rule (69 FR 48950), we moved one procedure from DRG 468 to 477. In addition, we added several 

existing procedures to DRGs 476 and 477. In FY 2006 (70 FR 47317), we moved one procedure from 

DRG 468 and assigned it to DRG 477. In FY 2007, we moved one procedure from DRG 468 and assigned 

it to DRGs 479, 553, and 554. In FYs 2008, 2009, 2010, 2011, 2012, 2013, and 2014, no procedures were 

moved, as noted in the FY 2008 final rule with comment period (72 FR 46241), in the FY 2009 final rule 

(73 FR 48513), in the FY 2010 final rule (74 FR 43796), in the FY 2011 final rule (75 FR 50122), in the 

FY 2012 final rule (76 FR 51549), in the FY 2013 final rule (77 FR 53321), and in the FY 2014 final rule 

(78 FR 50545). 
 195 

with CC, and without CC/MCC, respectively) or MS-DRGs 987 through 989 

(Nonextensive O.R. procedure unrelated to principal diagnosis with MCC, with CC, and 

without CC/MCC, respectively) on the basis of volume, by procedure, to see if it would 

be appropriate to move procedure codes out of these MS-DRGs into one of the surgical 

MS-DRGs for the MDC into which the principal diagnosis falls. The data are arrayed in 

two ways for comparison purposes. We look at a frequency count of each major 

operative procedure code. We also compare procedures across MDCs by volume of 

procedure codes within each MDC. 

 We identify those procedures occurring in conjunction with certain principal 

diagnoses with sufficient frequency to justify adding them to one of the surgical 

MS-DRGs for the MDC in which the diagnosis falls. As noted above, there were no 

cases that merited movement or that should logically be assigned to any of the other 

MDCs. Therefore, for FY 2015, we are not proposing to remove any procedures from 

MS-DRGs 981 through 983 or MS-DRGs 987 through 989 into one of the surgical 

MS-DRGs for the MDC into which the principal diagnosis is assigned. 

b. Reassignment of Procedures among MS-DRGs 981 through 983, 984 through 986, 

and 987 through 989 

 We also annually review the list of ICD-9-CM procedures that, when in 

combination with their principal diagnosis code, result in assignment to MS-DRGs 981 

through 983, 984 through 986 (Prostatic O.R. procedure unrelated to principal diagnosis 

with MCC, with CC, or without CC/MCC, respectively), and 987 through 989, to 

ascertain whether any of those procedures should be reassigned from one of these three 
 196 

MS-DRGs to another of the three MS-DRGs based on average costs and the length of 

stay. We look at the data for trends such as shifts in treatment practice or reporting 

practice that would make the resulting MS-DRG assignment illogical. If we find these 

shifts, we would propose to move cases to keep the MS-DRGs clinically similar or to 

provide payment for the cases in a similar manner. Generally, we move only those 

procedures for which we have an adequate number of discharges to analyze the data. 

 There were no cases representing shifts in treatment practice or reporting practice 

that would make the resulting MS-DRG assignment illogical, or that merited movement 

so that cases should logically be assigned to any of the other MDCs. Therefore, for 

FY 2015, we are not proposing to move any procedure codes among these MS-DRGs. 

c. Adding Diagnosis or Procedure Codes to MDCs 

 Based on the review of cases in the MDCs as described above in sections II.G.2. 

through 7. of the preamble of this proposed rule, we are not proposing to add any 

diagnosis or procedure codes to MDCs for FY 2015. 

13. Proposed Changes to the ICD-9-CM System 

a. ICD-10 Coordination and Maintenance Committee 

 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 final update to 

ICD-9-CM codes was to be made on October 1, 2013. Thereafter, the name of the 

Committee was changed to the ICD-10 Coordination and Maintenance Committee, 
 197 

effective with the March 19-20, 2014 meeting. The ICD-10 Coordination and 

Maintenance Committee will address updates to the ICD-10-CM, ICD-10-PCS, and 

ICD-9-CM coding systems. The Committee is jointly responsible for approving coding 

changes, and developing errata, addenda, and other modifications to the coding systems 

to reflect newly developed procedures and technologies and newly identified diseases. 

The Committee is also responsible for promoting the use of Federal and non-Federal 

educational programs and other communication techniques with a view toward 

standardizing coding applications and upgrading the quality of the classification system. 

 The official list of ICD-9-CM diagnosis and procedure codes by fiscal year can be 

found on the CMS Web site at: 

http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/codes.html. The 

official list of ICD-10-CM and ICD-10-PCS codes can be found on the CMS Web site at: 

http://www.cms.gov/Medicare/Coding/ICD10/index.html. 

 The NCHS has lead responsibility for the ICD-10-CM and ICD-9-CM diagnosis 

codes included in the Tabular List and Alphabetic Index for Diseases, while CMS has 

lead responsibility for the ICD-10-PCS and 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 
 198 

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 2015 at a public meeting held on September 18–19, 2013, and finalized the coding 

changes after consideration of comments received at the meetings and in writing by 

November 15, 2013. 

 The Committee held its 2014 meeting on March 19-20, 2014. Any new 

ICD-10-CM/PCS codes for which there was consensus of public support and for which 

complete tabular and indexing changes will be made by May 2014 will be included in the 

October 1, 2014 update to ICD-10-CM/ICD-10-PCS. For FY 2015, there are no 

proposed new, revised, or deleted ICD-9-CM diagnosis or procedure codes. 

 Copies of the minutes of the procedure codes discussions at the Committee’s 

September 18-19, 2013 meeting and March 19-20, 2014 meeting can be obtained from 

the CMS Web site at: 

http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html?redirect

=/icd9ProviderDiagnosticCodes/03_meetings.asp. The minutes of the diagnosis codes 

discussions at the September 18-19, 2013 meeting and March 19-20, 2014 meeting are 

found at: http://www.cdc.gov/nchs/icd/icd9cm.html. These Web sites also provide detailed 
 199 

information about the Committee, including information on requesting a new code, 

attending a Committee meeting, and timeline requirements and meeting dates. 

 We encourage commenters to address suggestions on coding issues involving 

diagnosis codes to: Donna Pickett, Co-Chairperson, ICD-10 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 Brooks, Co-Chairperson, ICD-10 Coordination and Maintenance Committee, 

CMS, Center for Medicare Management, Hospital and Ambulatory Policy Group, 

Division of Acute Care, C4-08-06, 7500 Security Boulevard, Baltimore, MD 

21244-1850. Comments may be sent by E-mail to: patricia.brooks2@cms.hhs.gov. 

 In the September 7, 2001 final rule implementing the IPPS new technology 

add-on payments (66 FR 46906), we indicated we would attempt to include proposals for 

procedure codes that would describe new technology discussed and approved at the 

Spring meeting as part of the code revisions effective the following October. 

 Section 503(a) of Pub. L. 108-173 included a requirement for updating 

ICD-9-CM codes twice a year instead of a single update on October 1 of each year. This 

requirement was included as part of the amendments to the Act relating to recognition of 

new technology under the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the 

Act by adding a clause (vii) which states that the “Secretary shall provide for the addition 

of new diagnosis and procedure codes on April 1 of each year, but the addition of such 

codes shall not require the Secretary to adjust the payment (or diagnosis-related group 
 200 

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-10 (previously 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 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 
 201 

addendum describing details of all diagnosis and procedure coding changes, both tabular 

and index, is published on the CMS and NCHS Web sites in May of each year. 

Publishers of coding books and software use this information to modify their products 

that are used by health care providers. This 5-month time period has proved to be 

necessary for hospitals and other providers to update their systems. 

 A discussion of this timeline and the need for changes are included in the 

December 4-5, 2005 ICD-9-CM Coordination and Maintenance Committee Meeting 

minutes. The public agreed that there was a need to hold the fall meetings earlier, in 

September or October, in order to meet the new implementation dates. The public 

provided comment that additional time would be needed to update hospital systems and 

obtain new code books and coding software. There was considerable concern expressed 

about the impact this new April update would have on providers. 

 In the FY 2005 IPPS final rule, we implemented section 1886(d)(5)(K)(vii) of the 

Act, as added by section 503(a) of Pub. L. 108-173, by developing a mechanism for 

approving, in time for the April update, diagnosis and procedure code revisions needed to 

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-10 (previously ICD-9-CM) 

Coordination and Maintenance Committee meeting are considered for an April 1 update 

if a strong and convincing case is made by the requester at the Committee’s public 

meeting. The request must identify the reason why a new code is needed in April for 

purposes of the new technology process. The participants at the meeting and those 
 202 

reviewing the Committee meeting summary report are provided the opportunity to 

comment on this expedited request. All other topics are considered for the October 1 

update. Participants at the Committee meeting are encouraged to comment on all such 

requests. There were no requests approved for an expedited April l, 2014 implementation 

of a code at the September 18-19, 2013 Committee meeting. Therefore, there were no 

new codes implemented on April 1, 2014. 

 ICD-9-CM addendum and code title information is published on the CMS Web 

site at: 

http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html?re

direct=/icd9ProviderDiagnosticCodes/01overview.asp#TopofPage. ICD-10-CM and 

ICD-10-PCS addendum and code title information is published on the CMS web site at 

http://www.cms.gov/Medicare/Coding/ICD10/index.html. Information on ICD-10-CM 

diagnosis codes, along with the Official ICD-10-CM Coding Guidelines, can also be 

found on the CDC Web site at: http://www.cdc.gov/nchs/icd/icd10cm.html. Information on 

new, revised, and deleted ICD-10-CM/ICD-10-PCS codes is also provided to the AHA 

for publication in the Coding Clinic for ICD-10. 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. 

 The code titles are adopted as part of the ICD-10 (previously ICD-9-CM) 

Coordination and Maintenance Committee process. Therefore, although we publish the 
 203 

code titles in the IPPS proposed and final rules, they are not subject to comment in the 

proposed or final rules. 

b. Code Freeze 

 In the January 16, 2009 ICD-10-CM and ICD-10-PCS final rule (74 FR 3340), 

there was a discussion of the need for a partial or total freeze in the annual updates to 

both ICD-9-CM and ICD-10-CM and ICD-10-PCS codes. The public comment 

addressed in that final rule stated that the annual code set updates should cease l year 

prior to the implementation of ICD-10. The commenters stated that this freeze of code 

updates would allow for instructional and/or coding software programs to be designed 

and purchased early, without concern that an upgrade would take place immediately 

before the compliance date, necessitating additional updates and purchases. 

 HHS responded to comments in the ICD-10 final rule that the ICD-9-CM 

Coordination and Maintenance Committee has jurisdiction over any action impacting the 

ICD-9-CM and ICD-10 code sets. Therefore, HHS indicated that the issue of 

consideration of a moratorium on updates to the ICD-9-CM, ICD-10-CM, and 

ICD-10-PCS code sets in anticipation of the adoption of ICD-10-CM and ICD-10-PCS 

would be addressed through the Committee at a future public meeting. 

 The code freeze was discussed at multiple meetings of the ICD-9-CM 

Coordination and Maintenance Committee and public comment was actively solicited. 

The Committee evaluated all comments from participants attending the Committee 

meetings as well as written comments that were received. The Committee also 

considered the delay in implementation of ICD-10 until October 1, 2014. There was an 
 204 

announcement at the September 19, 2012 ICD-9-CM Coordination and Maintenance 

Committee meeting that a partial freeze of both ICD-9-CM and ICD-10 codes will be 

implemented as follows: 

● The last regular annual update to both ICD-9-CM and ICD-10 code sets was 

made on October 1, 2011. 

● On October 1, 2012 and October 1, 2013, there will be only limited code 

updates to both ICD-9-CM and ICD-10 code sets to capture new technology and new 

diseases. 

● On October 1, 2014, there were to be only limited code updates to ICD-10 code 

sets to capture new technology and diagnoses as required by section 503(a) of 

Pub. L. 108-173. There were to be no updates to ICD-9-CM on October 1, 2014. 

● On October 1, 2015, one year after the originally scheduled implementation of 

ICD-10, regular updates to ICD-10 were to begin. 

 The ICD-10 (previously ICD-9-CM) Coordination and Maintenance Committee 

announced that it would continue to meet twice a year during the freeze. At these 

meetings, the public will be encouraged to comment on whether or not requests for new 

diagnosis and procedure codes should be created based on the need to capture new 

technology and new diseases. Any code requests that do not meet the criteria will be 

evaluated for implementation within ICD-10 one year after the implementation of 

ICD-10, once the partial freeze is ended. 

 Complete information on the partial code freeze and discussions of the issues at 

the Committee meetings can be found on the ICD-10 Coordination and Maintenance 
 205 

Committee Web site at: 

http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/meetings.html. A 

summary of the September 19, 2012 Committee meeting, along with both written and 

audio transcripts of this meeting, is posted on the Web site at: 

http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-Cand-M-Meeting-Materials-Items/2012-09-19-MeetingMaterials.html. 

 This partial code freeze has dramatically decreased the number of codes created 

each year as shown by the following information. 

Total Number of Codes and Changes in Total Number of Codes per Fiscal Year 

ICD-9-CM Codes ICD-10-CM and ICD-10-PCS Codes 

Fiscal Year No. Change Fiscal Year No. Change 

FY 2009 

(October 1, 2008) 

 FY 2009 

Diagnoses 14,025 348 ICD-10-CM 68,069 +5

Procedures 3,824 56 ICD-10-PCS 72,589 -14,327

 

FY 2010 

(October 1, 2009)

FY 2010 

Diagnoses 14,315 290 ICD-10-CM 69,099 +1,030

Procedures 3,838 14 ICD-10-PCS 71,957 -632

 

FY 2011 

(October 1, 2010)

 

Diagnoses 14,432 117 ICD-10-CM 69,368 +269

Procedures 3,859 21 ICD-10-PCS 72,081 +124

 

FY 2012 

(October 1, 2011)

FY 2012 

Diagnoses 14,567 135 ICD-10-CM 69,833 +465

Procedures 3,877 18 ICD-10-PCS 71,918 -163

 

FY 2013 

(October 1, 2012) 

FY 2013 

Diagnoses 14,567 0 ICD-10-CM 69,832 -1
 206 

Total Number of Codes and Changes in Total Number of Codes per Fiscal Year 

ICD-9-CM Codes ICD-10-CM and ICD-10-PCS Codes 

Fiscal Year No. Change Fiscal Year No. Change 

Procedures 3,878 1 ICD-10-PCS 71,920 +2

 

FY 2014 

(October 1, 2013) 

FY 2014 

Diagnoses 14,567 0 ICD-10-CM 69,823 -9

Procedures 3,882 4 ICD-10-PCS 71,924 +4

 As mentioned earlier, the public is provided the opportunity to comment on any 

requests for new diagnosis or procedure codes discussed at the ICD-10 Coordination and 

Maintenance Committee meeting. The public has supported only a limited number of 

new codes during the partial code freeze, as can be seen by data shown above. We have 

gone from creating several hundred new codes each year to creating only a limited 

number of new ICD-9-CM and ICD-10 codes. 

 At the September 18-19, 2013 and March 19-20, 2014 Committee meetings, we 

discussed any requests we had received for new ICD-10-CM diagnosis and ICD-10-PCS 

procedure codes that were to be implemented on October 1, 2014. We did not discuss 

ICD-9-CM codes. The public was given the opportunity to comment on whether or not 

new ICD-10-CM and ICD-10-PCS codes should be created, based on the partial code 

freeze criteria. The public was to use the criteria as to whether codes were needed to 

capture new diagnoses or new technologies. If the codes do not meet those criteria for 

implementation during the partial code freeze, consideration was to be given as to 

whether the codes should be created after the partial code freeze ends one year after the 

implementation of ICD-10-CM/PCS. We invited public comments on any code requests 

discussed at the September 18-19, 2013 and March 19-20, 2014 Committee meetings for 
 207 

implementation as part of the October 1, 2014 update. The deadline for commenting on 

code proposals discussed at the September 18-19, 2013 Committee meeting was 

November 15, 2013. The deadline for commenting on code proposals discussed at the 

March 19-20, 2014 Committee meeting was April 18, 2014. 

H. Recalibration of the Proposed FY 2015 MS-DRG Relative Weights 

1. Data Sources for Developing the Proposed Relative Weights 

 In developing the proposed FY 2015 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 2013 MedPAR data used in this proposed rule 

include discharges occurring on October 1, 2012, through September 30, 2013, based on 

bills received by CMS through December 31, 2013, from all hospitals subject to the IPPS 

and short-term, acute care hospitals in Maryland (which at that time were under a waiver 

from the IPPS under section 1814(b)(3) of the Act). The FY 2013 MedPAR file used in 

calculating the proposed relative weights includes data for approximately 10,050,984 

Medicare discharges from IPPS providers. Discharges for Medicare beneficiaries 

enrolled in a Medicare Advantage managed care plan are excluded from this analysis. 

These discharges are excluded when the MedPAR “GHO Paid” indicator field on the 

claim record is equal to “1” or when the MedPAR DRG payment field, which represents 

the total payment for the claim, is equal to the MedPAR “Indirect Medical Education 

(IME)” payment field, indicating that the claim was an “IME only” claim submitted by a 

teaching hospital on behalf of a beneficiary enrolled in a Medicare Advantage managed 
 208 

care plan. In addition, the December 31, 2013 update of the FY 2013 MedPAR file 

complies with version 5010 of the X12 HIPAA Transaction and Code Set Standards, and 

includes a variable called “claim type.” Claim type “60” indicates that the claim was an 

inpatient claim paid as fee-for-service. Claim types “61,” “62,” “63,” and “64” relate to 

encounter claims, Medicare Advantage IME claims, and HMO no-pay claims. Therefore, 

the calculation of the proposed relative weights for FY 2015 also excludes claims with 

claim type values not equal to “60.” The data exclude CAHs, including hospitals that 

subsequently became CAHs after the period from which the data were taken. We note 

that the FY 2015 proposed relative weights are based on the ICD-9-CM diagnoses and 

procedures codes from the MedPAR claims data, grouped through the ICD-9-CM version 

of the FY 2015 GROUPER (Version 32). The second data source used in the cost-based 

relative weighting methodology is the Medicare cost report data files from the HCRIS. 

Normally, we use the HCRIS dataset that is 3 years prior to the IPPS fiscal year. 

Specifically, we used cost report data from the December 31, 2013 update of the FY 2012 

HCRIS for calculating the proposed FY 2015 cost-based relative weights. 

2. Methodology for Calculation of the Proposed Relative Weights 

 As we explain in section II.E.2. of the preamble of this proposed rule, we are 

calculating the proposed FY 2015 relative weights based on 19 CCRs, as we did for 

FY 2014. The methodology we used to calculate the proposed FY 2015 MS-DRG 

cost-based relative weights based on claims data in the FY 2013 MedPAR file and data 

from the FY 2012 Medicare cost reports is as follows: 
 209 

● To the extent possible, all the claims were regrouped using the proposed 

FY 2015 MS-DRG classifications discussed in sections II.B. and II.G. of the preamble of 

this proposed rule. 

● The transplant cases that were used to establish the proposed relative weights 

for heart and heart-lung, liver and/or intestinal, and lung transplants (MS-DRGs 001, 002, 

005, 006, and 007, respectively) were limited to those Medicare-approved transplant 

centers that have cases in the FY 2012 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. 
 210 

● At least 92.2 percent of the providers in the MedPAR file had charges for 14 of 

the 19 cost centers. All claims of providers that did not have charges greater than zero 

for at least 14 of the 19 cost centers were deleted. In other words, a provider must have 

no more than five blank cost centers. If a provider did not have charges greater than zero 

in more than five cost centers, the claims for the provider were deleted. (We refer readers 

to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50551) for the edit threshold related to 

FY 2014 and prior fiscal years). 

● Statistical outliers were eliminated by removing all cases that were beyond 

3.0 standard deviations from the geometric mean of the log distribution of both the total 

charges per case and the total charges per day for each MS-DRG. 

● Effective October 1, 2008, because hospital inpatient claims include a POA 

indicator field for each diagnosis present on the claim, only for purposes of relative 

weight-setting, the POA indicator field was reset to “Y” for “Yes” for all claims that 

otherwise have an “N” (No) or a “U” (documentation insufficient to determine if the 

condition was present at the time of inpatient admission) in the POA field. 

 Under current payment policy, the presence of specific HAC codes, as indicated 

by the POA field values, can generate a lower payment for the claim. Specifically, if the 

particular condition is present on admission (that is, a “Y” indicator is associated with the 

diagnosis on the claim), it is not a HAC, and the hospital is paid for the higher severity 

(and, therefore, the higher weighted MS-DRG). If the particular condition is not present 

on admission (that is, an “N” indicator is associated with the diagnosis on the claim) and 

there are no other complicating conditions, the DRG GROUPER assigns the claim to a 
 211 

lower severity (and, therefore, the lower weighted MS-DRG) as a penalty for allowing a 

Medicare inpatient to contract a HAC. While the POA reporting meets policy goals of 

encouraging quality care and generates program savings, it presents an issue for the 

relative weight-setting process. Because cases identified as HACs are likely to be more 

complex than similar cases that are not identified as HACs, the charges associated with 

HAC cases are likely to be higher as well. Therefore, if the higher charges of these HAC 

claims are grouped into lower severity MS-DRGs prior to the relative weight-setting 

process, the relative weights of these particular MS-DRGs would become artificially 

inflated, potentially skewing the relative weights. In addition, we want to protect the 

integrity of the budget neutrality process by ensuring that, in estimating payments, no 

increase to the standardized amount occurs as a result of lower overall payments in a 

previous year that stem from using weights and case-mix that are based on lower severity 

MS-DRG assignments. If this would occur, the anticipated cost savings from the HAC 

policy would be lost. 

 To avoid these problems, we reset the POA indicator field to “Y” only for relative 

weight-setting purposes for all claims that otherwise have an “N” or a “U” in the POA 

field. This resetting “forced” the more costly HAC claims into the higher severity 

MS-DRGs as appropriate, and the relative weights calculated for each MS-DRG more 

closely reflect the true costs of those cases. 

 Once the MedPAR data were trimmed and the statistical outliers were removed, 

the charges for each of the 19 cost groups for each claim were standardized to remove the 

effects of differences in area wage levels, IME and DSH payments, and for hospitals 
 212 

located in Alaska and Hawaii, the applicable cost-of-living adjustment. Because hospital 

charges include charges for both operating and capital costs, we standardized total 

charges to remove the effects of differences in geographic adjustment factors, 

cost-of-living adjustments, and DSH payments under the capital IPPS as well. Charges 

were then summed by MS-DRG for each of the 19 cost groups so that each MS-DRG had 

19 standardized charge totals. These charges were then adjusted to cost by applying the 

national average CCRs developed from the FY 2012 cost report data. 

 The 19 cost centers that we used in the proposed relative weight calculation are 

shown in the following table. The table shows the lines on the cost report and the 

corresponding revenue codes that we used to create the 19 national cost center CCRs. 
 213 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

Routine Days 

Private Room Charges 

011X and 014X 

Adults & Pediatrics (General Routine Care) C_1_C5_30 C_1_C6_30 D3_H

Semi-Private Room Charges 

012X, 013X and 016X-019X 

Ward Charges 015X 

Intensive Days 

Intensive Care Charges 020X 

Intensive Care Unit C_1_C5_31 C_1_C6_31 D3_H
 214 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

Coronary Care Charges 021X 

Coronary Care Unit C_1_C5_32 C_1_C6_32 D3_HBurn Intensive Care Unit C_1_C5_33 C_1_C6_33 D3_HSurgical Intensive Care Unit C_1_C5_34 C_1_C6_34 D3_HOther Special Care Unit C_1_C5_35 C_1_C6_35 D3_H
 215 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

Drugs 

Pharmacy Charges 

025X, 026X and 063X 

Intravenous Therapy C_1_C5_64 C_1_C6_64 D3_H

 C_1_C7_64 

Drugs Charged To Patient C_1_C5_73 C_1_C6_73 D3_H

 C_1_C7_73 
 216 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

Supplies and Equipment 

Medical/Surgical Supply Charges 

0270, 0271, 0272, 0273, 0274, 0277, 0279, and 0621, 0622, 0623 

Medical Supplies Charged to Patients C_1_C5_71 C_1_C6_71 D3_H

 C_1_C7_71 

Durable Medical Equipment Charges 

0290, 0291, 0292 and 0294-0299 DME-Rented C_1_C5_96 C_1_C6_96 D3_H

 C_1_C7_96 

Used Durable Medical Charges 0293 DME-Sold C_1_C5_67 C_1_C6_97 D3_H
 217 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

 C_1_C7_97 

Implantable Devices 

0275, 0276, 0278, 0624 

Implantable Devices Charged to Patients C_1_C5_72 C_1_C6_72 D3_H

 C_1_C7_72 

Therapy Services 

Physical Therapy Charges 042X 

Physical Therapy C_1_C5_66 C_1_C6_66 D3_H

 C_1_C7_66 
 218 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

Occupational Therapy Charges 043X 

Occupational Therapy C_1_C5_67 C_1_C6_67 D3_H

 C_1_C7_67 

Speech Pathology Charges 

044X and 047X 

Speech Pathology C_1_C5_68 C_1_C6_68 D3_H

 C_1_C7_68 

Inhalation Therapy 

Inhalation Therapy Charges 

041X and 046X 

Respiratory Therapy C_1_C5_65 C_1_C6_65 D3_H

 C_1_C7_65 
 219 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

Operating Room 

Operating Room Charges 036X 

Operating Room C_1_C5_50 C_1_C6_50 D3_H

 C_1_C7_50 

 071X 

Recovery Room C_1_C5_51 C_1_C6_51 D3_H

 C_1_C7_51 

Labor & Delivery 

Operating Room Charges 072X 

Delivery Room and Labor Room C_1_C5_52 C_1_C6_52 D3_H
 220 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

C_1_C7_52 

Anesthesia 

Anesthesia Charges 037X 

Anesthesiology C_1_C5_53 C_1_C6_53 D3_H

 C_1_C7_53 

Cardiology 

Cardiology Charges 

048X and 073X 

Electrocardiology C_1_C5_69 C_1_C6_69 D3_H

 C_1_C7_69 

Cardiac Catheteri- 0481 

Cardiac Catheterization C_1_C5_59 C_1_C6_59 D3_H
 221 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

zation 

 C_1_C7_59 

Laboratory 

Laboratory Charges 

030X, 031X, and 075X Laboratory C_1_C5_60 C_1_C6_60 D3_H

 C_1_C7_60 

PBP Clinic Laboratory Services C_1_C5_61 C_1_C6_61 D3_H

 C_1_C7_61 
 222 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

 074X, 086X 

ElectroEncephalography C_1_C5_70 C_1_C6_70 D3_H

 C_1_C7_70 

Radiology 

Radiology Charges 032X, 040X 

Radiology – Diagnostic C_1_C5_54 C_1_C6_54 D3_H

 C_1_C7_54 

028x, 0331, 0332, 0333, 0335, 0339, 0342 

Radiology – Therapeutic C_1_C5_55 C_1_C6_55 D3_H

0343 and 344 Radioisotope C_1_C5_56 C_1_C6_56 D3_H
 223 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

 C_1_C7_56 

Computed Tomography (CT) Scan 

CT Scan Charges 035X 

Computed Tomography (CT) Scan C_1_C5_57 C_1_C6_57 D3_H

 C_1_C7_57 

Magnetic Resonance Imaging (MRI) MRI Charges 061X 

Magnetic Resonance Imaging (MRI) C_1_C5_58 C_1_C6_58 D3_H

 C_1_C7_58 Emergency Room 

Emergency Room 045x Emergency C_1_C5_91 C_1_C6_91 D3_H
 224 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

Charges 

 C_1_C7_91 

Blood and Blood Products 

Blood Charges 038x 

Whole Blood & Packed Red Blood Cells C_1_C5_62 C_1_C6_62 D3_H

 C_1_C7_62 

Blood Storage / Processing 039x 

Blood Storing, Processing, & Transfusing C_1_C5_63 C_1_C6_63 D3_H

 C_1_C7_63 
 225 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

 Other Services 

Other Service Charge 

0002-0099, 022X, 023X, 024X,052X,053X 055X-060X, 064X-070X, 076X-078X, 090X-095X and 099X 

Renal Dialysis 0800X Renal Dialysis C_1_C5_74 C_1_C6_74 D3_HESRD Revenue Setting Charges 

080X and 082X-088X C_1_C7_74 
 226 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

Home Program Dialysis C_1_C5_94 C_1_C6_94 D3_H

 C_1_C7_94 

Outpatient Service Charges 049X 

ASC (Non Distinct Part) C_1_C5_75 C_1_C6_75 D3_H

Lithotripsy Charge 079X C_1_C7_75 

Other Ancillary C_1_C5_76 C_1_C6_76 D3_H

 C_1_C7_76 

Clinic Visit Charges 051X Clinic C_1_C5_90 C_1_C6_90 D3_H
 227 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

C_1_C7_90 

Observation beds 

C_1_C5_92.01 

C_1_C6_92.01 

D3_H.01 

C_1_C7_92.01 

Professional Fees Charges 

096X, 097X, and 098X 

Other Outpatient Services C_1_C5_93 C_1_C6_93 D3_H

C_1_C7_93 

Ambulance Charges 054X Ambulance C_1_C5_95 C_1_C6_95 D3_H

 C_1_C7_95 
 228 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

Rural Health Clinic C_1_C5_88 C_1_C6_88 D3_H

 C_1_C7_88  FQHC C_1_C5_89 C_1_C6_89 D3_H C_1_C7_89 
 229 

 We refer readers to the FY 2009 IPPS/LTCH PPS final rule (73 FR 48462) for a 

discussion on the revenue codes included in the Supplies and Equipment and Implantable 

Devices CCRs, respectively. 

3. Development of National Average CCRs 

 We developed the national average CCRs as follows: 

 Using the FY 2012 cost report data, we removed CAHs, Indian Health Service 

hospitals, all-inclusive rate hospitals, and cost reports that represented time periods of 

less than 1 year (365 days). We included hospitals located in Maryland because we 

include their charges in our claims database. We then created CCRs for each provider for 

each cost center (see prior table for line items used in the calculations) and removed any 

CCRs that were greater than 10 or less than 0.01. We normalized the departmental CCRs 

by dividing the CCR for each department by the total CCR for the hospital for the 

purpose of trimming the data. We then took the logs of the normalized cost center CCRs 

and removed any cost center CCRs where the log of the cost center CCR was greater or 

less than the mean log plus/minus 3 times the standard deviation for the log of that cost 

center CCR. Once the cost report data were trimmed, we calculated a Medicare-specific 

CCR. The Medicare-specific CCR was determined by taking the Medicare charges for 

each line item from Worksheet D-3 and deriving the Medicare-specific costs by applying 

the hospital-specific departmental CCRs to the Medicare-specific charges for each line 

item from Worksheet D-3. Once each hospital’s Medicare-specific costs were 

established, we summed the total Medicare-specific costs and divided by the sum of the 

total Medicare-specific charges to produce national average, charge-weighted CCRs. 
 230 

 After we multiplied the total charges for each MS-DRG in each of the 19 cost 

centers by the corresponding national average CCR, we summed the 19 “costs” across 

each MS-DRG to produce a total standardized cost for the MS-DRG. The average 

standardized cost for each MS-DRG was then computed as the total standardized cost for 

the MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The average 

cost for each MS-DRG was then divided by the national average standardized cost per 

case to determine the relative weight. 

 The proposed FY 2015 cost-based relative weights were then normalized by an 

adjustment factor of 1.642112 so that the average case weight after recalibration was 

equal to the average case weight before recalibration. The normalization adjustment is 

intended to ensure that recalibration by itself neither increases nor decreases total 

payments under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act. 

 The proposed 19 national average CCRs for FY 2015 are as follows: 

Group CCR 

Routine Days 0.483 

Intensive Days 0.405 

Drugs 0.191 

Supplies & Equipment 0.293 

Implantable Devices 0.355 

Therapy Services 0.345 

Laboratory 0.128 

Operating Room 0.212 

Cardiology 0.124 

Cardiac Catheterization 0.131 

Radiology 0.164 

MRIs 0.086 

CT Scans 0.043 

Emergency Room 0.197 

Blood and Blood Products 0.360 

Other Services 0.398 

Labor & Delivery 0.393 
 231 

Group CCR 

Inhalation Therapy 0.182 

Anesthesia 0.115 

 Since FY 2009, the relative weights have been based on 100 percent cost weights 

based on our MS-DRG grouping system. 

 When we recalibrated the DRG weights for previous years, we set a threshold of 

10 cases as the minimum number of cases required to compute a reasonable weight. In 

this FY 2015 IPPS/LTCH PPS proposed rule, we are proposing to use that same case 

threshold in recalibrating the proposed MS-DRG relative weights for FY 2015. Using 

data from the FY 2013 MedPAR file, there were 8 MS-DRGs that contain fewer than 

10 cases. Under the MS-DRGs, we have fewer low-volume DRGs than under the 

CMS DRGs because we no longer have separate DRGs for patients aged 0 to 17 years. 

With the exception of newborns, we previously separated some DRGs based on whether 

the patient was age 0 to 17 years or age 17 years and older. Other than the age split, 

cases grouping to these DRGs are identical. The DRGs for patients aged 0 to 17 years 

generally have very low volumes because children are typically ineligible for Medicare. 

In the past, we have found that the low volume of cases for the pediatric DRGs could lead 

to significant year-to-year instability in their relative weights. Although we have always 

encouraged non-Medicare payers to develop weights applicable to their own patient 

populations, we have received frequent complaints from providers about the use of the 

Medicare relative weights in the pediatric population. We believe that eliminating this 

age split in the MS-DRGs will provide more stable payment for pediatric cases by 

determining their payment using adult cases that are much higher in total volume. 
 232 

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 2015, because 

we do not have sufficient MedPAR data to set accurate and stable cost relative weights 

for these low-volume MS-DRGs, we are proposing to compute relative weights for the 

low-volume MS-DRGs by adjusting their final FY 2014 relative 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 

Final FY 2014 relative 

weight (adjusted by percent 

change in average weight 

of the cases in other MSDRGs) 

789 Neonates, Died or Transferred to 

Another Acute Care Facility 

Final FY 2014 relative 

weight (adjusted by percent 

change in average weight 

of the cases in other MSDRGs) 

790 Extreme Immaturity or Respiratory 

Distress Syndrome, Neonate 

Final FY 2014 relative 

weight 

(adjusted by percent change 

in average weight of the 

cases in other MS-DRGs) 

791 Prematurity with Major Problems Final FY 2014 relative 

weight (adjusted by percent 

change in average weight 

of the cases in other MSDRGs) 

792 Prematurity without Major 

Problems 

Final FY 2014 relative 

weight 

(adjusted by percent change 

in average weight of the 

cases in other MS-DRGs) 
 233 

Low-Volume 

MS-DRG MS-DRG Title Crosswalk to MS-DRG 

793 Full-Term Neonate with Major 

Problems 

Final FY 2014 relative 

weight (adjusted by percent 

change in average weight 

of the cases in other MSDRGs) 

794 Neonate with Other Significant 

Problems 

Final FY 2014 relative 

weight 

(adjusted by percent change 

in average weight of the 

cases in other MS-DRGs) 

795 Normal Newborn Final FY 2014 relative 

weight 

(adjusted by percent change 

in average weight of the 

cases in other MS-DRGs) 

4. Bundled Payments for Care Improvement (BPCI) Initiative 

 The Bundled Payments for Care Improvement (BPCI) initiative, developed under 

the authority of section 3021 of the Affordable Care Act (codified at section 1115A of the 

Act), is comprised of four broadly defined models of care, which link payments for 

multiple services beneficiaries receive during an episode of care. Under the BPCI 

initiative, organizations enter into payment arrangements that include financial and 

performance accountability for episodes of care. On January 31, 2013, CMS announced 

the health care organizations selected to participate in the BPCI initiative. For additional 

information on the BPCI initiative, we refer readers to the CMS’ Center for Medicare and 

Medicaid Innovation’s Web site at http://innovation.cms.gov/initiatives/BundledPayments/index.html and to section IV.H.4. of the preamble of the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53341 through 53343) for a discussion on the BPCI initiative. 
 234 

 In the FY 2013 IPPS/LTCH PPS final rule, for FY 2013 and subsequent fiscal 

years, we finalized a policy to treat hospitals that participate in the BPCI initiative the 

same as prior fiscal years for the IPPS payment modeling and ratesetting process without 

regard to a hospital’s participation within these bundled payment models (that is, as if a 

hospital were not participating in those models under the BPCI initiative). Therefore, for 

FY 2015, we are proposing to continue to include all applicable data from subsection (d) 

hospitals participating in BPCI Models 1, 2, and 4 in our IPPS payment modeling and 

ratesetting calculations. We refer readers to the FY 2013 IPPS/LTCH PPS final rule for a 

complete discussion on our final policy for the treatment of hospitals participating in the 

BPCI initiative in our ratesetting process.
 235 

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

1. Background 

 Sections 1886(d)(5)(K) and (L) of the Act establish a process of identifying and 

ensuring adequate payment for new medical services and technologies (sometimes 

collectively referred to in this section as “new technologies”) under the IPPS. Section 

1886(d)(5)(K)(vi) of the Act specifies that a medical service or technology will be 

considered new if it meets criteria established by the Secretary after notice and 

opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act specifies that a 

new medical service or technology may be considered for new technology add-on 

payment if, “based on the estimated costs incurred with respect to discharges involving 

such service or technology, the DRG prospective payment rate otherwise applicable to 

such discharges under this subsection is inadequate.” We note that beginning with 

discharges occurring in FY 2008, CMS transitioned from CMS-DRGs to MS-DRGs. 

 The regulations at 42 CFR 412.87 implement these provisions and specify three 

criteria for a new medical service or technology to receive the additional payment: 

(1) the medical service or technology must be new; (2) the medical service or technology 

must be costly such that the DRG rate otherwise applicable to discharges involving the 

medical service or technology is determined to be inadequate; and (3) the service or 

technology must demonstrate a substantial clinical improvement over existing services or 

technologies. Below we highlight some of the major statutory and regulatory provisions 

relevant to the new technology add-on payment criteria as well as other information. For 
 236 

a complete discussion on the new technology add-on payment criteria, we refer readers to 

the FY 2012 IPPS/LTCH PPS final rule (76 FR 51572 through 51574). 

 Under the first criterion, as reflected in § 412.87(b)(2), a specific medical service 

or technology will be considered “new” for purposes of new medical service or 

technology add-on payments until such time as Medicare data are available to fully 

reflect the cost of the technology in the MS-DRG weights through recalibration. We note 

that we do not consider a service or technology to be new if it is substantially similar to 

one or more existing technologies. That is, even if a technology receives a new FDA 

approval, it may not necessarily be considered “new” for purposes of new technology 

add-on payments if it is “substantially similar” to a technology that was approved by 

FDA and has been on the market for more than 2 to 3 years. In the FY 2006 IPPS final 

rule (70 FR 47351) and the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813 

and 43814), we explained our policy regarding substantial similarity in detail. 

 Under the second criterion, § 412.87(b)(3) further provides that, to be eligible for 

the add-on payment for new medical services or technologies, the MS-DRG prospective 

payment rate otherwise applicable to the discharge involving the new medical services or 

technologies must be assessed for adequacy. Under the cost criterion, to assess the 

adequacy of payment for a new technology paid under the applicable MS-DRG 

prospective payment rate, we evaluate whether the charges for cases involving the new 

technology exceed certain threshold amounts. Table 10 that was released with the 

FY 2014 IPPS/LTCH PPS final rule contains the final thresholds that we use to evaluate 

applications for new technology add-on payments for FY 2015. We refer readers to the 
 237 

CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/FY2014-IPPS-Final-Rule-Home-Page.html for a complete 

viewing of Table 10 from the FY 2014 IPPS/LTCH PPS final rule. 

 In the September 7, 2001 final rule that established the new technology add-on 

payment regulations (66 FR 46917), we discussed the issue of whether the Health 

Insurance Portability and Accountability Act (HIPAA) Privacy Rule at 45 CFR Parts 160 

and 164 applies to claims information that providers submit with applications for new 

technology add-on payments. We refer readers to the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51573) for complete information on this issue. 

 Under the third criterion, § 412.87(b)(1) of our existing regulations provides that a 

new technology is an appropriate candidate for an additional payment when it represents 

“an advance that substantially improves, relative to technologies previously available, the 

diagnosis or treatment of Medicare beneficiaries.” For example, a new technology 

represents a substantial clinical improvement when it reduces mortality, decreases the 

number of hospitalizations or physician visits, or reduces recovery time compared to the 

technologies previously available. (We refer readers to the September 7, 2001 final rule 

for a more detailed discussion of this criterion (66 FR 46902).) 

 The new medical service or technology add-on payment policy under the IPPS 

provides additional payments for cases with relatively high costs involving eligible new 

medical services or technologies while preserving some of the incentives inherent under 

an average-based prospective payment system. The payment mechanism is based on the 

cost to hospitals for the new medical service or technology. Under § 412.88, if the costs 
 238 

of the discharge (determined by applying cost-to-charge ratios (CCRs) as described in 

§ 412.84(h)) exceed the full DRG payment (including payments for IME and DSH, but 

excluding outlier payments), Medicare will make an add-on payment equal to the lesser 

of: (1) 50 percent of the estimated costs of the new technology (if the estimated costs for 

the case including the new technology exceed Medicare’s payment); or (2) 50 percent of 

the difference between the full DRG payment and the hospital’s estimated cost for the 

case. Unless the discharge qualifies for an outlier payment, the additional Medicare 

payment is limited to the full MS-DRG payment plus 50 percent of the estimated costs of 

the new technology. 

 Section 503(d)(2) of Pub. L. 108-173 provides that there shall be no reduction or 

adjustment in aggregate payments under the IPPS due to add-on payments for new 

medical services and technologies. Therefore, in accordance with section 503(d)(2) of 

Pub. L. 108-173, add-on payments for new medical services or technologies for FY 2005 

and later years have not been subjected to budget neutrality. 

 In the FY 2009 IPPS final rule (73 FR 48561 through 48563), we modified our 

regulations at § 412.87 to codify our longstanding practice of how CMS evaluates the 

eligibility criteria for new medical service or technology add-on payment applications. 

That is, we first determine whether a medical service or technology meets the newness 

criterion, and only if so, do we then make a determination as to whether the technology 

meets the cost threshold and represents a substantial clinical improvement over existing 

medical services or technologies. We also amended § 412.87(c) to specify that all 

applicants for new technology add-on payments must have FDA approval or clearance 
 239 

for their new medical service or technology by July 1 of each year prior to the beginning 

of the fiscal year that the application is being considered. 

 The Council on Technology and Innovation (CTI) at CMS oversees the agency's 

cross-cutting priority on coordinating coverage, coding and payment processes for 

Medicare with respect to new technologies and procedures, including new drug therapies, 

as well as promoting the exchange of information on new technologies between CMS and 

other entities. The CTI, composed of senior CMS staff and clinicians, was established 

under section 942(a) of Pub. L. 108-173. The Council is co-chaired by the Director of 

the Center for Clinical Standards and Quality (CCSQ) and the Director of the Center for 

Medicare (CM), who is also designated as the CTI's Executive Coordinator. 

 The specific processes for coverage, coding, and payment are implemented by 

CM, CCSQ, and the local claims-payment contractors (in the case of local coverage and 

payment decisions). The CTI supplements, rather than replaces, these processes by 

working to assure that all of these activities reflect the agency-wide priority to promote 

high-quality, innovative care. At the same time, the CTI also works to streamline, 

accelerate, and improve coordination of these processes to ensure that they remain up to 

date as new issues arise. To achieve its goals, the CTI works to streamline and create a 

more transparent coding and payment process, improve the quality of medical decisions, 

and speed patient access to effective new treatments. It is also dedicated to supporting 

better decisions by patients and doctors in using Medicare-covered services through the 

promotion of better evidence development, which is critical for improving the quality of 

care for Medicare beneficiaries. 
 240 

 To improve the understanding of CMS’ processes for coverage, coding, and 

payment and how to access them, the CTI has developed an “Innovator's Guide” to these 

processes. The intent is to consolidate this information, much of which is already 

available in a variety of CMS documents and in various places on the CMS Web site, in a 

user-friendly format. This guide was published in August 2008 and is available on the 

CMS Web site at: 

http://www.cms.gov/CouncilonTechInnov/Downloads/InnovatorsGuide5_10_10.pdf. 

 As we indicated in the FY 2009 IPPS final rule (73 FR 48554), we invite any 

product developers or manufacturers of new medical technologies to contact the agency 

early in the process of product development if they have questions or concerns about the 

evidence that would be needed later in the development process for the agency's coverage 

decisions for Medicare. 

 The CTI aims to provide useful information on its activities and initiatives to 

stakeholders, including Medicare beneficiaries, advocates, medical product 

manufacturers, providers, and health policy experts. Stakeholders with further questions 

about Medicare's coverage, coding, and payment processes, or who want further guidance 

about how they can navigate these processes, can contact the CTI at CTI@cms.hhs.gov. 

 We note that applicants for add-on payments for new medical services or 

technologies for FY 2016 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 
 241 

that the medical service or technology meets the high-cost threshold. Complete 

application information, along with final deadlines for submitting a full application, will 

be posted as it becomes available on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/newtech.html. To allow interested parties to identify the 

new medical services or technologies under review before the publication of the proposed 

rule for FY 2016, the CMS Web site also will post the tracking forms completed by each 

applicant. 

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

Payments 

 Section 1886(d)(5)(K)(viii) of the Act, as amended by section 503(b)(2) of 

Pub. L. 108-173, provides for a mechanism for public input before publication of a notice 

of proposed rulemaking regarding whether a medical service or technology represents a 

substantial clinical improvement or advancement. The process for evaluating new 

medical service and technology applications requires the Secretary to-- 

● Provide, before publication of a proposed rule, for public input regarding 

whether a new service or technology represents an advance in medical technology that 

substantially improves the diagnosis or treatment of Medicare beneficiaries; 

● Make public and periodically update a list of the services and technologies for 

which applications for add-on payments are pending; 

● Accept comments, recommendations, and data from the public regarding 

whether a service or technology represents a substantial clinical improvement; and 
 242 

● 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 2015 prior to publication of the FY 2015 

IPPS/LTCH PPS proposed rule, we published a notice in the Federal Register on 

November 29, 2013 (78 FR 71555 through 71557), and held a town hall meeting at the 

CMS Headquarters Office in Baltimore, MD, on February 12, 2014. 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 2015 new medical service and technology add-on payment applications before the 

publication of the FY 2015 proposed rule. 

 Approximately 91 individuals registered to attend the town hall meeting in 

person, while additional individuals listened over an open telephone line. We also 

live-streamed the town hall meeting and posted the town hall on the CMS YouTube Web 

page at: 

http://www.youtube.com/watch?v=WXyR_TILfKo&list=TLiu1B_AxXsinTW6EEn4BV

UdR4iEM61eV4. We considered each applicant’s presentation made at the town hall 

meeting, as well as written comments submitted on the applications that were received by 
 243 

the due date of January 21, 2014, in our evaluation of the new technology add-on 

payment applications for FY 2015 in this proposed rule. 

In response to the published notice and the New Technology Town Hall meeting, we 

received written comments regarding the applications for FY 2015 new technology 

add-on payments. We summarize these comments below or, if applicable, indicate that 

there were no comments received, at the end of each discussion of the individual 

applications in this proposed rule. 

 A number of attendees at the New Technology Town Hall meeting provided 

comments that were unrelated to the “substantial clinical improvement” criterion. As 

explained above and in the Federal Register notice announcing the New Technology 

Town Hall meeting (78 FR 71555 through 71557), the purpose of the meeting was 

specifically to discuss the substantial clinical improvement criterion in regard to pending 

new technology add-on payment applications for FY 2015. Therefore, we are not 

summarizing those comments in this proposed rule. Commenters are welcome to 

resubmit these comments in response to proposals presented in this proposed rule. 

3. FY 2015 Status of Technologies Approved for FY 2014 Add-On Payments 

a. Glucarpidase (Trade Brand Voraxaze®) 

 BTG International, Inc. submitted an application for new technology add-on 

payments for Glucarpidase (trade brand Voraxaze®) for FY 2013. Glucarpidase is used 

in the treatment of patients who have been diagnosed with toxic methotrexate (MTX) 

concentrations as of result of renal impairment. The administration of Glucarpidase 

causes a rapid and sustained reduction of toxic MTX concentrations. 
 244 

 Voraxaze® was approved by the FDA on January 17, 2012. Beginning in 1993, 

certain patients could obtain expanded access for treatment use to Voraxaze® as an 

investigational drug. Since 2007, the applicant has been authorized to recover the costs 

of making Voraxaze® available through its expanded access program. We describe 

expanded access for treatment use of investigational drugs and authorization to recover 

certain costs of investigational drugs in the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53346 through 53350). Voraxaze® was available on the market in the United 

States as a commercial product to the larger population as of April 30, 2012. In the 

FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27936 through 27939), we expressed 

concerns about whether Voraxaze® could be considered new for FY 2013. After 

consideration of all of the public comments received, in the FY 2013 IPPS/LTCH PPS 

final rule, we stated that we considered Voraxaze® to be “new” as of April 30, 2012, 

which is the date of market availability. 

 After evaluation of the newness, costs, and substantial clinical improvement 

criteria for new technology payments for Voraxaze® and consideration of the public 

comments we received in response to the FY 2013 IPPS/ LTCH PPS proposed rule, we 

approved Voraxaze® for new technology add-on payments for FY 2013. Cases of 

Voraxaze® are identified with ICD-9-CM procedure code 00.95 (Injection or infusion of 

glucarpidase). The cost of Voraxaze® is $22,500 per vial. The applicant stated that an 

average of four vials is used per Medicare beneficiary. Therefore, the average cost per 

case for Voraxaze® is $90,000 ($22,500 x 4). Under § 412.88(a)(2), new technology addon payments are limited to the lesser of 50 percent of the average cost of the technology 
 245 

or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, the 

maximum new technology add-on payment for Voraxaze® is $45,000 per case. 

 As stated above, the new technology add-on payment regulations provide that “a 

medical service or technology may be considered new within 2 or 3 years after the point 

at which data begin to become available reflecting the ICD-9-CM code assigned to the 

new service or technology” (§ 412.87(b)(2)). Our practice has been to begin and end new 

technology add-on payments on the basis of a fiscal year, and we have generally followed 

a guideline that uses a 6-month window before and after the start of the fiscal year to 

determine whether to extend the new technology add-on payment for an additional fiscal 

year. In general, we extend add-on payments for an additional year only if the 3-year 

anniversary date of the product’s entry on the market occurs in the latter half of the fiscal 

year (70 FR 47362). 

With regard to the newness criterion for Voraxaze®, as stated above, we consider the 

beginning of the newness period to commence when Voraxaze® was first available on the 

market on April 30, 2012. Because the 3-year anniversary date for Voraxaze® will occur 

in the latter half of FY 2015 (April 30, 2015), we are proposing to continue new 

technology add-on payments for this technology for FY 2015. We are inviting public 

comments on this proposal. 

b. DIFICIDTM (Fidaxomicin) Tablets 

 Optimer Pharmaceuticals, Inc. submitted an application for new technology addon payments for FY 2013 for the use of DIFICIDTM tablets. As indicated on the labeling 

submitted to the FDA, the applicant noted that Fidaxomicin is taken twice a day as a 
 246 

daily dosage (200 mg tablet twice daily = 400 mg per day) as an oral antibiotic. The 

applicant asserted that Fidaxomicin provides potent bactericidal activity against C. Diff.,

and moderate bactericidal activity against certain other gram-positive organisms, such as 

enterococcus and staphylococcus. Unlike other antibiotics used to treat CDAD, the 

applicant noted that the effects of Fidaxomicin preserve bacteroides organisms in the 

fecal flora. These are markers of normal anaerobic microflora. The applicant asserted 

that this helps prevent pathogen introduction or persistence, which potentially inhibits the 

re-emergence of C. Diff., and reduces the likelihood of overgrowths as a result of 

vancomycin-resistant Enterococcus (VRE). Because of this narrow spectrum of activity, 

the applicant asserted that Fidaxomicin does not alter this native intestinal microflora. 

 In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27939 through 27941), we 

expressed concern that DIFICIDTM may not be eligible for new technology add-on 

payments because eligibility is limited to new technologies associated with procedures 

described by ICD-9-CM codes. We further stated that drugs that are only taken orally 

(such as DIFICIDTM) may not be eligible for consideration for new technology add-on 

payments because there is no procedure associated with these drugs and, therefore, no 

ICD-9-CM code(s). In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53350 through 

53358), after consideration of the public comments received, we revised our policy to 

allow the use of National Drug Codes (NDCs) to identify oral medications that have no 

inpatient procedure for the purposes of new technology add-on payments. The revised 

policy is effective for payments for discharges occurring on or after October 1, 2012. We 
 247 

refer readers to the FY 2013 IPPS/LTCH PPS final rule for a complete discussion on this 

issue. 

 With regard to the newness criterion, Fidaxomicin was approved by the FDA on 

May 27, 2011, for the treatment of CDAD in adult patients, 18 years of age and older. In 

the FY 2013 IPPS/LTCH PPS final rule, we established that the beginning of the newness 

period for this technology is its FDA approval date of May 27, 2011. 

 After evaluation of the newness, costs, and substantial clinical improvement 

criteria for new technology add-on payments for DIFICIDTM and consideration of the 

public comments we received in response to the FY 2013 IPPS/ LTCH PPS proposed 

rule, we approved DIFICIDTM for new technology add-on payments for FY 2013. Cases 

of DIFICIDTM are identified with ICD-9-CM diagnosis code 008.45 (Intestinal infection 

due to Clostridium difficile) in combination with NDC code 52015-0080-01. Providers 

must report the NDC on the 837i Health Care Claim Institutional form (in combination 

with ICD-9-CM diagnosis code 008.45) in order to receive the new technology add-on 

payment. According to the applicant, the cost of DIFICIDTM is $2,800 for a 10-day 

dosage. The average cost per day for DIFICIDTM is $280 ($2,800/10). Cases of 

DIFICIDTM within the inpatient setting typically incur an average dosage of 6.2 days, 

which results in an average cost per case for DIFICIDTM of $1,736 ($280 x 6.2). Under 

§ 412.88(a)(2), new technology add-on payments are limited to the lesser of 50 percent of 

the average cost of the technology or 50 percent of the costs in excess of the MS-DRG 

payment for the case. As a result, the maximum new technology add-on payment for 

DIFICIDTM is $868. 
 248 

 As stated above, the new technology add-on payment regulations provide that “a 

medical service or technology may be considered new within 2 or 3 years after the point 

at which data begin to become available reflecting the ICD-9-CM code assigned to the 

new service or technology” (§ 412.87(b)(2)). 

 The manufacturer commented through a letter to CMS, prior to the publication of 

this proposed rule, requesting that CMS extend the eligibility for a third year of new 

technology add-on payments for DIFICIDTM in FY 2015. The manufacturer maintained 

that the technology still meets all three criteria for new technology add-on payments. 

Regarding the substantial clinical improvement criterion, the applicant stated that 

DIFICIDTM continues to remain the only FDA-approved treatment to demonstrate 

substantial clinical improvement over existing therapies. No new treatments for CDAD 

have been approved by the FDA since DIFICIDTM. The applicant further stated that a 

third year of new technology add-on payments for DIFICIDTM would continue to reduce 

access barriers in the acute care hospital inpatient setting, which would support the 

appropriate use of DIFICIDTM, a treatment that offers a substantial clinical improvement 

over existing therapies. 

 With respect to the cost criterion, the applicant stated that DIFICIDTM continues 

to meet the cost criterion. Using claims data from the FY 2012 MedPAR file, the 

applicant provided updated data from the two analyses described in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53350 through 53358), and demonstrated that the 

average case-weighted standardized charge per case exceeded the average case-weighted 

thresholds under both analyses. The applicant stated that the new technology add-on 
 249 

payment is intended to offer additional payments to support patient access and 

appropriate use of new technologies for a period of time until the MS-DRGs are adjusted 

to reflect the cost of the new technology. The applicant believed that the analyses 

conducted with the most recent MedPAR claims data available demonstrate that the 

MS-DRG recalibrations are insufficient to accommodate the cost associated with CDAD 

and new technologies to treat CDAD under the IPPS within the allotted timeframe of 2 

years. According to the applicant, these payment amounts remain an obstacle for the 

appropriate use of new technologies for CDAD that demonstrate substantial clinical 

improvement over existing treatments, such as DIFICIDTM. The applicant concluded that 

a third year of new technology add-on payments for DIFICIDTM is needed to allow 

sufficient data for future MS-DRG recalibration analyses. 

 With regard to newness criterion, the manufacturer commented that it believed 

that the technology still meets the newness criterion for the following reason: 

§ 412.87(b)(2) states 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 

International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-

CM) code assigned to the new service or technology (depending on when a new code is 

assigned and data on the new service or technology become available for DRG 

recalibration). After CMS has recalibrated the DRGs, based on available data, to reflect 

the costs of an otherwise new medical service or technology, the medical service or 

technology will no longer be considered ‘new’ under the criterion of this section.” The 

manufacturer noted that DIFICIDTM was not assigned an ICD-9-CM procedure code and 
 250 

DIFICIDTM is the first product for which no inpatient procedure is associated to receive a 

new technology add-on payment since the implementation of the new technology add-on 

payment policy. 

 The manufacturer also cited the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53352), which indicated that “Hospitals currently code and report procedures and 

more invasive services such as surgeries, infusion of drugs, and specialized procedures 

such as cardiac catheterizations. Hospitals neither code nor report self-administered 

drugs.” Therefore, the manufacturer contended that, as an oral therapy, neither 

DIFICIDTM nor its administration was assigned an ICD-9-CM procedure code and, 

therefore, the technology should still be eligible for the new technology add-on payments. 

 The manufacturer further noted that, in the FY 2013 IPPS/LTCH PPS final rule, 

because an ICD-9-CM procedure code for the administration of an oral medication did 

not exist and hospitals had no other mechanism to report the use of DIFICIDTM, for 

FY 2013, CMS instructed hospitals to report the DIFICIDTM NDC on hospital inpatient 

claims to receive the new technology add-on payment for DIFICIDTM. Prior to 

October 1, 2012, hospitals did not use NDCs on hospital inpatient claims, which 

prevented CMS from isolating DIFICIDTM cases and their associated costs. The 

manufacturer further stated that the NDC methodology was a bold change in policy and 

inpatient billing processes, and it stands to reason that, because of hospitals unfamiliarity 

with reporting NDCs on inpatient claims, hospitals’ use of the DIFICIDTM NDC would 

greatly lag behind the traditional use of ICD-9-CM procedure codes. As such, the 
 251 

manufacturer reasoned that any lag in hospital reporting would directly impact CMS’ 

ability to track and analyze the cost data associated with DIFICIDTM cases. 

 The manufacturer also noted that on August 31, 2012, CMS issued Transmittal 

2539, which is a change request for Medicare Administrative Contractors concerning 

updates for the upcoming fiscal year. The manufacturer stated that because the new 

technology add-on heading was omitted in the transmittal, this change request did not 

highlight the NDC billing approach to ensure that hospitals recognized the important 

change, which may have caused hospitals to overlook the claim reporting instructions for 

DIFICIDTM. 

 The manufacturer added that Transmittal 2539 and a Medicare Learning 

Network® Matters (MLN) article were rescinded and replaced by Transmittal 2627 on 

January 4, 2013. The manufacturer noted that among CMS’ reasons for replacing the 

transmittal was to insert the omitted new technology add-on section heading. The 

manufacturer stated that, although the original transmittal further supports that collection 

of DIFICIDTM-specific data did not begin until at least October 1, 2012, CMS’ reissuance 

of the claims processing instructions, and the missing header in the initial instructions, 

effectively delayed implementation of the new technology add-on payments for 3 months 

past the October 2012 beginning date. The manufacturer also believed that the need to 

replace the transmittal underlies hospitals’ difficulties instituting claims’ reporting 

instructions to receive new technology add-on payments for DIFICIDTM at the hospital 

level. 
 252 

 The manufacturer noted that anecdotal feedback from hospitals, which was shared 

with CMS during a meeting in June 2013, suggests that some hospitals faced challenges 

implementing the appropriate billing and coding processes. The manufacturer was 

concerned that that these challenges were, in part, caused by the missing header, and that 

these challenges may have impacted whether eligible cases were properly billed and 

coded to receive the new technology add-on payment for DIFICIDTM. The manufacturer 

was further concerned that the effects of any lag or delay caused by unfamiliarity with 

reporting NDCs and the missing header would also impact the data available to CMS to 

recalibrate the MS-DRGs and, separately, to evaluate the impact of the new technology 

add-on payment for DIFICIDTM. The manufacturer further explained that, while 

DIFICIDTM was available to hospitals after its launch in July 2011, hospitals had no 

experience reporting NDCs until October 2012, and may not have recognized the 

opportunity to, or understood the mechanism for doing so, until after January 2013. For 

the purposes of inpatient data collection and ratesetting, the manufacturer believed that 

this meant that 2 complete years of DIFICIDTM costs would not be fully reflected in the 

Medicare claims data for the FY 2015 MS-DRG recalibrations. 

 The manufacturer also analyzed the 100 percent sample of the Standard 

Analytical File (SAF) for calendar year 2012, which contained first quarter claims data 

for FY 2013, the first 3 months that DIFICIDTM was eligible for the new technology 

add-on payments. The manufacturer found a total of 43,608 cases with a diagnosis of 

CDI. Of these 43,608 cases, the manufacturer found 38 cases across 26 hospitals that 

reported new technology add-on payments for DIFICIDTM on submitted claims. The 
 253 

manufacturer stated that this preliminary data suggests that the number of cases available 

for MS-DRG recalibrations for FY 2015 is limited. The manufacturer stated that it is 

currently attempting to secure FY 2013 MedPAR claims data and that it will likely 

provide further insights on these issues. 

 In addition, the manufacturer noted that prior new technology add-on payment 

application approvals have involved technologies with much narrower patient 

populations compared to DIFICIDTM, allowing the costs of those technologies to 

influence the MS-DRG relative payment weights for the small number of MS-DRGs with 

which they are associated. The manufacturer explained that, unlike other technologies 

approved for new technology add on payments, the DIFICIDTM therapeutic value, while 

limited to patients with CDAD, is used in patients across a wide range of MS-DRGs due 

to it being reported as a secondary diagnosis in two-thirds of the cases compared to other 

technologies, which are assigned to a relatively small number of MS-DRGs. For 

example, cases involving the Spiration IBV® Valve System, which was granted approval 

for new technology add-on payments in FY 2010, primarily mapped to three MS-DRGs: 

163 (Major Chest Procedures with MCC), 164 (Major Chest Procedures with CC), and 

165 (Major Chest Procedures without CC/MCC). In its analysis of the FY 2012 

MedPAR data for the cost criterion, the manufacturer found cases using DIFICIDTM 

mapped to 544 unique MS-DRGs. Under the 100 percent sample of the SAF for calendar 

year 2012, the 38 cases mentioned above mapped to 20 different MS-DRGs. The 

manufacturer maintained that because of the diffuse nature of the DIFICIDTM cases 

mapping to many MS-DRGs, it believed an extension of the newness period is required 
 254 

for the costs to be adequately reflected in the MS-DRG relative payment weights. In the 

unique case of DIFICIDTM for the treatment of CDAD, the manufacturer stated that 2 

years of new technology add-on payments is insufficient to allow the 544 MS-DRGs to 

be recalibrated to sufficiently reflect the cost of the use of DIFICIDTM, a treatment that 

offers significant clinical improvement over existing therapies. 

 With regard to the technology’s newness, as discussed in the FY 2005 IPPS final 

rule (69 FR 49003), the timeframe that a new technology can be eligible to receive new 

technology add-on payments begins when data become available. Section 412.87(b)(2) 

clearly states that, “a medical service or technology may be considered new within 2 or 3 

years after the point at which data begin to become available reflecting the ICD-9-CM 

code assigned to the new service or technology (depending on when a new code is 

assigned and data on the new service or technology become available for DRG 

recalibration).” Section 412.87(b)(2) also states, “[a]fter CMS has recalibrated the 

DRGs, based on available data, to reflect the costs of an otherwise new medical service 

or technology, the medical service or technology will no longer be considered `new' 

under the criterion of this section.” Therefore, regardless of whether a technology can be 

individually identified by a separate ICD-9-CM code or whether it can only be identified 

using a NDC code, if the costs of the technology are included in the charge data, and the 

MS- DRGs have been recalibrated using that data, then the technology can no longer be 

considered “new” for the purposes of this provision. We further stated in that final rule 

that the period of newness does not necessarily start with the approval date for the 

medical service or technology, and does not necessarily start with the issuance of a 
 255 

distinct code. Instead, it begins with availability of the product on the U.S. market, which 

is when data become available. We have consistently applied this standard, and believe 

that it is most consistent with the purpose of new technology add-on payments. 

 In addition, similar to our discussion in the FY 2006 IPPS final rule 

(70 FR 47349), we do not believe that case volume is a relevant consideration for making 

the determination as to whether a product is “new.” Consistent with the statute, a 

technology no longer qualifies as “new” once it is more than 2 to 3 years old, irrespective 

of how frequently it has been used in the Medicare population. Similarly, this same 

determination is applicable no matter how many MS-DRGs the technology is spread 

across. Therefore, if a product is more than 2 to 3 years old, we consider its costs to be 

included in the MS-DRG relative weights whether its use in the Medicare population has 

been frequent or infrequent. We recognize that using an NDC was a novel billing 

practice under the IPPS. Nevertheless, even though hospitals may not have coded all 

uses of DIFICIDTM with the NDC, hospital bills would still include charges for all items 

and services furnished to a Medicare patient, including use of DIFICIDTM. Therefore, 

even though we may be not be able to identify all uses of DIFICIDTM in the Medicare 

charge data, hospital charges for the MS-DRGs would continue to reflect use of this 

technology. 

 With respect to the Transmittal 2539 omitting the header referenced above, as 

noted above, CMS corrected this issue as soon as possible by rescinding and reissuing 

this transmittal. Additionally, as noted by the manufacturer, this transmittal was meant 

for MACs and not hospitals. We believe the guidance issued in Transmittal 2539 clearly 
 256 

described to MACs how hospitals were to report the NDC on the inpatient claim in order 

to identify cases using DIFICIDTM for purposes of new technology add-on payments. 

Additionally, the MLN article that the manufacturer referred to above (MLN articles are 

typically a summary of transmittals for the general public) clearly indicated that 

DIFICIDTM was new for FY 2013 new technology add-on payments and clearly 

described how to properly code DIFICIDTM on the inpatient bill in order to receive the 

new technology add-on payment for FY 2013. The MLN article can be downloaded from 

the CMS Web site at: http://www.cms.gov/Outreach-and-Education/Medicare-LearningNetwork-MLN/MLNMattersArticles/downloads/MM8041.pdf. 

 After considering the manufacturer’s comments above, we still consider the 

beginning of the newness period to commence when DIFICIDTM was first approved by 

the FDA on May 27, 2011. Because the 3-year anniversary date of the product’s entry on 

the U.S. market occurred in the second half of the fiscal year (after April 1, 2014), we 

continued new technology add-on payments for DIFICIDTM for FY 2014. However, for 

FY 2015, the 3-year anniversary date of the product’s entry on the U.S. market would 

occur on May 27, 2014, which is prior to the beginning of FY 2015. Therefore, we are 

proposing to discontinue new technology add-on payments for DIFICIDTM for FY 2015. 

We are inviting public comments on this proposal.

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

 Cook® Medical submitted an application for new technology add-on payments for 

the Zenith® Fenestrated Abdominal Aortic Aneurysm (AAA) Endovascular Graft 

(Zenith® F. Graft) for FY 2013. The applicant stated that the current treatment for 
 257 

patients who have had an AAA is an endovascular graft. The applicant explained that the 

Zenith® F. Graft is an implantable device designed to treat patients who have an AAA 

and who are anatomically unsuitable for treatment with currently approved AAA 

endovascular grafts because of the length of the infrarenal aortic neck. The applicant 

noted that, currently, an AAA is treated through an open surgical repair or medical 

management for those patients not eligible for currently approved AAA endovascular 

grafts. 

 With respect to newness, the applicant stated that FDA approval for the use of the 

Zenith® F. Graft was granted on April 4, 2012. In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53360 through 53365), we stated that because the Zenith® F. Graft was 

approved by the FDA on April 4, 2012, we believed that the Zenith® F. Graft met the 

newness criterion as of that date. 

 After evaluation of the newness, costs, and substantial clinical improvement 

criteria for new technology add-on payments for the Zenith® F. Graft and consideration 

of the public comments we received in response to the FY 2013 IPPS/LTCH PPS 

proposed rule, we approved the Zenith® F. Graft for new technology add-on payments for 

FY 2013. Cases involving the Zenith® F. Graft that are eligible for new technology 

add-on payments are identified by ICD-9-CM procedure code 39.78 (Endovascular 

implantation of branching or fenestrated graft(s) in aorta). In the application, the 

applicant provided a breakdown of the costs of the Zenith® F. Graft. The total cost of the 

Zenith® F. Graft utilizing bare metal (renal) alignment stents was $17,264. Of the 

$17,264 in costs for the Zenith® F. Graft, $921 are for components that are used in a 
 258 

standard Zenith AAA Endovascular Graft procedure. Because the costs for these 

components are already reflected within the MS-DRGs (and are no longer “new”), in the 

FY 2013 IPPS/LTCH PPS final rule, we stated that we do not believe it is appropriate to 

include these costs in our calculation of the maximum cost to determine the maximum 

add-on payment for the Zenith® F. Graft. Therefore, the total maximum cost for the 

Zenith® F. Graft is $16,343 ($17,264 - $921). Under § 412.88(a)(2), new technology 

add-on payments are limited to the lesser of 50 percent of the average cost of the device 

or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, the 

maximum add-on payment for a case involving the Zenith® F. Graft is $8,171.50. 

 As stated above, the new technology add-on payment regulations provide that “a 

medical service or technology may be considered new within 2 or 3 years after the point 

at which data begin to become available reflecting the ICD-9-CM code assigned to the 

new service or technology” (§ 412.87(b)(2)). With regard to the newness criterion for the 

Zenith® F. Graft, as stated above, we consider the beginning of the newness period to 

commence when the Zenith® F. Graft was approved by the FDA on April 4, 2012. 

Because the 3-year anniversary date of the entry of the Zenith® F. Graft on the U.S. 

market will occur in the second half of the fiscal year (April 4, 2015), we are proposing 

to continue new technology add-on payments for this technology for FY 2015. We are 

inviting public comments on this proposal. 

d. KcentraTM 

 CSL Behring submitted an application for new technology add-on payments for 

KcentraTM for FY 2014. KcentraTM is a replacement therapy for fresh frozen plasma 
 259 

(FFP) for patients with an acquired coagulation factor deficiency due to warfarin and who 

are experiencing a severe bleed. KcentraTM contains the Vitamin K dependent 

coagulation factors II, VII, IX and X, together known as the prothrombin complex, and 

antithrombotic proteins C and S. Factor IX is the lead factor for the potency of the 

preparation. The product is a heat-treated, non-activated, virus filtered and lyophilized 

plasma protein concentrate made from pooled human plasma. KcentraTM is available as a 

lyophilized powder that needs to be reconstituted with sterile water prior to 

administration via intravenous infusion. The product is dosed based on Factor IX units. 

Concurrent Vitamin K treatment is recommended to maintain blood clotting factor levels 

once the effects of KcentraTM have diminished. 

 KcentraTM was approved by the FDA on April 29, 2013. In the FY 2014 

IPPS/LTCH PPS final rule, we approved new ICD-9-CM procedure code 00.96 (Infusion 

of 4-Factor Prothrombrin Complex Concentrate) which uniquely identifies KcentraTM. 

 In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27538), we noted that we 

were concerned that KcentraTM may be substantially similar to FFP and/or Vitamin K 

therapy. In the FY 2014 IPPS/LTCH PPS final rule, in response to comments submitted 

by the manufacturer, we stated that we agree that KcentraTM may be used in a patient 

population that is experiencing an acquired coagulation factor deficiency due to Warfarin 

and who are experiencing a severe bleed currently but are ineligible for FFP, particularly 

for use by IgA deficient patients and other patient populations that have no other 

treatment option to resolve severe bleeding in the context of an acquired Vitamin K 

deficiency. In addition, FFP is limited because it requires special storage conditions 
 260 

while KcentraTM is stable for up to 36 months at room temperature thus allowing 

hospitals that otherwise would not have access to FFP (for example, small rural hospitals 

as discussed by the applicant in its comments) to keep a supply of KcentraTM and treat 

patients who would possibly have no access to FFP. We noted that FFP is considered 

perishable and can be scarce by nature (due to production and other market limitations) 

thus making some hospitals unable to store FFP, which limits access to certain patient 

populations in certain locations. Therefore, we stated that we believe that KcentraTM 

provides a therapeutic option for a new patient population and is not substantially similar 

to FFP. Also, we gave credence to the information presented by the manufacturer that 

KcentraTM provides a simple and rapid repletion relative to FFP and reduces the risk of a 

transfusion reaction relative to FFP because it does not contain ABO antibodies and does 

not require ABO typing. As a result, we concluded that KcentraTM is not substantially 

similar to FFP, and that it meets the newness criterion. 

 After evaluation of the newness, cost, and substantial clinical improvement 

criteria for new technology add-on payments for KcentraTM and consideration of the 

public comments we received in response to the FY 2014 IPPS/LTCH PPS proposed rule, 

we approved KcentraTM for new technology add-on payments for FY 2014 (78 FR 50575 

through 50580). Cases involving KcentraTM that are eligible for new technology add-on 

payments are identified by ICD-9-CM procedure code 00.96. In the application, the 

applicant estimated that the average Medicare beneficiary would require an average 

dosage of 2500 International Units (IU). Vials contain 500 IU at a cost of $635 per vial. 

Therefore, cases of KcentraTM would incur an average cost per case of $3,175 ($635 x 5). 
 261 

Under § 412.88(a)(2), new technology add-on payments are limited to the lesser of 50 

percent of the average cost of the technology or 50 percent of the costs in excess of the 

MS-DRG payment for the case. As a result, the maximum add-on payment for a case of 

KcentraTM is $1,587.50 for FY 2014. 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50579), we stated that new 

technology add-on payments for KcentraTM would not be available with respect to 

discharges for which the hospital received an add-on payment for a blood clotting factor 

administered to a Medicare beneficiary with hemophilia who is a hospital inpatient. 

Under section 1886(d)(1)(A)(iii) of the Act, the national adjusted DRG prospective 

payment rate is “the amount of the payment with respect to the operating costs of 

inpatient hospital services (as defined in subsection (a)(4) of this section)” for discharges 

on or after April 1, 1988. Section 1886(a)(4) of the Act excludes from the term 

“operating costs of inpatient hospital services” the costs with respect to administering 

blood clotting factors to individuals with hemophilia. The costs of administering a blood 

clotting factor to a Medicare beneficiary who has hemophilia and is a hospital inpatient 

are paid separately from the IPPS. (For information on how the blood clotting factor addon payment is made, we refer readers to Section 20.7.3 of Chapter Three of the Medicare 

Claims Processing Manual, which can be downloaded from the CMS Web site at: 

http://cms.gov/Regulations-andGuidance/Guidance/Manuals/Downloads/clm104c03.pdf.) In addition, we stated that if 

KcentraTM is approved by the FDA as a blood clotting factor, we believed that it may be 

eligible for blood clotting factor add-on payments when administered to Medicare 
 262 

beneficiaries with hemophilia. We make an add-on payment for KcentraTM for such 

discharges in accordance with our policy for payment of a blood clotting factor, and the 

costs would be excluded from the operating costs of inpatient hospital services as set 

forth in section 1886(a)(4) of the Act. 

 Section 1886(d)(5)(K)(i) of the Act requires the Secretary to “establish a 

mechanism to recognize the costs of new medical services and technologies under the 

payment system established under this subsection” beginning with discharges on or after 

October 1, 2001. We believe that it is reasonable to interpret this requirement to mean 

that the payment mechanism established by the Secretary recognizes only costs for those 

items that would otherwise be paid based on the prospective payment system (that is, “the 

payment system established under this subsection”). As noted above, under section 

1886(d)(1)(A)(iii) of the Act, the national adjusted DRG prospective payment rate is the 

amount of payment for the operating costs of inpatient hospital services, as defined in 

section 1886(a)(4) of the Act, for discharges on or after April 1, 1988. We understand 

this to mean that a new medical service or technology must be an operating cost of 

inpatient hospital services paid based on the prospective payment system, and not 

excluded from such costs, in order to be eligible for the new technology add-on payment. 

We pointed out that new technology add-on payments are based on the operating costs 

per case relative to the prospective payment rate as described in § 412.88. Therefore, we 

believe that new technology add-on payments are appropriate only when the new 

technology is an operating cost of inpatient hospital services and are not appropriate 

when the new technology is excluded from such costs. 
 263 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50579), we stated that we 

believe that hospitals may only receive new technology add-on payments for discharges 

where KcentraTM is an operating cost of inpatient hospital services. In other words, a 

hospital would not be eligible to receive the new technology add-on payment when it is 

administering KcentraTM in treating a Medicare beneficiary who has hemophilia. In those 

instances, KcentraTM is specifically excluded from the operating costs of inpatient 

hospital services in accordance with section 1886(a)(4) of the Act and paid separately 

from the IPPS. However, when a hospital administers KcentraTM to a Medicare 

beneficiary who does not have hemophilia, the hospital would be eligible for a new 

technology add-on payment because KcentraTM would not be excluded from the operating 

costs of inpatient hospital services. Therefore, discharges where the hospital receives a 

blood clotting factor add-on payment are not eligible for a new technology add-on 

payment for the blood clotting factor. We refer readers to Chapter Three, Section 20.7.3 

of the Medicare Claims Processing Manual for a complete discussion on when a blood 

clotting factor add-on payment is made. The manual can be downloaded from the CMS 

Web site at: http://www.cms.gov/Regulations-andGuidance/Guidance/Manuals/Downloads/clm104c03.pdf. 

 As stated above, the new technology add-on payment regulations provide that “a 

medical service or technology may be considered new within 2 or 3 years after the point 

at which data begin to become available reflecting the ICD-9-CM code assigned to the 

new service or technology” (§ 412.87(b)(2)). With regard to the newness criterion for 

KcentraTM, as stated above, we consider the beginning of the newness period to 
 264 

commence when KcentraTM was approved by the FDA on April 29, 2013. Because 

KcentraTM is still within the 3-year newness period, we are proposing to continue new 

technology add-on payments for this technology for FY 2015. We are inviting public 

comments on this proposal. 

e. Argus® II Retinal Prosthesis System 

 Second Sight Medical Products, Inc. submitted an application for new technology 

add-on payments for the Argus® II Retinal Prosthesis System (Argus® II System) for 

FY 2014. The Argus® II System is an active implantable medical device that is intended 

to provide electrical stimulation of the retina to induce visual perception in patients who 

are profoundly blind due to retinitis pigmentosa (RP). These patients have bare or no 

light perception in both eyes. The system employs electrical signals to bypass dead 

photo-receptor cells and stimulate the overlying neurons according to a real-time video 

signal that is wirelessly transmitted from an externally worn video camera. The 

Argus® II implant is intended to be implanted in a single eye, typically the worse-seeing 

eye. Currently, bilateral implants are not intended for this technology. According to the 

applicant, the surgical implant procedure takes approximately 4 hours and is performed 

under general anesthesia. 

 The Argus® II System consists of three primary components: (1) an implant 

which is an epiretinal prosthesis that is fully implanted on and in the eye (that is, there are 

no percutaneous leads); (2) external components worn by the user; and (3) a “fitting” 

system for the clinician that is periodically used to perform diagnostic tests with the 
 265 

system and to custom-program the external unit for use by the patient. We describe these 

components more fully below. 

● Implant: The retinal prosthesis implant is responsible for receiving information 

from the external components of the system and electrically stimulating the retina to 

induce visual perception. The retinal implant consists of: (a) a receiving coil for 

receiving information and power from the external components of the Argus® II System; 

(b) electronics to drive stimulation of the electrodes; and (c) an electrode array. The 

receiving coil and electronics are secured to the outside of the eye using a standard scleral 

band and sutures, while the electrode array is secured to the surface of the retina inside 

the eye by a retinal tack. A cable, which passes through the eye wall, connects the 

electronics to the electrode array. A pericardial graft is placed over the extra-ocular 

portion on the outside of the eye. 

● External Components: The implant receives power and data commands 

wirelessly from an external unit of components, which include the Argus II Glasses and 

Video Processing Unit (VPU). A small lightweight video camera and transmitting coil 

are mounted on the glasses. The telemetry coils and radio-frequency system are mounted 

on the temple arm of the glasses for transmitting data from the VPU to the implant. The 

glasses are connected to the VPU by a cable. This VPU is worn by the patient, typically 

on a belt or a strap, and is used to process the images from the video camera and convert 

the images into electrical stimulation commands, which are transmitted wirelessly to the 

implant. 
 266 

● “Fitting System”: To be able to use the Argus® II System, a patient’s VPU 

needs to be custom-programmed. This process, which the applicant called “fitting”, 

occurs in the hospital/clinic shortly after the implant surgery and then periodically 

thereafter as needed. The clinician/physician also uses the “Fitting System” to run 

diagnostic tests (for example, to obtain electrode and impedance waveform 

measurements or to check the radio-frequency link between the implant and external 

unit). This “Fitting System” can also be connected to a “Psychophysical Test System” to 

evaluate patients’ performance with the Argus® II System on an ongoing basis. 

 These three components work together to stimulate the retina and allow a patient 

to perceive phosphenes (spots of light), which they then need to learn to interpret. While 

using the Argus® II System, the video camera on the patient-worn glasses captures a 

video image. The video camera signal is sent to the VPU, which processes the video 

camera image and transforms it into electrical stimulation patterns. The electrical 

stimulation data are then sent to a transmitter coil mounted on the glasses. The 

transmitter coil sends both data and power via radio-frequency (RF) telemetry to the 

implanted retinal prosthesis. The implant receives the RF commands and delivers 

stimulation to the retina via an array of electrodes that is secured to the retina with a 

retinal tack. 

 In patients with RP, the photoreceptor cells in the retina, which normally 

transduce incoming light into an electro-chemical signal, have lost most of their function. 

The stimulation pulses delivered to the retina via the electrode array of the Argus® II 

Retinal Prosthesis System are intended to mimic the function of these degenerated 
 267 

photoreceptors cells. These pulses induce cellular responses in the remaining, viable 

retinal nerve cells that travel through the optic nerve to the visual cortex where they are 

perceived as phosphenes (spots of light). Patients learn to interpret the visual patterns 

produced by these phosphenes. 

 With respect to the newness criterion, according to the applicant, the FDA 

designated the Argus® II System a Humanitarian Use Device in May 2009 (HUD 

designation #09-0216). The applicant submitted a Humanitarian Device Exemption 

(HDE) application (#H110002) to the FDA in May 2011 to obtain market approval for 

the Argus® II System. The HDE was referred to the Ophthalmic Devices Panel of the 

FDA’s Medical Devices Advisory Committee for review and recommendation. At the 

Panel’s meeting held on September 28, 2012, the Panel voted 19 to 0 that the probable 

benefits of the Argus® II System outweigh the risks of the system for the proposed 

indication for use. The applicant received the HDE approval from the FDA on 

February 14, 2013. Currently there are no other approved treatments for patients with 

severe to profound RP. The Argus® II System has an IDE number of G050001 and is a 

Class III device. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50580 through 

50583), we approved new ICD-9-CM procedure code 14.81 (Implantation of Epiretinal 

Visual Prosthesis), which uniquely identifies the Argus® II System. The other two codes 

approved by CMS are for removal, revision, or replacement of the device. More 

information on these codes can be found on the CMS Web site at: 

http://cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-MMeeting-Materials-Items/2013-03-05-MeetingMaterials.html. 
 268 

 After evaluation of the new technology add-on payment application and 

consideration of public comments received, we concluded that the Argus® II System met 

all of the new technology add-on payment policy criteria. Therefore, we approved the 

Argus® II System for new technology add-on payments in FY 2014 (78 FR 50580 

through 50583). Cases involving the Argus® II System that are eligible for new 

technology add-on payments are identified by ICD-9-CM procedure code 14.81. We 

note that section 1886(d)(5)(K)(i) of the Act requires that the Secretary establish a 

mechanism to recognize the costs of new medical services or technologies under the 

payment system established under that subsection, which establishes the system for 

paying for the operating costs of inpatient hospital services. The system of payment for 

capital costs is established under section 1886(g) of the Act, which makes no mention of 

any add-on payments for a new medical service or technology. Therefore, it is not 

appropriate to include capital costs in the add-on payments for a new medical service or 

technology. In the application, the applicant provided a breakdown of the costs of the 

Argus® II System. The total operating cost of the Argus® II System is $144,057.50. 

Under § 412.88(a)(2), new technology add-on payments are limited to the lesser of 50 

percent of the average cost of the device or 50 percent of the costs in excess of the 

MS-DRG payment for the case. As a result, the maximum add-on payment for a case 

involving the Argus® II System for FY 2014 is $72,028.75. 

 As stated above, the new technology add-on payment regulations provide that “a 

medical service or technology may be considered new within 2 or 3 years after the point 

at which data begin to become available reflecting the ICD-9-CM code assigned to the 
 269 

new service or technology” (§ 412.87(b)(2)). With regard to the newness criterion for the 

Argus® II System, as stated above, we consider the beginning of the newness period to 

commence when the Argus® II System was approved by the FDA on February 14, 2013. 

Because the Argus® II System is still within the 3-year newness period, we are proposing 

to continue new technology add-on payments for this technology for FY 2015. We are 

inviting public comments on this proposal. 

f. Zilver® PTX® Drug Eluting Peripheral Stent 

 Cook® Medical submitted an application for new technology add-on payments for 

the Zilver® PTX® Drug Eluting Peripheral Stent (Zilver® PTX®) for FY 2014. The 

Zilver® PTX® is intended for use in the treatment of peripheral artery disease (PAD) of 

the above–the-knee femoropopliteal arteries (superficial femoral arteries). According to 

the applicant, the stent is percutaneously inserted into the artery(s), usually by accessing 

the common femoral artery in the groin. The applicant stated that an introducer catheter 

is inserted over the wire guide and into the target vessel where the lesion will first be 

treated with an angioplasty balloon to prepare the vessel for stenting. The applicant 

indicated that the stent is self-expanding, made of nitinol (nickel titanium), and is coated 

with the drug Paclitaxel. Paclitaxel is a drug approved for use as an anticancer agent and 

for use with coronary stents to reduce the risk of renarrowing of the coronary arteries 

after stenting procedures. 

 The applicant received FDA approval on November 15, 2012, for the Zilver®

PTX®. The applicant maintains that the Zilver® PTX® is the first drug-eluting stent used 
 270 

for superficial femoral arteries. The technology is currently described by ICD-9-CM 

procedure code 00.60 (Insertion of drug-eluting stent(s) of the superficial femoral artery). 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50583 through 50585), after 

evaluation of the new technology add-on payment application and consideration of the 

public comments received, we approved the Zilver® PTX® for new technology add-on 

payments in FY 2014. Cases involving the Zilver® PTX® that are eligible for new 

technology add-on payments are identified by ICD-9-CM procedure code 00.60. As 

explained in the FY 2014 IPPS/LTCH PPS final rule, to determine the amount of 

Zilver® PTX® stents per case, instead of using the amount of stents used per case based 

on the ICD-9-CM codes, the applicant used an average of 1.9 stents per case based on the 

Zilver® PTX® Global Registry Clinical Study. The applicant stated in its application that 

the anticipated cost per stent is approximately $1,795. Therefore, cases of the 

Zilver® PTX® would incur an average cost per case of $3,410.50 ($1,795 x 1.9). Under 

§ 412.88(a)(2), new technology add-on payments are limited to the lesser of 50 percent of 

the average cost of the device or 50 percent of the costs in excess of the MS-DRG 

payment for the case. As a result, the maximum add-on payment for a case of the Zilver®

PTX® is $1,705.25 for FY 2014. 

 As stated above, the new technology add-on payment regulations provide that “a 

medical service or technology may be considered new within 2 or 3 years after the point 

at which data begin to become available reflecting the ICD-9-CM code assigned to the 

new service or technology” (§ 412.87(b)(2)). With regard to the newness criterion for the 

Zilver® PTX®, as stated above, we consider the beginning of the newness period to 
 271 

commence when the Zilver® PTX® was approved by the FDA on November 15, 2012. 

Because the Zilver® PTX® is still within the 3-year newness period, we are proposing to 

continue new technology add-on payments for this technology for FY 2015. We are 

inviting public comments on this proposal. 

4. FY 2015 Applications for New Technology Add-On Payments 

 We received seven applications for new technology add-on payments for 

FY 2015, three of which were applications resubmitted from FY 2014. However, one 

applicant withdrew its application prior to the publication of this proposed rule. In 

accordance with the regulations under § 412.87(c), applicants for new technology add-on 

payments must have FDA approval by July 1 of each year prior to the beginning of the 

fiscal year that the application is being considered. A discussion of the six remaining 

applications is presented below. 

a. Dalbavancin (Durata Therapeutics, Inc.) 

 Durata Therapeutics, Inc. submitted an application for new technology add-on 

payments for FY 2015 for the use of Dalbavancin. Dalbavancin is an intravenous (IV) 

lipoglycopeptide antibiotic administered as a once-weekly 30-minute infusion via a 

peripheral line for the treatment of patients with acute bacterial skin and skin structure 

infections, or ABSSSI. According to the applicant, Dalbavancin’s unique 

pharmacokinetic profile demonstrates rapid bactericidal activity that is potent and 

sustained against serious gram-positive bacteria, including methicillin-resistant 

Staphylococcus aureus (MRSA). 
 272 

 With respect to the newness criterion, the applicant stated that Dalbavancin’s 

once-weekly dosing, a simpler regimen than the current standard of care (Vancomycin) 

of daily or multiple-times daily intravenous dosing, allows for the discontinuation of IV 

access with its attendant risks of line-related thrombosis and infection. The applicant 

submitted a New Drug Approval Application (NDA) on September 26, 2013, and 

anticipates FDA approval of Dalbavancin sometime in May of 2014. To date, no 

ICD-10-PCS code specifically describes the administration of Dalbavancin. The 

applicant applied for a new ICD-10-PCS code to describe the administration of 

Dalbavancin, which was presented at the March 19-20, 2014 ICD-10 Coordination and 

Maintenance Committee meeting. If approved, the code will be effective on 

October 1, 2014. We are inviting public comments on whether the technology meets the 

newness criterion. 

 We note that in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813 

through 43814), we established criteria for evaluating whether a new technology is 

substantially similar to an existing technology, specifically: (1) whether a product uses 

the same or a similar mechanism of action to achieve a therapeutic outcome; (2) whether 

a product is assigned to the same or a different MS-DRG; and (3) whether the new use of 

the technology involves the treatment of the same or similar type of disease and the same 

or similar patient population. If a technology meets all three of the criteria above, it 

would be considered substantially similar to an existing technology and would not be 

considered “new” for purposes of new technology add-on payments. 
 273 

 In evaluating the first criterion, the applicant stated that Dalbavancin’s 

mechanism of action is unique compared to other antibiotics as it involves the 

interruption of cell wall synthesis resulting in bacterial cell death. Furthermore, the 

applicant cited Dalbavancin’s long half-life as the factor that differentiates itself from 

existing antibacterial agents active against MRSA. With respect to the second criterion, 

we believe that cases of ABSSSI that use Dalbavancin or other antibiotics for treatment 

would be assigned to the same MS-DRGs. Finally, with respect to the third criterion, we 

believe that Dalbavancin and other antibiotics used to treat cases of ABSSSI treat the 

same disease and patient population. Based on evaluation of the substantially similarity 

criteria, it appears that Dalbavancin is not substantially similar to other antibiotics for the 

treatment of ABSSSI because it does not use the same or a similar mechanism of action 

to achieve a therapeutic outcome. We are inviting public comments regarding whether 

Dalbavancin is substantially similar to existing antibiotics and whether Dalbavancin 

meets the newness criterion. 

 According to the applicant, Dalbavancin is indicated to treat gram-positive 

ABSSSIs, such as cellulitis or erysipelas, and MRSA. These conditions may be a 

primary diagnosis, but are often secondary to an underlying condition such as diabetes, 

heart failure, pressure ulcers, etc. Therefore, the technology is eligible to be used across 

all MS-DRGs. To demonstrate that it meets the cost criterion, the applicant searched the 

FY 2012 MedPAR file (across all MS-DRGs) for cases where at least one ABSSSI 

ICD-9-CM code was present on the claim, including those where MRSA was present on 

a claim with an ABSSSI diagnosis. Specifically, the applicant searched for cases with 
 274 

one of the following diagnosis codes: 035 (Erysipelas); 681.00 (Cellulitis and abscess of 

finger, unspecified); 681.01 (Felon); 681.02 (Onychia and paronychia of finger); 681.10 

(Cellulitis and abscess of toe, unspecified); 681.11 (Onychia and paronychia of toe); 

681.9 (Cellulitis and abscess of unspecified digit); 682.0-682.9 (Other cellulitis and 

abscess of face, neck, trunk, upper arm and forearm, hand except fingers and thumb, 

buttock, leg except foot, foot except toes, specified sites, unspecified sites); 686.00 

(Pyoderma, unspecified); 686.01 (Pyoderma gangrenosum); 686.09 (Other pyoderma); 

686.1 (Pyogenic granuloma of skin and subcutaneous tissue); 686.8 (Other specified local 

infections of skin and subcutaneous tissue); 686.9 (Unspecified local infection of skin 

and subcutaneous tissue); 958.3 (Posttraumatic wound infection not elsewhere classified); 

998.51 (Infected postoperative seroma); and 998.59 (Other postoperative infection). The 

applicant believed that these cases represent potential cases eligible for the administration 

of Dalbavancin. 

 The applicant found 570,698 cases across 682 MS-DRGs and noted that almost 

25 percent of the total number of cases would map to MS-DRGs 603 (Cellulitis without 

MCC), while the top 10 MS-DRGs accounted for almost half (or 49 percent) of the total 

number of cases. Of the 682 MS-DRGs, only 90 of these MS-DRGs accounted for 1,000 

cases or more. The applicant standardized the charges for all 570,698 cases, which 

equated to an average case-weighted standardized charge per case of $46,138. We note 

that the applicant did not inflate the charges nor did it include charges for Dalbavancin in 

the average case-weighted standardized charge per case. The applicant calculated an 

average case-weighted threshold of $44,255 across all MS-DRGs. Therefore, the 
 275 

applicant asserted the average case-weighted standardized charge per case (without 

inflating and including charges for Dalbavancin) exceeds the average case-weighted 

threshold of $44,255 (as indicated in Table 10 of the FY 2014 IPPS/LTCH PPS final 

rule). Therefore, the applicant maintained that Dalbavancin meets the cost criterion. We 

are inviting public comments regarding whether Dalbavancin meets the cost criterion, 

particularly with regard to the assumptions and methodology used in the applicant’s 

analysis. 

 With regard to substantial clinical improvement, as previously stated by the 

applicant, Dalbavancin is a new intravenous (IV) lipoglycopeptide antibiotic 

administered as a once-weekly 30 minute infusion via a peripheral line for the treatment 

of patients with acute bacterial skin and skin structure infections, or ABSSSI. The 

applicant noted that, in the setting of continuing emergence of resistance among 

gram-positive pathogens worldwide, there is an increasing medical need for new 

antibacterial agents with enhanced gram-positive activity. The applicant cited the 

Infectious Diseases Society of America (IDSA),3

 stating the need for a multi-pronged 

approach to address the impact of antibiotic resistance. In addition, the applicant stated 

the FDA has also designated MRSA as a pathogen of special interest which allows an 

antibiotic effective against this organism to be designated as a “Qualified Infectious 

Disease Product,” recognizing the medical need for drugs to treat infections caused by 

this pathogen. The applicant believed that having a medicinal agent with clinical efficacy 

against gram-positive pathogens, including MRSA and CA-MRSA, a favorable 

benefit/risk ratio, and a favorable pharmacokinetics profile allowing convenient dosing in 

 

3 “Bad Bugs, No Drugs,” July 2004.
 276 

inpatients and outpatients with the potential for minimizing patient noncompliance would 

be a valuable addition to the antibacterial armamentarium for the treatment of ABSSSI. 

The applicant also noted that, when taking Dalbavancin, there is no need for oral 

step-down therapy. 

 The applicant suggested that Dalbavancin offers treatment advantages over other 

available options for therapy for skin infections as a result of the following: 

● Improved potency against key bacterial pathogens with the concentration of 

Dalbavancin required to kill key target pathogens lower relative to other antibiotics 

commonly used to treat such pathogens; 

● Retained activity against staphylococcus aureus resistant to other antibiotics;

● Improved safety profile as Dalbavancin exhibits more favorable tolerability 

and safety than alternative approved antibacterial drugs in areas such as no evidence of 

thrombocytopenia as seen with linezolid and tedezolid, superior infusion related 

tolerability relative to other antiobiotics, an absence or reduction of drug specific 

toxicities, and once a week dosing of IV Dalbavancin avoids pitfalls of patient 

noncompliance with an oral medication; 

● Lack of drug interactions due to metabolic profile which minimizes risk of 

unexpected adverse events when co-administered with other compounds as seen with 

linezolid and quinupristin/dalfopristin; 

● Decreased requirement for therapeutic interventions, specifically the need for 

an intravenous catheter as Dalbavancin is administered once a week, thus reducing 

catheter related infection as well; 
 277 

● Reduced time to patient defined recovery; 

● Reduced mortality rate as demonstrated in the combined phase of the Discover 

1 and Discover 2 clinical trials; 

● The potential for avoidance of admission to the hospital as Dalbavancin allows 

the utilization of a weekly treatment regimen, thus potentially increasing the convenience 

of outpatient therapy for patients. 

 The applicant conducted three phase three randomized, controlled, double blinded 

clinical trials. The first was the pivotal VER001-9 study with a total of 873 patients with 

cSSSIs, which compared the safety and efficacy of IV Dalbavancin with possible switch 

to oral placebo to IV Linezolid with possible switch to oral Linezolid. According to the 

applicant, the primary efficacy endpoint of clinical response at test of 14 days with a plus 

or minus of 2 days after completion of therapy demonstrated comparable clinical efficacy 

to linezolid and met the requirement of statistical demonstration of noninferiority. In the 

clinically evaluable population, 88.9 percent of patients who received Dalbavancin 

compared to 91.2 percent of patients who received vancomycin/linezolid were clinical 

successes. The applicant also noted that Dalbavancin had an improved safety profile 

compared to Linezolid as the overall incidence and percentage of adverse events and 

deaths were lower in the Dalbavancin group, which was statistically significant. 

 The second and third clinical trials were the Discover 1 and Discover 2 trials, 

which enrolled a total of 1,312 patients with ABSSSI and compared IV Dalbavancin with 

IV placebo every 12 hours to match Vancomycin with possible switch to oral 

Vancomycin to IV Vancomycin with IV placebo to match IV Dalbavancin with possible 
 278 

switch to oral Linezolid. The applicant reported that in both studies, the primary efficacy 

outcome measure was clinical response in 48 to 72 hours post-study drug initiation and a 

secondary outcome measure was clinical status at the end of treatment visit (day 14) in 

the Intent to Treat (ITT) and clinically evaluable at End of Treatment populations. 

Clinical status was also determined at the short-term follow-up and long-term follow-up 

visits. 

 According to the applicant, the Discover 1 trial demonstrated that 83.3 percent of 

patients in the ITT population who received Dalbavancin were responders at 48 to 72 

hours after the start of therapy compared to 81.8 percent of patients who received 

Vancomycin/Linezolid. The applicant also noted that Dalbavancin was noninferior to 

Vancomycin/Linezolid (Absolute Difference in Success Rates (95 percent confidence 

interval): -4.6 percent; 7.9 percent). 

 The applicant further noted that the Discover 2 trial showed similar results to the 

Discover 1 trial. Specifically, the trial demonstrated that 76.8 percent of patients in the 

ITT population who received Dalbavancin were responders at 48 to 72 hours after the 

start of therapy compared to 78.3 percent of patients who received 

Vancomycin/Linezolid. The applicant again noted that Dalbavancin was noninferior to 

Vancomycin/Linezolid (Absolute Difference in Success Rates (95 percent confidence 

interval): -7.4 percent; 4.6 percent). 

 The applicant found Dalbavancin to be effective against MRSA and other 

gram-positive bacteria associated with ABSSSI. The applicant stated that 25 percent of 

patients in the study were treated without an inpatient admission. 
 279 

 We are concerned with the details of the trial design and the primary efficacy 

endpoints used within those trials that were used to provide the clinical data supplied by 

the applicant. All of the trials were noninferiority studies, which prevent any 

determination as to substantial clinical improvement from the trial data. The primary 

efficacy endpoint was defined as having no increase in lesion size, and no fever 48 to 72 

hours after drug initiation. The secondary endpoint was a >20 percent reduction in 

infection area at defined points in time. At neither endpoint is the patient oriented 

endpoint of resolution of infection increased. With these limitations in using efficacy 

data to establish substantial clinical improvement, the applicant suggested that the 

outpatient treatment, elimination of central lines and avoidance of hospitalization all may 

improve safety, avoid treatment-associated infections and improve patient satisfaction, 

and that these factors demonstrate substantial clinical improvement. While the factors 

mentioned may be true, the applicant did not present any evidence to support its 

assertions. We are inviting public comments on whether Dalbavancin meets the 

substantial clinical improvement criterion, including public comments in response to our 

concern that the applicant has only provided efficacy data of noninferiority, and no data 

for the other suggested benefits. 

 We did not receive any public comments in response to the New Technology 

Town Hall meeting held on February 12, 2014 regarding this technology. 

b. Heli-FXTM EndoAnchor System (Aptus Endosystems, Inc.) 

 The Heli-FXTM EndoAnchor System is indicated for use in the treatment of 

patients whose endovascular grafts during treatment of aortic aneurysms have exhibited 
 280 

migrations or endoleaks, or in the treatment of patients who are at risk of such 

complications, and in whom augmented radial fixation and/or sealing is required to regain 

or maintain adequate aneurysm exclusion. 

 The Heli-FXTM EndoAnchor System is comprised of the following three 

components: (1) the EndoAnchor Implant; (2) the Heli-FXTM Applier; and (3) the

Heli-FXTM Guide with Obturator. The Heli-FXTM EndoAnchor System is a mechanical 

fastening device that is designed to enhance the long-term durability and reduce the risk 

of repeat interventions in endovascular aneurysm repair (EVAR) and thoracic 

endovascular aneurysm repair (TEVAR). By deploying a small helical screw (the 

Heli-FXTM EndoAnchors) to connect the endograft to the aorta, the Heli-FXTM System 

seeks to provide a permanent seal and fixation, similar to the stability achieved with an 

open surgical anastomosis. 

 The original Heli-FXTM EndoAnchor System, designed for treating abdominal 

aortic aneurysms (AAA), was cleared by the FDA through the “de novo” 510(k) process 

on November 21, 2011 (reference K102333). The Heli-FXTM Thoracic System, which 

allows the expanded use of the Heli-FXTM EndoAnchor System technology to the 

treatment of thoracic aortic aneurysms (TAA), was cleared by the FDA on 

August 14, 2012 (reference K121168). 

 The applicant submitted two applications for approval for new technology add-on 

payment in FY 2015: one for the treatment of AAAs and the other for the treatment of 

TAA repair. We note that, as stated in the Inpatient New Technology Add-on Payment 

Final Rule (66 FR 46915), two applications are necessary in this instance, because patients 
 281 

that may be eligible for use of the technology under the first indication are not expected to 

be assigned to the same MS-DRGs as patients receiving treatment using the new 

technology under the second indication. Specifically, patients who have endovascular 

grafts implanted for the treatment of AAA map to MS-DRGs 237 (Major Cardiovascular 

Procedures with MCC) and 238 (Major Cardiovascular Procedures without MCC), while 

patients who have endovascular grafts implanted for the treatment of TAA map to 

MS-DRGs 219 (Cardiac Valve and Other Major Cardiothoracic Procedure without 

Cardiac Catheter with MCC), 220 (Cardiac Valve and Other Major Cardiothoracic 

Procedure without Cardiac Catheter with CC), and 221 (Cardiac Valve and Other Major 

Cardiothoracic Procedure without Cardiac Catheter without CC/MCC). Each 

indication/application must also meet the cost criterion and the substantial clinical 

improvement criterion in order to be eligible for new technology add-on payments 

beginning in FY 2015. We discuss both of these applications below. 

(1) Heli-FXTM EndoAnchor System for the Treatment of AAA

As mentioned above, the original Heli-FXTM EndoAnchor System, designed for treating 

patients diagnosed with AAA, was cleared by the FDA through the “de novo” 510(k) 

process on November 21, 2011 (reference K102333). According to the applicant, the 

device became available to Medicare beneficiaries following the product launch at the 

Society of Vascular Surgery (SVS) Annual Meeting held on June 7-9, 2012. Therefore, 

the applicant maintained that the Heli-FXTM EndoAnchor System meets the “newness” 

criterion because the technology was not available on the U.S. market until June 2012. 

The applicant explained that the delay in the general market availability of the original 
 282 

Heli-FXTM EndoAnchor System, following initial FDA clearance, was mainly because of 

the regulatory uncertainty inherent in the “de novo” 510(k) process. This uncertainty 

prevented the manufacturer from being able to secure the venture capital funding that was 

necessary to prepare for commercialization before obtaining market clearance. The 

ability to secure venture capital through the fundraising process was dependent upon the 

FDA clearance. According to the applicant, funding to commercially market the 

technology was not obtained until June 2012. In subsequent discussions with the applicant, 

the applicant confirmed that the Heli-FXTM EndoAnchor System was available on the U.S. 

market as of November 2011. Further, the applicant acknowledged that four implantations 

were performed on Medicare beneficiaries between November 2011 and June 2012. 

Therefore, the Heli-FXTM EndoAnchor System is considered “new” as of November 2011 

when the technology was cleared by the FDA and became available on the U.S. market. 

Section 412.87(b)(2) of the regulations state that, “a medical service or 

technology may be considered new within 2 or 3 years after the point at which data begin 

to become available reflecting the ICD-9-CM code assigned to the new service or 

technology.” Our past practice has been to begin and end the eligibility for new 

technology add-on payments on a fiscal year basis. We have generally followed a 

guideline that uses a 6-month window, before and after the beginning of the fiscal year, 

to determine whether to still consider a technology “new” and extend approved new 

technology add-on payments for an additional fiscal year. In general, a technology is still 

considered “new” (and eligible to receive new technology add-on payments) only if the 

3-year anniversary date of the product’s entry on the market occurs in the latter half of 
 283 

the fiscal year. (We refer readers to 70 FR 47362.) With regard to the newness criterion 

for the Heli-FXTM EndoAnchor System, as stated above, we consider the beginning of the 

newness period for the device to begin when the technology first became available on the 

U.S. market in November 2011. As previously stated, the applicant acknowledged that 

four implantations were performed on Medicare beneficiaries between November 2011 

and June 2012. Therefore, the costs of the Heli-FXTM EndoAnchor System are currently 

reflected in the MS-DRGs, and the 3-year anniversary date under the newness criterion 

for the product’s entry on the U.S. market will occur during November 2014 (the first 

half of FY 2015). As such, we do not believe that the Heli-FXTM EndoAnchor System 

meets the newness criterion. We are inviting public comments on whether the Heli-FXTM 

EndoAnchor System meets the newness criterion.

 The applicant requested an ICD-10-PCS code, and presented comments at the 

March 2014 ICD-10 Coordination & Maintenance Committee meeting. 

 To demonstrate that the technology meets the cost criterion, the applicant 

researched claims data from the 100 percent sample of the 2012 Inpatient Hospital 

Standard Analytical File (SAF) for cases reporting either procedure code 39.71 

(Endovascular implantation of other graft in abdominal aorta), or procedure code 39.79 

(Other endovascular procedures on other vessels) in the first or second procedure position 

on the claim, in combination with one of the following primary diagnosis codes: 441.4 

(Abdominal aneurysm without mention of rupture); 996.1 (Mechanical complication of 

other vascular device, implant, and graft); or 996.74 (Other complications due to other 

vascular device, implant, and graft). The applicant believed that this combination of 
 284 

ICD-9-CM codes identifies cases treated for AAA. We note that the 2012 SAF dataset 

includes all claims submitted from hospitals paid under the IPPS for calendar year 2012. 

 The applicant focused its analysis on MS-DRGs 237 and 238 because these are 

the MS-DRGs that cases treated with the implantation of endovascular grafts for AAAs 

would most likely map to. The applicant found a total of 8,142 cases, and noted that 9.35 

percent of the total number of cases would map to MS-DRG 237, and 90.65 percent of 

the total number of cases would map to MS-DRG 238. The applicant standardized the 

charges for all 8,142 cases. Using the inflation factor of 1.47329 published in the 

FY 2014 IPPS/LTCH final rule (78 FR 50982), the applicant inflated the standardized 

charges by 14.88 percent (the applicant multiplied 1.47329 x 1.47329 x 1.47329 in order 

to inflate the charges from 2012 to 2015). The applicant then added the charges for the 

Heli-FXTM EndoAnchor System to the standardized charges by dividing the cost of the 

Heli-FXTM EndoAnchor System device by each individual hospital specific CCR from 

the FY 2012 impact file. This equated to an average case-weighted inflated standardized 

charge per case of $111,613. The applicant noted that the average case-weighted inflated 

standardized charge per case did not contain additional operating room charges that relate 

to the Heli-FXTM EndoAnchor System. Therefore, the applicant determined that it was 

necessary to add an additional $1,440 for operating room charges, which was based on an 

additional half hour of operating room time from one hospital, to the average 

case-weighted standardized charge per case. This resulted in an average case-weighted 

standardized charge per case of $113,053. The applicant calculated an average 

case-weighted threshold of $86,278 across both MS-DRGs 237 and 238. The applicant 
 285 

noted that the average case-weighted standardized charge per case, computed without 

including the additional operating room charges that relate to the Heli-FXTM EndoAnchor 

System, exceeded the average case-weighted threshold of $86,278. Therefore, the 

applicant maintained that the technology meets the cost criterion. 

 The applicant also submitted claims data from the ANCHOR (Aneurysm 

Treatment Using the Heli-FX Aortic Securement System Global Registry) study to 

demonstrate that the technology meets the cost criterion. A total of 51 cases were 

submitted with 11.76 percent of all the cases mapping to MS-DRG 237, and 88.24 

percent of all the cases mapping to MS-DRG 238. The applicant standardized the 

charges for all 51 cases, and determined an average case-weighted standardized charge 

per case of $128,196. The applicant calculated an average case-weighted threshold of 

$87,118 across MS-DRGs 237 and 238. Therefore, because the average case-weighted 

standardized charge per case exceeds the average case-weighted threshold, the applicant 

maintained that the technology meets the cost criterion. We are inviting public comments 

on whether the Heli-FXTM EndoAnchor System meets the cost criterion, particularly with 

regard to the assumptions and methodology used in the applicant’s analyses. We discuss 

whether the Heli-FXTM EndoAnchor System represents a substantial clinical 

improvement over other treatments used for the repair of both abdominal and thoracic 

aortic aneurysms in one discussion below.

(2) Heli-FXTM EndoAnchor System for the Treatment of Thoracic Aortic Aneurysms 

The Heli-FXTM Thoracic System, which allows the expanded use of the 

Heli-FXTM EndoAnchor System technology to TAA repair, was cleared by the FDA on 
 286 

August 14, 2012 (reference K121168). The new system consists of a longer delivery 

device with additional tip configurations to allow the helical EndoAnchor technology to 

treat TAA. A line extension to the original Heli-FXTM EndoAnchor System, allowing 

improved treatment of AAA patients with larger aortic neck diameters, was cleared by the 

FDA on April 12, 2013 (reference K130677). 

 With regard to the newness criterion for the Heli-FXTM Thoracic System, we 

consider the beginning of the newness period for the device to begin when the technology 

was approved by the FDA on August 14, 2012. Because the 3-year anniversary date of 

the product’s entry on the U.S. market would occur in the second half of FY 2015 

(August 14, 2015), we believe that the Heli-FXTM Thoracic System meets the newness 

criterion. We are inviting public comments on whether the Heli-FXTM Thoracic System

meets the newness criterion. As stated above, the applicant requested an ICD-10-PCS 

code, and presented comments at the March 2014 ICD-10 Coordination & Maintenance 

Committee meeting. 

 To demonstrate that the Heli-FXTM Thoracic System meets the cost criterion, 

similar to the analysis performed for the Heli-FXTM EndoAnchor System for the 

treatment of AAA, the applicant researched claims data from the 100 percent sample of 

the 2012 SAF for cases reporting procedure code 39.73 (Endovascular implantation of 

graft in thoracic aorta) in the first or second procedure position on the claim, in 

combination with one of the following primary diagnosis codes: 404.93 (Hypertensive 

heart and chronic kidney disease, unspecified, with heart failure and chronic kidney 

disease stage V or end-stage renal disease); 441.01 (Dissection of aorta, thoracic); 441.03 
 287 

(Dissection of aorta, thoracoabdominal); 441.2 (Thoracic aneurysm without mention of 

rupture); 441.4 (Abdominal aneurysm without mention of rupture); 441.7 

(Thoracoabdominal aneurysm, without mention of rupture); 996.1 (Mechanical 

complication of other vascular device, implant, and graft); or 996.74 (Other 

complications due to other vascular device, implant, and graft). The applicant believed 

that this combination of ICD-9-CM codes identifies cases treated for TAA. We note that 

the 2012 SAF dataset includes all claims submitted from hospitals paid under the IPPS for 

CY 2012. 

 The applicant focused its analysis on MS-DRGs 219, 220, and 221 because these 

are the MS-DRGs to which cases treated with the implantation of endovascular grafts for 

TAA repair would most likely map. The applicant found a total of 642 cases, and noted 

that 27.88 percent of the total number of cases would map to MS-DRG 219, 40.50 

percent of the total number of cases would map to MS-DRG 220, and 31.62 percent of 

the total number of cases would map to MS-DRG 221. The applicant standardized the 

charges for all 642 cases. Using the inflation factor of 1.47329 published in the FY 2014 

IPPS/LTCH final rule (78 FR 50982), the applicant inflated the standardized charges by 

14.88 percent (the applicant multiplied 1.47329 x 1.47329 x 1.47329 in order to inflate 

the charges from 2012 to 2015). The applicant then added the charges for the Heli-FXTM 

EndoAnchor System to the standardized charges by dividing the cost of the Heli-FXTM 

EndoAnchor System device by each individual hospital specific CCR from the FY 2012 

impact file. This equated to an average case-weighted inflated standardized charge per 

case of $156,625. The applicant noted that the average case-weighted inflated 
 288 

standardized charge per case did not contain additional operating room charges related to 

the use of this technology. Therefore, the applicant determined that it was necessary to 

add an additional $2,160 for operating room charges, which was based on an additional 

45 minutes of operating room time from one hospital, to the average case-weighted 

standardized charge per case. This resulted in an average case-weighted standardized 

charge per case of $158,785. The applicant calculated an average case-weighted 

threshold of $141,194 across MS-DRGs 219, 220, and 221. The applicant noted that the 

average case-weighted standardized charge per case, without including charges for 

additional operating room time, exceeded the average case-weighted threshold of 

$141,194. Therefore, the applicant maintained that the technology meets the cost 

criterion. We are inviting public comments on whether the Heli-FXTM Thoracic System

meets the cost criterion, particularly with regard to the assumptions and methodology 

used in the applicant’s analysis. 
 289 

(3) Evaluation of the Substantial Clinical Improvement Criterion for the Heli-FXTM 

EndoAnchor System for the Treatment of Abdominal and Thoracic Aortic Aneurysms 

 The applicant stated that the Heli-FXTM EndoAnchor System represents a 

substantial clinical improvement for the following reasons: the technology improves 

overall rates of aneurysm exclusion and long-term success after EVAR by increasing the 

integrity and long-term durability of the proximal seal and fixation; the technology 

reduces the risk and rate of secondary interventions and readmissions due to aneurysmrelated complications (for example, endoleaks, migration, aneurysm enlargement) caused 

by failure of the proximal seal; the technology improves the general applicability of 

EVAR to patients with a broader spectrum of aortoiliac anatomy, including those with 

hostile proximal neck anatomy; and the technology reduces the rigor of life-long imaging 

follow-up for EVAR patients by reducing the rate of late failure and increasing the 

post-EVAR rates of aneurysm sac regression due to complete, endoleak-free durable 

aneurysm exclusion. 

 While current devices and capabilities are greatly improved over the first 

generation of devices, the applicant noted that EVAR treatments using the first 

generation of devices has not proven to be as durable, anatomically applicable, or 

complication-free as open surgery. 4,5,6,7 Several critical and life-threatening limitations 

 

4

Abbruzzese, T.A., Kwolek, C.J., Brewster, D.C., et al, “Outcomes following endovascular abdominal 

aortic aneurysm repair (EVAR): An anatomic and device-specific analysis,” Journal of Vascular Surgery, 

2008, Vol. 48, pp. 19-28. 

5

 Dangas, G., O’Connor, D., Firwana, B., et al, “Open Versus Endovascular Stent Graft Repair of 

Abdominal Aortic Aneurysms: A Meta-Analysis of Randomized Trials,” JACC, 2012, Vol. 5 (10), pp. 

1072-1080. 

6

 De Bruin, J.L., Baas, A.F., Buth, J., et al, “Long-Term Outcome of Open or Endovascular Repair of 

Abdominal Aortic Aneurysm,” New England Journal of Medicine, May 2010, Vol. 362(20), pp.1881-1889. 
 290 

continue to require improvement to these devices and procedures, including the need to 

reduce serious early and late device and procedure-related complications, such as loss of 

stability, and integrity and robustness of the clinical proximal aortic landing zone, and to 

offer an alternative method of EVAR to a broader segment of the patient population. 

 The applicant provided literature, analyses of data from the “STAPLE-2” clinical 

trial and the ANCHOR Registry, and a meta-analysis of EVAR trials to demonstrate that 

the Heli-FXTM EndoAnchor System represents a substantial clinical improvement above 

current treatments available. We summarize the information provided by the applicant 

that supports the clinically beneficial results of using the Heli-FXTM EndoAnchor System. 

The “STAPLE-2” clinical trial enrolled 155 patients at 25 U.S. centers between 

September 2007 and January 2009. Clinical (and imaging) data are available for 147, 

139 and 125 patients at 1-year, 2-year, and 3-year follow-up, respectively, representing 

the complete data sets at these time points. Patients enrolled in the clinical trial and 

observed under the study will continue to be followed per protocol for 5 years following 

aneurysm repair. According to the applicant, the results of the trial and study 

demonstrate that the Heli-FXTM EndoAnchor System is associated with an extremely 

low rate of proximal neck-related issues in long-term follow-up. The applicant 

maintained that this determination results in improved outcomes for aortic aneurysm 

patients, and reduced rate of re-interventions, which are associated with hospital 

admissions, procedural risks, and reversions to increased follow-up frequency requiring 

more physician visits and radiographic imaging studies. 

 7

 Greenhalgh, R.M., Brown, L.C., Powell, J.T., et al, “Endovascular versus open repair of abdominal aortic 

aneurysm,” New England Journal of Medicine, May 2010, Vol. 362(20), pp. 1863-1871. 
 291 

 The data used for this analysis was extracted from the clinical database on 

February 1, 2013, and are identical to those used to generate the most recent Annual 

Progress Report (APR) submitted to the FDA, as required under the U.S. IDE regulations. 

 While the “STAPLE-2” clinical trial was conducted exclusively with the Aptus 

AAA endograft (which remains investigational), the applicant believed that the use of the 

Heli-FXTM EndoAnchor System-related data is applicable to the use of the anchor with 

the compatible Cook, Gore, and Medtronic manufactured endografts in treatment 

anatomies for AAA and TAA cases. 

 Through 3-year follow-up, the applicant noted that there have been no anchor 

fractures as observed by the core lab. Further, there have been no relative migrations of 

the Heli-FXTM EndoAnchor System as compared to other endografts reported by the core 

laboratory. 

 In the analysis of the “STAPLE-2” clinical trial data at 1-year follow-up, the 

applicant noted that the core lab observed no proximal migrations, and a single case of 

Type I endoleak. A single secondary intervention was required to address the Type I 

endoleak in a patient with a circumferentially incomplete proximal neck within the 1-year 

follow-up period. 

 The applicant further noted that no additional Type I endoleaks have been 

observed beyond the 1-year follow-up in any patient enrolled in the trial. In addition, 

there were no reported instances of aneurysm rupture, vessel perforation, vessel 

dissection, catheter embolization, enteric fistula, infection, Type III endoleak, conversion, 

allergic reactions, renal emboli, or patient death associated with the use of the Heli-FXTM 
 292 

EndoAnchor System. Further, there have been no reports of bleeding or hematoma at the 

EndoAnchor penetration locations in the aortic neck. 

 Beyond the 1-year follow-up, three patients have demonstrated proximal 

migrations less than 1 cm. None of these cases were associated with Type I endoleaks or 

aneurysm sac expansions. 

 The applicant then compared migrations and Type I endoleaks data from the 

“STAPLE-2” clinical trial to analogous data from five compatible AAA endografts that 

were not anchored (data taken from published SSE data obtained from the FDA’s 

website). One year of data was compared because this timeframe is what is reported in a 

standard fashion from IDE trials of endografts. The applicant noted that the Heli-FXTM 

EndoAnchor System data compares favorably against the data obtained in U.S. pivotal 

trials of devices that did not employ discrete independent fixation means, particularly 

when viewed in light of the shorter average neck lengths treated in the “STAPLE-2” 

clinical trial versus those involving the Cook, Gore, and Medtronic manufactured 

endografts. According to the applicant, the number of proximal migrations were low 

across devices as reported in the SSE data, and an analysis using the Fisher’s exact 

method demonstrated no statistically significant differences when compared to the 

anchored endografts used in the “STAPLE-2” clinical trial (all p=NS). The incidence of 

Type I endoleaks and the need for secondary interventions to address them was 

significantly lower for the Heli-FXTM EndoAnchor System endografts analyzed under the 

“STAPLE-2” clinical trial versus the Medtronic, AneuRx, and Talent manufactured 

endografts (p=0.026 versus AneuRx and p=0.015 versus Talent). The applicant stated 
 293 

that the applicability of post-hoc statistical analyses is limited. However, the applicant 

believed that because the data being compared under the analyses were collected through 

similar protocols and with the same endpoint definitions, post-hoc comparisons were 

deemed appropriate. The applicant further believed that the comparison of this data 

demonstrates that the Heli-FXTM EndoAnchor System is associated with very low rates of 

Type I endoleaks and migrations. 

 The applicant also provided data from the ANCHOR Registry, which is a postmarket, prospective, observational, multi-center, international, dual-arm study designed 

to capture real-world data on the usage patterns and clinical results associated with the 

use of the Heli-FXTM EndoAnchor System as a method of treatment for patients in need 

of EVAR. The applicant explained that the ANCHOR Registry represents a growing 

body of data on the application of the Heli-FXTM EndoAnchor System used as a method 

of endovascular aortic aneurysm repair. The applicant noted that to its knowledge, the 

anatomical challenges present in the registry are greater than those in any large scale 

published series. The applicant further noted that, although long-term results are limited, 

the acute results demonstrate a high level of device safety, technical feasibility and acute 

success in a patient population with few viable options. 

 Primary safety for the ANCHOR Registry is being measured as a composite of 

freedom from device or procedure-related serious adverse events through 1-year 

follow-up following the Heli-FXTM EndoAnchor System implantation. Primary 

effectiveness is being measured as a composite of acute technical success and freedom 

from Type Ia endoleaks and endograft migrations through 1-year follow-up. Inclusion 
 294 

and exclusion criteria are minimal, essentially following the IFU requirements. Patients 

are being followed in the registry by their physician’s standard of care for 5 years. 

 Enrollment in the ANCHOR Registry began in March 2012. Through 

August 2013, a total of 258 patients were enrolled at 40 participating centers (29 located 

in the United States and 11 located in the European Union), and data are available in the 

registry’s database. Of these, 195 patients (76 percent) were enrolled in the primary arm, 

having the Heli-FXTM EndoAnchor System implanted at the time of their initial 

aneurysm treatment, either as a prophylactic measure, or to address an acute leak seen on 

completion arteriography. The remaining patients (63 or 24 percent) were enrolled in the 

revision arm, having the Heli-FXTM EndoAnchor Systems implanted at a secondary 

procedure to arrest migration, or address endoleaks discovered on follow-up in previously 

implanted endografts. 

 The applicant noted that physicians are choosing to apply the Heli-FXTM 

EndoAnchor System in a subset of patients that are at a higher risk for proximal 

neck-related complications during follow-up. The large average sac diameter in the 

revision arm suggested that these patients’ initial treatments were unsuccessful and, as 

such, they have experienced continued sac expansion post-EVAR. These patients also 

represent a high-risk subset of patients. 

 Acute results are measured in terms of technical success. In the primary arm, 193 

of 194 procedures were successful, and in the revision arm, 57 of 63 procedures were 

successful. All technical failures were persistence of Type Ia endoleaks. There has been 

a single re-intervention at 69 days post-Endoanchor implantation for a persistent Type Ia 
 295 

endoleak in one patient in the revision arm, in which the Heli-FXTM EndoAnchor System 

combined with a proximal cuff were unable to completely resolve the endoleak. There 

have been no device-related serious adverse events. 

 As mentioned above, because the “STAPLE-1”8

, and “STAPLE-2” clinical trials 

were single-arm studies, no data are available from them to assess the impact of the 

Heli-FXTM EndoAnchor System on endograft performance. To make this assessment, 

a meta-analysis was conducted. The meta-analysis combined long-term AAA endograft 

performance from endografts marketed in the United States, and compared these 

measures to those from long-term follow-up in the “STAPLE-2” trial. 

 According to the applicant, the key findings from the meta-analysis are as 

follows: 

● Heli-FXTM EndoAnchors reduced the proportion of treated aneurysms with 

enlargement greater than 5 mm at 3 years from 12.7 percent to 3.9 percent (p=.002). 

● Heli-FX EndoAnchor System reduced the proportion of leaks requiring 

treatment at 3 years from 12 percent to 1.3 percent (p<.001). 

● Heli-FXTM EndoAnchor System reduced (all-cause) mortality at 3 years from 

18.8 percent to 8.4 percent (p=.002). However, this does not appear to have been totally 

mediated by AAA-related mortality, which was reduced by the Heli-FXTM EndoAnchor 

System from 2.5 percent to 0.7 percent at 3 years (but was not statistically significant, 

p=.372). 

 

8

 Deaton, D.H., Mehla, M., Kasirajan, K., et al, “The Phase I Multi-center Trial (Staple-1) of the Aptus 

Endovascular Repair System: Results at 6 Months and 1 Year,” Journal of Vascular Surgery, 2009, Vol. 

49, pp. 851-857 (discussion on pp. 857-858.) 
 296 

 According to the applicant, in general, patients in the ANCHOR Registry were 

similar to the patients in the AAA endograft studies. The applicant noted that the 

results of the analysis using the Fisher’s Exact Tests were consistent between the 

All-Studies’ comparisons and the IDE-Studies’ comparisons: All-Cause Mortality, 

Leaks requiring Treatment, and Enlargement were all significantly lower at 3 years in 

the endografts implanted with the Heli-FXTM EndoAnchor System than in standard 

endografts. 

 The applicant asserted that the meta-analysis shows that there is objective 

evidence that the Heli-FXTM EndoAnchor System effectively reduces well-documented 

problems with endografts. By providing the endograft with better apposition to the 

native artery, the applicant noted that the Heli-FXTM EndoAnchor System reduces the 

rates of enlargement and endoleaks requiring treatment. The applicant further noted that 

these results were consistent in the All-Studies’ and IDE Studies’ meta-analyses. The 

applicant believed that lower rates of leaks requiring intervention would save payers 

money over the long term. 

 The applicant observed that, while there was no significant improvement in the 

rate of ruptures with the Heli-FXTM EndoAnchor System, this may be due to the fact that 

leaks were treated and, thereby, prevented any ruptures. The applicant believed that the 

higher rate of treated endoleaks in endografts implanted without the Heli-FXTM 

EndoAnchor System provides for this hypothesis. Also, migration did not appear to be 

significantly reduced by the Heli-FXTM EndoAnchor System (3.5 percent at 3 years in 

both groups; p=1.0). 
 297 

 Finally, the applicant concluded that, overall, the lower complication rates seen 

with the Heli-FXTM EndoAnchor System in the meta-analysis provide evidence of the 

clinical benefits and likely economic benefits associated with the use of the Heli-FXTM 

EndoAnchor System. The applicant believed that the technology may be especially 

helpful in patients with difficult anatomy, and that it may be reasonable to consider using 

the Heli-FXTM EndoAnchor System prophylactically in the treatment of all such patients. 

 In addition to the formal study data from the “STAPLE-2” trial, the Global 

ANCHOR Registry, and the meta-analysis based on these, the applicant provided 

published peer-reviewed literature that represent an early state of scientific data 

dissemination outside of non-company sponsored clinical studies, which is 

commensurate with the recent market approvals of the Heli-FXTM EndoAnchor System 

technology. The applicant believed that this data demonstrates strong initial physician 

enthusiasm and resulting favorable clinical results in their experience to date. The 

applicant noted that the general body of scientific literature is considered meaningful 

and growing for this early stage of market introduction. However, the applicant asserted 

that the literature supports the study and meta-analysis data above that documents that 

improved clinical outcomes were observed, including outcomes in a broader range of 

patients that are often ineligible for, or at greatest risk with, EVAR. 

 We are concerned that the three sources of data, the “STAPLE-2” clinical trial, the 

Anchor registry, and the literature review that the applicant submitted to support their 

application are not high quality evidence. The ‘STAPLE-2” study was a single-arm study 

and only used one endograft, the registry is an observational study, and the literature 
 298 

review does not provide clinical data. Also, the meta-analysis of all the submitted data is 

only as good as the data used. While the clinical data submitted suggests that some 

outcomes such as EVAR failure are improved, we are concerned that there is not enough 

clinical evidence to support the substantial clinical improvement criterion. We are 

inviting public comments on whether the submitted data demonstrate that the Heli-FXTM 

EndoAnchor System represents a substantial clinical improvement in the treatment of 

Medicare beneficiaries, particularly in regard to the concerns we have identified. 

 We received public comments in response to the New Technology Town Hall 

meeting held on February 12, 2014. We summarize these comments below. 

 Comment: Several commenters supporting new technology add-on payments for 

the Heli-FXTM EndoAnchor System. In addition, one commenter believed that 

EndoAnchors would broaden the applicability of endovascular aneurysm repair. The 

commenter noted that use of EndoAnchors increases the force needed to dislodge the 

proximal neck of the graft by several times, and in some cases even stronger than a 

hand-sewn anastomosis. This commenter further noted that this would allow patients 

with short, or otherwise difficult aortic necks to be treated more safely with endovascular 

aneurysm repair. The commenter stated that the technology is beneficial for patients who 

have medical problems or advanced age as contraindications to open surgery because 

endovascular repair can be made possible with the Heli-FXTM EndoAnchor System. 

 The commenter further stated that patients with endoleaks identified during 

follow-up are frequently not candidates for extension prostheses and would otherwise 

require open explantation of the graft and aneurysm repair. The commenter explained 
 299 

that these are far more challenging and risky operations than primary open aneurysm 

repairs, and are routinely associated with blood loss of several liters as well as prolonged 

lower extremity, renal, and visceral ischemia. The commenter noted that many of these 

often elderly patients can be successfully treated in a minimally invasive manner using 

the Heli-FXTM EndoAnchor System, reestablishing proximal fixation and seal while 

avoiding the morbidity and mortality associated with graft explantation and open repair. 

The commenter concluded that if new technology add-on payments are approved for the 

Heli-FXTM EndoAnchor System, many patients would realize the advantages of this 

unique and necessary device, improving their care and reducing overall cost. 

 Another commenter stated that the Heli-FXTM EndoAnchor System provides an 

opportunity to extend a less mortal procedure (EVAR) to patients whose anatomy may 

predispose them to late failure, including patients with large proximal neck diameters, 

increased iliac diameters, or abnormal neck anatomy. In primary repair, the applicant 

stated that endoanchors have been demonstrated to mimic a surgical anastomosis. The 

commenter believed that this would lead to less reinterventions and less aneurysm related 

mortality. Given the cost of reintervention or treating a ruptured AAA, the commenter 

believed that this technology should have a real impact in the overall cost of EVAR in 

this patient population. 

 Response: We appreciate the commenters’ support. We considered these 

comments in our evaluation of the Heli-FXTM EndoAnchor System application for new 

technology add-on payments for FY 2015 and in the development of this proposed rule. 

As stated above, we are inviting additional public comments on whether the Heli-FXTM 
 300 

EndoAnchor System represents a substantial clinical improvement in the treatment of 

Medicare beneficiaries, particularly in regard to the concerns we have identified. 

c. WATCHMAN® Left Atrial Appendage Closure Technology 

 Boston Scientific Corporation submitted an application for new technology add--

on payments for the WATCHMAN® Left Atrial Appendage Closure Technology 

(Watchman® System) for FY 2015. When a patient has an arrhythmia known as atrial 

fibrillation (AF), the left atrium does not expand and contract normally. As a result, the 

left atrium is not capable of completely emptying itself of blood. Blood may pool, 

particularly in the part of the left atrium called the left atrial appendage. This pooled 

blood is prone to clotting, causing formation of a thrombus (that is, a blood clot). When a 

thrombus breaks off, it is called an embolism (or thromboembolism). An embolism can 

cause a stroke or other peripheral arterial blockage. 

 The WATCHMAN® Left Atrial Appendage (LAA) Closure Device is an implant 

that acts as a physical barrier, sealing the LAA to prevent thromboemboli from entering 

into the arterial circulation from the LAA, thereby reducing the risk of stroke and 

potentially eliminating the need for Warfarin therapy in those patients diagnosed with 

nonvalvular AF and who are eligible for Warfarin therapy. 

 The applicant anticipates FDA premarket approval of the WATCHMAN® System 

in the first half of 2014. According to the applicant, the WATCHMAN® System is the 

first LAA closure device that would be approved by the FDA. Therefore, the applicant 

believes that the technology meets the newness criterion. The device is currently 

identified by ICD‐9‐CM procedure code 37.90 (Insertion of Left Atrial Appendage 
 301 

Device), which was issued on October 1, 2004. We are inviting public comments on if, 

and how, the WATCHMAN® System meets the newness criterion. 

 With regard to the cost criterion, the applicant used the FY 2012 MedPAR file 

and searched the claims data for cases reporting with ICD-9-CM procedure code 37.90. 

The applicant provided two analyses. The first analysis includes all claims that contained 

ICD-9-CM procedure code 37.90 regardless of whether it was the principle procedure 

that determined the MS-DRG assignment of the case. This returned 243 cases spread 

across 21 MS-DRGs. The applicant noted that the MedPAR file contained claims that 

were returned to the provider reporting charges for actual cases from clinical trials that 

used the WATCHMAN® System that were well below post-FDA approval pricing. 

Therefore, the applicant removed the premarket device related charges. The applicant 

then standardized the charges, applied an inflation factor of 1.096898 based on the 2-year 

charge inflation factor listed in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50982) 

and then added post-FDA approval charges for the WATCHMAN® System. This 

resulted in an average case-weighted standardized charge per case of $176,943. The 

applicant calculated an average case-weighted threshold of $107,345 across all 

MS-DRGs. Therefore, the applicant asserted that the average case-weighted standardized 

charge per case exceeds the average case-weighted threshold and maintained that the 

technology meets the cost criterion. 

 The second analysis focused on cases reporting ICD-9-CM procedure code 37.90, 

and assigned to MS-DRGs 250 (Percutaneous Cardiovascular Procedure without 

Coronary Artery Stent with MCC) and 251 (Percutaneous Cardiovascular Procedure 
 302 

without Coronary Artery Stent without MCC). According to the applicant, these are the 

MS-DRGs to which cases using the WATCHMAN® System in the delivery of treatment 

as the principal procedure performed during the inpatient stay are assigned. The 

applicant found a total of 122 cases, and noted that 9.02 percent of the total number of 

cases would map to MS-DRG 250, and 90.98 percent of the total number of cases would 

map to MS-DRG 252. Similar to above, the applicant noted that the MedPAR file 

contained claims that were returned to the provider reporting charges for actual cases 

from clinical trials that used the WATCHMAN® System that were well below post-FDA 

approval pricing. Therefore, the applicant removed the premarket device-related charges. 

The applicant then standardized the charges, applied an inflation factor of 1.096898 based 

on the 2-year charge inflation factor listed in the FY 2014 IPPS/LTCH final rule 

(78 FR 50982), and then added post FDA-approval charges for the WATCHMAN®

System. This resulted in an average case-weighted standardized charge per case of 

$113,210. The applicant calculated an average case-weighted threshold of $68,093. The 

applicant asserted that the average case-weighted standardized charge per case exceeds 

the average case-weighted threshold. Therefore, the applicant maintained that the 

technology meets the cost criterion. We are inviting public comments on whether the 

WATCHMAN® System meets the cost criterion, particularly with regard to the 

assumptions and methodology used in the applicant’s analysis. 

 The applicant asserted in its application that the WATCHMAN® System meets 

the substantial clinical improvement criterion. The applicant believed that the 

WATCHMAN® System provides a permanent solution proven to reduce the risk of 
 303 

thromboembolic stroke in patients diagnosed with high-risk, nonvalvular AF, and who 

are eligible for Warfarin therapy. Therefore, the applicant believed that the 

WATCHMAN® System fulfills a major unmet clinical need. According to the applicant, 

clinical trial data demonstrated non-inferiority of the WATCHMAN® System compared 

to Warfarin therapy. Further, long-term follow-up data suggested superiority compared 

to Warfarin therapy by demonstrating 40 percent relative reduction of primary efficacy 

events, and 60 percent relative reduction for CV mortality. The applicant also stated that, 

procedure complication rate is low, with the majority of events occurring soon before, 

during, or soon after the procedure. 

 The applicant submitted multiple clinical trial studies to demonstrate that the 

technology represents a substantial clinical improvement. Specifically, the 

WATCHMAN® System United States clinical program included five studies with 

approximately 2000 patients. There were two prospective, randomized-controlled trials 

(PROTECT AF9,10,11,12 and PREVAIL13,14), two continued access registries for patients 

who completed PROTECT AF and PREVAIL (CAP and CAP2, respectively), and the 

ASAP feasibility study. 

 

9

 Wrigley, B., Lip, G., “Can the WATCHMAN device truly PROTECT from stroke in atrial fibrillation?”, Lancet Neurology, 2009. 10 Reddy, V., Holmes ,D., Doshi, S., et al. “Safety of percutaneous left atrial appendage closure: Results from the WATCHMAN left 

atrial appendage system for embolic protection in patients With AF (PROTECT AF) clinical trial and the Continued Access Registry. 

Circulation.” Vol. 123, 2011. 

11 Reddy, V., Doshi, S., Sievert, H., et al,. “Percutaneous left atrial appendage closure for stroke prophylaxis in patients with atrial 

fibrillation: 2.3-year follow up of the PROTECT AF (Watchman Left Atrial Appendage System for embolic protection in patients with 

atrial fibrillation) trial,” Circulation,. 2013, Vol. 127, pp. 720-729. 12 Alli, O., Doshi, S., Kar, S., et al., “Quality of Life Assessment in the Randomized PROTECT AF Trial of Patients at Risk for Stroke 

With Non-Valvular Atrial Fibrillation,”. Journal of American College of Cardiology, Vol. 61, No 17, 2013, pp. 1790-1798. 13 Landmesser, U., Holmes, D., “Left atrial appendage closure: A percutaneous transcatheter approach for stroke prevention in atrial 

fibrillation,” European Heart Journal, Vol. 33, 2012. 

14 Homes, D.R.. PREVAIL Results CIT, 2013.
 304 

 According to the applicant, PROTECT AF was a prospective, 

randomized-controlled trial comparing the outcomes of patients who received care for 

LAA closure using the WATCHMAN® System (463 patients) with those of patients who 

were anticoagulated with Warfarin therapy (244 patients). The trial was designed to 

show that the WATCHMAN® System was noninferior to Warfarin therapy. The primary 

outcome was anticipated to occur at a rate of 6.15 per 100 patient-years in the control 

group, and the sample size was chosen using a “two-fold non-inferiority margin.” 

Because patients could be randomized to Warfarin therapy, all patients were eligible to 

continue Warfarin, and did not have an excessive risk of bleeding. By design, all patients 

in PROTECT AF continued Warfarin therapy for 45 days after the device implantation 

procedure. 

 Outcome data from PROTECT AF have been reported after mean follow-ups of 

1.5 years, 2.3 years, and 3.7 years. The primary efficacy endpoint was the composite of 

stroke, systemic embolism, cardiovascular death, or unexplained death. This primary 

endpoint occurred in the control group at a lower rate than was assumed in the sample 

size calculations: the observed rate was between 3.8 and 4.9 per 100 patient-years 

compared with the design estimate of 6.15 per 100 patient-years. According to the 

applicant, patients randomly assigned to receive the WATCHMAN® System device in the 

PROTECT AF trial had numerically lower rates of the primary endpoint than the patients 

randomly assigned to Warfarin (also known as Coumadin) at all time points. We note 

that, although the point estimates favor the device for the primary endpoint, the 

differences were not statistically significant because the upper 95 percent confidence 
 305 

intervals are all above 1.0. However, the secondary endpoint of cardiovascular death was 

reduced significantly, as was all-cause mortality with a rate ratio of 0.66 (CL 0.45-0.98). 

 The criteria for noninferiority of the primary endpoint were met over all follow-up 

intervals. According to the applicant, the probability is >99 percent that device-treated 

patients have no more than twice the rate of stroke, embolism, or death than Warfarintreated patients. 

 Also, the incidence of procedural-related complications in this trial was 8.7 

percent. The applicant noted that complications early in the trial were related to 

procedures performed by new users. As a result, changes were made to the procedure 

and physician training, and the complication rate subsequently decreased. 

 The applicant stated in its application that the Circulatory System Devices 

Advisory Panel to the Division of Cardiovascular Devices (DCD) within the Center for 

Devices and Radiological Health (CDRH) of the FDA reviewed the 1-year PROTECT 

AF data on April 23, 2009. The panel voted 7:5 in favor of the device, resulting in a 

positive recommendation for “approval with conditions.” However, noting the 

complication rate, the FDA required additional data collection on procedural safety to 

confirm the lower rates observed in the second half of the trial. As a result of this 

requirement, the PREVAIL trial study was designed in a similar fashion to PROTECT 

AF, but with modifications to trial entry criteria and a minimum number of new 

operators. 

 According to the applicant, in the interim, FDA also recognized the effectiveness 

of the WATCHMAN® System and the need for a new therapeutic option for patients 
 306 

receiving Warfarin therapy, and a continued access program (CAP) was authorized. With 

460 patients enrolled, according to the applicant, efficacy rates in the CAP trial study 

were similar to those seen in the PROTECT AF trial study, and procedural complications 

were reduced by over 50 percent compared to the PROTECT AF trial study, from 8.7 

percent to 4.1 percent. 

 From November 2010 to June 2012, the PREVAIL trial enrolled a total of 407 

patients, 269 of whom received treatment for LAA closure with the WATCHMAN®

System, and 138 who received Warfarin therapy. The applicant noted that the procedural 

complication rate was 4.4 percent, confirming the rate seen in the second half of the 

PROTECT AF trial study and the CAP trial study. After the PREVAIL trial closed, the 

FDA authorized a second CAP (specifically, CAP2), which has enrolled 336 patients as 

of the date the applicant submitted its application. 

 The applicant also submitted data concerning patients diagnosed with AF who are 

not on an oral anticoagulant. These patients are not protected from stroke by an oral 

anticoagulant. There may be increased periprocedural risk of device implantation 

because thrombus might form on the device surface more readily in patients with no 

anticoagulation (patients in the PROECT AF trial were treated with Warfarin for 45 days 

after the device implantation procedure). Specifically, the ASAP Registry (5) enrolled 

150 patients, at one of four centers, that had a contraindication to even short-term 

anticoagulation, mostly a history of prior bleeding. There was no control group. Device 

implantation led to a serious adverse event in 13 patients (8.7 percent), including one case 

of device thrombus leading to ischemic stroke. Five other patients had a device-related 
 307 

thrombus that did not lead to stroke (four of these patients were treated with low 

molecular weight heparin), resulting in an overall 4.0 percent incidence (6 out of 150) of 

device-associated thrombus. In the PROTECT AF trail study, 20 of the 473 patients (4.2 

percent) had device-associated thrombus, 3 of which led to an ischemic stroke. The rates 

of device-related thrombus are similar in the two studies (4.0 percent versus 4.2 percent), 

but the number of patient studied is smaller in the ASAP Registry (5) study compared to 

the PROTECT AF clinical trial study. 

 In the 14-month follow-up data for the ASAP Registry (5) study, the rate of stroke 

or systemic embolism was 2.3 percent per year, which was said to be “lower than 

expected” based on prior data for patients diagnosed with AF who were not treated with 

Warfarin (there was no concurrent control group). The data provided suggested efficacy 

in this patient population. However, we are concerned that there is not strong evidence 

that the device prevents stroke. 

 All trials in the U.S. clinical program allowed for continued follow-up of patients 

out to 5 years post-randomization. According to the applicant, the patients enrolled in the 

PROTECT AF clinical trial now have an average of 3.8 years of follow-up. The 

applicant asserted that an analysis of this long-term data demonstrates superior primary 

efficacy outcomes of the WATCHMAN® System over Warfarin therapy. 

 The applicant concluded that the WATCHMAN® System provides a permanent 

solution to reduce the risk of ischemic strokes caused by thromboemboli originating in 

the LAA in patients diagnosed with nonvalvular AF. The applicant further stated that, 

the data demonstrate that LAA closure using the WATCHMAN® System is a substantial 
 308 

improvement in care as compared to currently available pharmacologic therapy, such as 

Warfarin therapy. 

 The WATCHMAN® System may be used in two populations: (1) patients who 

could take Warfarin (or other oral anticoagulant), but would prefer to avoid the risk of 

bleeding from anticoagulant therapy; (2) patients who are not eligible for oral 

anticoagulation therapy because of an unacceptable risk of bleeding. Most of the clinical 

evidence presented by the applicant is from the former group, and the applicant has 

requested from the FDA that the label indication be for “high risk patients with 

nonvalvular atrial fibrillation who are eligible for warfarin therapy, but, for whom the 

risks posed by long-term warfarin therapy outweigh the benefits.” 

 We are concerned that the evidence presented by the applicant demonstrating the 

superiority of the WATCHMAN® System compared to Warfarin therapy is insufficient. 

The clinical study discussed above was designed to demonstrate that the WATCHMAN®

is noninferior to Warfarin therapy. Specifically, in the PREVAIL AF trial study, the 

primary endpoint was not significantly improved in the conventional hypothesis testing 

statistical analysis at any time point. The longer term data has improved efficacy and 

safety data, but still remain sparse. Even for the secondary patient population ineligible 

for anticoagulation therapy, the evidence remains weak as the only data comes from the 

ASAP Registry (5) observational study of 150 patients without a concurrent control 

group. 

 A recent article in the Journal of the American College of Cardiology echoes 

these concerns: “Current issues compromising the implementation of procedural 
 309 

approaches for stroke prevention in AF are discussed herein and include: (1) lack of 

multiple randomized clinical trials; (2) lack of consensus regarding the appropriate target 

population to study; and (3) ability to obtain approval of devices for outcome measures of 

unconfirmed clinical importance, such as, the use of complete closure of the LAA 

at the time of the index procedure as a surrogate for clinical efficacy.”15

 We are inviting public comments on whether this technology meets the 

substantial clinical improvement criterion, particularly regarding our concerns discussed 

above. 

 We did not receive any public comments in response to the New Technology 

Town Hall meeting held on February 12, 2014 in regard to this technology. 

d. CardioMEMSTM HF (Heart Failure) System 

 CardioMEMS, Inc. submitted an application for new technology add-on payment 

for FY 2015 for the CardioMEMSTM HF (Heart Failure) System, which is an implantable 

hemodynamic monitoring system comprised of an implantable sensor/monitor placed in 

the distal pulmonary artery. Pulmonary artery hemodynamic monitoring is used in the 

management of heart failure. The CardioMEMSTM HF System measures multiple 

pulmonary artery pressure parameters for an ambulatory patient to measure and transmit 

data via a wireless sensor to a secure Web site. 

 The CardioMEMSTM HF System utilizes radiofrequency (RF) energy to power the 

sensor and to measure pulmonary artery (PA) pressure and consists of three components: 

an Implantable Sensor with Delivery Catheter, an External Electronics Unit, and a 

 

15 Holmes, D.R., et. al., “Left Atrial Occlusion,” Journal of American College of Cardiology, 2014, Vol. 

63, p. 291–8.
 310 

Pulmonary Artery Pressure Database. The system provides the physician with the 

patient’s PA pressure waveform (including systolic, diastolic, and mean pressures) as 

well as heart rate. The sensor is permanently implanted in the distal pulmonary artery 

using transcatheter techniques in the catheterization laboratory where it is calibrated 

using a Swan-Ganz catheter. PA pressures are transmitted by the patient at home in a 

supine position on a padded antenna, pushing one button which records an 18-second 

continuous waveform. The data also can be recorded from the hospital, physician’s 

office or clinic. 

 The hemodynamic data, including a detailed waveform, are transmitted to a 

secure Web site that serves as the Pulmonary Artery Pressure Database, so that 

information regarding PA pressure is available to the physician or nurse at any time via 

the Internet. Interpretation of trend data allows the clinician to make adjustments to 

therapy and can be used along with heart failure signs and symptoms to adjust 

medications. 

 The applicant believed that a large majority of patients receiving the sensor would 

be admitted as an inpatient to a hospital with a diagnosis of acute or chronic heart failure, 

which is typically described by ICD–9–CM diagnosis code 428.43 (Acute or chronic 

combine systolic and diastolic heart failure) and the sensor would be implanted during 

the inpatient stay. The applicant stated that for safety considerations, a small portion of 

these patients may be discharged and the sensor would be implanted at a future date in 

the hospital outpatient setting. In addition, there would likely be a group of patients 

diagnosed with chronic heart failure who are not currently hospitalized, but who have 
 311 

been hospitalized in the past few months for whom the treating physician believes that 

regular pulmonary artery pressure readings are necessary to optimize patient 

management. Depending on the patient’s status, the applicant stated that these patients 

may have the sensor implanted in the hospital inpatient or outpatient setting. 

 The applicant anticipates FDA approval and commercial launch in the second 

quarter of 2014. The CardioMEMSTM HF System is currently described by ICD-9-CM 

procedure code 38.26 (Insertion of implantable pressure sensor without lead for 

intracardiac or great vessel hemodynamic monitoring). We are inviting public comments 

regarding how the CardioMEMSTM HF System meets the newness criterion. 

 With respect to cost criterion, the applicant submitted actual claims from the 

CHAMPION16 clinical trial. Of the 550 patients enrolled in the trial, the applicant 

received 310 hospital bills. The applicant excluded the following claims: incomplete or 

missing procedure codes, incomplete charge information and bills that were statistical 

outliers (three standard deviations away from the geometric mean). This resulted in a 

final cohort of 138 claims. The applicant noted that cases treated with the 

CardioMEMSTM HF System would typically map to MS-DRG 264 (Other Circulatory 

System Operating Room Procedures). Using the 138 clinical trial claims, the applicant 

standardized the charges and added charges for the CardioMEMSTM HF System (because 

the clinical trial claims did not contain charges for the CardioMEMSTM HF System). 

This resulted in an average case-weighted standardized charge per case of $79,218. 

 

16 Abraham WT, Adamson PB, Bourge RC, Aaron MF, Costanzo MR, Stevenson LW, Strickland W, Neelagaru S, Raval 

N, Krueger S, Weiner S, Shavelle D, Jeffries B, Yadav JS; for the CHAMPION Trial Study Group. Wireless pulmonary 

artery haemodynamic monitoring in chronic heart failure: a randomised controlled trial, Lancet, February 19, 2011, 

Vol. 377(9766), pp:658–666. 
 312 

 Using the FY 2014 Table 10 thresholds, the threshold for MS-DRG 264 is 

$60,172. Because the average case-weighted standardized charge per case exceeded the 

threshold amount, the applicant maintained that the CardioMEMSTM HF System would 

meet the cost criterion. We are inviting public comments on whether or not the 

CardioMEMSTM HF System meets the cost criterion. 

 With regard to substantial clinical improvement, the applicant asserted that 

elevated PA pressures occur prior to signs and symptoms of heart failure and changes in 

PA pressures provide a sound physiologic basis for its management. The applicant also 

contended that, until the creation of the CardioMEMS wireless PA implant, knowledge of 

PA pressure was only feasible in the hospital with the performance of a right heart 

catheterization. According to the applicant, the CardioMEMS HF System provides 

physicians knowledge of PA pressure while the patient is at home, allowing proactive 

management to prevent heart failure decompensation and hospitalization. 

 The applicant cited clinical data from the CHAMPION trial. The trial is a 

prospective, multicenter, randomized, single-blinded clinical trial conducted in the United 

States, designed to evaluate the safety and efficacy of the CardioMEMSTM HF System in 

reducing heart failure-related hospitalizations in a subset of subjects suffering from heart 

failure. The applicant shared several major findings from the CHAMPION trial as 

described below. 

 The primary efficacy endpoint of the CHAMPION trial was the rate of HF 

hospitalizations during the first 6 months of randomized access. There were 84 heart 

failure hospitalizations in the treatment group compared with 120 heart failure 
 313 

hospitalizations in the control group. This difference between the groups represented a 

28-percent reduction in the rate of hospitalization for heart failure in the treatment group 

(0.32 hospitalizations per patient in the treatment group versus 0.44 hospitalizations per 

patient in the control group, p = 0.0002). Although not a primary end point, the rate of 

HF hospitalizations after 18 months was 33 percent lower in the treatment group than in 

the control group. 

 According to the applicant, secondary endpoints of the CHAMPION trial are 

changes in pulmonary artery pressures, proportion of subjects hospitalized, days alive 

outside of the hospital, quality of life (QOL), and heart failure management which 

demonstrated the following results: 

● Pulmonary Artery Pressures: At baseline, both treatment and control patients 

had similar PA mean pressures. The change in pressure over the first 6 months was 

evaluated by integrating the area under the pressure curve (AUC). At 6 months of 

follow-up, the treatment group had a significantly greater reduction in AUC of -155.7 

mmHg days compared to the control group which had an increase in AUC of +33.1 

mmHg-days; p=0.0077. 

● Proportion of Subjects Hospitalized: During the 6-month follow-up period, the 

proportion of subjects hospitalized for 1 or more HF hospitalizations was significantly 

lower in the treatment group (55 out of 270 patients) than in the control group (80 out of 

280 patients) (20.4 percent versus 28.6 percent; p=0.0292). 

● Days Alive Outside of the Hospital: At 6 months, treatment patients had a 

nonsignificant and clinically not meaningful increase in days alive outside of the hospital 
 314 

(174.4 versus 172.1; p=0.0280) and fewer average days in the hospital (2.2 versus 3.8; 

p= 0.0246) compared to control patients. 

● Quality of Life: The heart failure specific quality of life was assessed with the 

MLHFQ total score at 6 months. The average total score in the treatment group was 45.2 

± 26.4 which was significantly better than the average total score in the control group 

50.6 ± 24.8 (p=0.0236). The difference in total quality of life was primarily due to the 

physical domain. The average physical score for the treatment group (19.8 ± 11.2) was 

significantly better than the control group (22.4 ± 10.9) (p=0.0096). There was also a 

significant difference in the emotional domain with an average score of 9.5 ± 8.1 for the 

treatment group and 11.0 ± 7.7 for the control group (p=0.0398). 

● Heart Failure Management: Physicians responded to treatment of patients’ 

elevated PA pressures by making medication changes to lower PA pressures and reduce 

the risk for HF hospitalization. Physicians documented all medication changes for all 

patients and indicated whether the change was made in response to PA pressures or 

standard of care information. During the 6-month follow-up period, physicians made 

approximately one additional HF medication change per patient per month in the 

treatment group when compared to the control group. Specifically, treatment patients had 

1.55 medication changes per month on average compared to control patients having 0.65 

medication changes per month (p<0.0001). The difference in HF management between 

the treatment and control group was due to HF medication changes made in response to 

PA pressures. 
 315 

 The study met the two primary safety endpoints: (1) freedom from device/system 

related complications (DSRC); and (2) freedom from sensor failure. The protocol 

pre-specified objective performance criterion (OPC) were that at least 80 percent of 

patients were to be free from DSRC and at least 90 percent were to be free from pressure 

sensor failure. Of the 575 patients in the safety population, 567 (98.6 percent) were free 

from DSRC at 6 months (lower confidence limit 97.3 percent, p<0.0001). This lower 

limit of 97.3 percent is greater than the pre-specified OPC of 80 percent. There were no 

sensor explants or repeat implants and all sensors were operational at 6 months for a 

freedom from sensor failure of 100 percent (lower confidence limit 99.3 percent, 

p<0.0001). This lower limit of 99.3 percent is greater than the pre-specified OPC of 90 

percent. 

 The applicant also noted that the CardioMEMSTM HF System reduces the 

occurrence of HF hospitalizations in NYHA Class III heart failure patients. According to 

the applicant, the device had very few device and system related complications occurring 

over the course of the clinical trial. All primary and secondary study endpoints were 

successfully achieved. In addition, the CHAMPION trial suggests the safety and 

effectiveness of the device was maintained during longer term follow-up. 

 After reviewing the information provided by the applicant, we have the following 

concerns. The applicant did not discuss long-term outcomes, specifically death. We 

believe additional long-term outcome information and how the technology changes 

long-term outcomes would further assist in our determination of whether the technology 

represents a substantial clinical improvement. With regard to the clinical trial, 
 316 

information from the randomized access period and the open access period did not 

include the total number of deaths in each group. While the data support a reduction in 

total hospitalizations, the rate of hospitalization in each group (0.32 versus 0.44) does not 

appear to be clinically meaningful. This is supported by total days alive out of the 

hospital being virtually identical in both groups. Finally, we are concerned about the 

cause of the significant dropouts in the Kaplan Meier curves which further demonstrates 

lack of impact on survival. We are inviting public comments on whether or not the 

CardioMEMSTM HF Monitoring System technology represents a substantial clinical 

improvement in the Medicare population. 

 We received public comments via e-mail in response to the February 12, 2014 

New Technology Town Hall meeting in regard to this technology. We summarize these 

comments below. 

 Comment: Commenters supported the approval of new technology add-on 

payments for the CardioMEMSTM HF System. One commenter stated that it had personal 

experience with the CardioMEMSTM HF System. The commenter explained that having 

access to a patient’s daily pressures provides trend data. The commenter further 

explained that if there is a variation or increase in a patient’s pressure, the physician can 

contact the patient over the phone and conduct an evaluation to look for increased 

symptoms or to learn if the patient has skipped their diuretics. The device prompts the 

clinician to ask questions such as what is different today than yesterday and if the patient 

is feeling okay, especially if the patient has not taken a pressure rate in a few days. Based 

on the answer to these questions or if the clinician has concerns, the primary investigator 
 317 

or the patient’s primary cardiologist can assess the pressures and symptoms and decide 

the next course of treatment for the patient. The commenter believed that this structured 

and consistent monitoring has kept many patients out of the hospital. 

 The commenter noted that the monitoring of pressures to assess clinical status 

before the patient recognizes symptoms for chronic CHF patients with significant left 

ventricular dysfunction can be very useful. The commenter explained that these patients 

are accustomed to being sick and tend to ignore the first symptoms and do not seek 

treatment until they are unable to breathe. The commenter noted that often a clinician 

can increase the patient’s home medications before pressures get too high. 

 The commenter also noted that, for patients who go to a CHF clinic on a regular 

basis, typically patient information of pressure trends, along with symptoms and 

laboratory results, can help determine if medications should be given that day. The 

commenter stated that extra information from the CardioMEMSTM HF System can 

change the way physicians treat the patient and has, in many instances, at its site. The 

commenter concluded the CardioMEMSTM HF System provides a substantial clinical 

benefit versus current methods for managing heart failure. 

 Another commenter stated that the implant procedure was very simple and 

straightforward for patients, especially compared to having a pacemaker or defibrillator 

implanted. The commenter further stated that the device is compatible with defibrillators 

and cardiac resynchronization therapy, which are present in many advanced heart failure 

patients. The commenter added that the CardioMEMSTM HF System is a wireless device 

and does not involve addition of another intracardiac lead. Aside from regular pressure 
 318 

readings, the commenter noted that it found unexpected intake issues for some patients 

who were unknowingly consuming certain high-sodium foods. The commenter noted 

that they were able to reduce sodium intake further to help reduce pressures. The 

commenter also noted that it presented a case report of increasing pressures in a patient in 

whom the primary investigator adjusted diuretic therapy and later the patient’s 

ACE-Inhibitor and nitrates. The commenter stated that it successfully lowered pressures 

and avoided a probable heart failure hospitalization. The commenter added that the 

CardioMEMSTM HF System allows hospitals to easily obtain pressures at home for 

transmission and the ability to check pressures rather than perform right heart 

catheterization if a patient was admitted to the hospital. 

 The commenter also stated that patients found transmission of their data easy and 

were surprised how quickly the data was sent to the clinic. The commenter added that it 

had patients that liked the portability of the home electronic equipment, which allowed 

them to take it with them on long weekends or vacations. The commenter added that this 

information was advantageous as it further allowed clinicians to implement changes in a 

timely manner. 

 The commenter noted the following trial results in its clinic, which the commenter 

believed confirm the benefit of hemodynamic monitoring: a 28-percent reduction in 

heart failure hospitalization at 6 months and a 15-percent reduction at 15 months. The 

commenter noted that there were no sensor failures and 98.6 percent of patients remained 

free from device or system complications. The commenter further noted that it did not 

experience any complications in patients who were implanted with the device. The 
 319 

commenter did explain that inevitably, due to the nature of heart failure, several patients 

eventually required advanced therapies with transplantation or ventricular assist device 

support without any issue from the sensor. The commenter also noted some additional 

key points such as: a reduction in hospitalization for patients with preserved ejection 

fraction; in addition to diuretic adjustment, the study found nitrates were also adjusted, 

which further supports use of the device to optimize vasodilator therapy for pulmonary 

hypertension and afterload reduction in this patient population. The commenter 

concluded that, for the reasons stated above, the CardioMEMSTM HF System provides a 

substantial clinical benefit versus current methods for managing heart failure. 

 One commenter stated that the CardioMEMSTM HF System provides clinicians 

with daily remotely monitored pulmonary artery pressure and has been proven clinically 

and dramatically to reduce heart failure hospitalizations. The commenter cited the 

CHAMPION IDE trial, which was a prospective, multicenter, single-blind, clinical study 

that enrolled 550 patients randomized to treatment guided by the CardioMEMSTM HF 

System verses optimal medical therapy. The commenter stated that the trial met all of its 

primary safety and efficacy endpoints; reducing heart failure hospitalizations by 28 

percent 6 months after implant (p=0.0002). The commenter further stated that the 

reduction in heart failure hospitalizations increased over time reaching 33 percent 

(p<0.0001) at 17 months after implant. In addition, the commenter asserted that the 

system was shown to be extremely safe, with almost 99 percent of patients free from 

device or system complications. 
 320 

 The commenter also stated that one criterion CMS uses to evaluate substantial 

clinical improvement is that the device offers the ability to diagnose a medical condition 

earlier in a patient population than allowed by currently available methods. The 

commenter believed that there is evidence that use of the CardioMEMSTM HF System to 

make a diagnosis affects the management of the patient. The commenter added that the 

CHAMPION trial demonstrated that therapy guided by CardioMEMSTM HF System 

allows physicians to titrate medications earlier and more effectively reduce heart failure 

hospitalizations. The commenter noted that this information is not available with any 

other device or treatment alternative. 

 The commenter further stated that another of CMS’ criteria is that use of the 

device significantly improves clinical outcomes for a patient population as compared to 

currently available treatments, such as a decreased number of future hospitalizations. 

The commenter stated that evidence provided in the CHAMPION trial at 6 months 

showed a 28-percent reduction in heart failure hospitalizations and even a larger 

reduction of 33 percent during long-term follow-up at 17 months. Based on the criteria 

outlined by CMS and the evidence supporting the CardioMEMSTM HF System, the 

commenter believed that the CardioMEMSTM HF System meets the criteria for 

substantial clinical improvement. 

 Another commenter, the applicant, reiterated the statements set forth above in the 

substantial clinical improvement discussion. 

 Response: We appreciate the commenters’ support. We considered these 

comments in our evaluation of the CardioMEMSTM HF System for new technology 
 321 

add-on payments for FY 2015 and in the development of this proposed rule. As stated 

above, we are inviting additional public comments on whether or not the CardioMEMSTM 

HF System represents a substantial clinical improvement in the Medicare population. 

e. MitraClip® System 

Abbott Vascular submitted an application for new technology add-on payments for the 

MitraClip® System for FY 2015. (We note that the applicant submitted an application for 

new technology add-on payments for FY 2014 but failed to receive FDA approval by the 

July 1 deadline.) The MitraClip® System is a transcatheter mitral valve repair system that 

includes a MitraClip® device implant, a Steerable Guide Catheter, and a Clip Delivery 

System. It is designed to perform reconstruction of the insufficient mitral valve for 

high-risk patients who are not candidates for conventional open mitral valve repair 

surgery. 

 Mitral regurgitation (MR), also referred to as mitral insufficiency or mitral 

incompetence, occurs when the mitral valve fails to close completely causing the blood to 

leak or flow backwards (regurgitate) into the left ventricle. If the amount of blood that 

leaks backwards into the left ventricle is minimal, then intervention is usually not 

necessary. However, if the amount of blood that is regurgitated becomes significant, this 

can cause the left ventricle to work harder to meet the body's need for oxygenated blood. 

Severity levels of MR can range from grade 1+ through grade 4+. If left untreated, 

severe MR can lead to heart failure and death. The American College of Cardiology 

(ACC) and the American Heart Association (AHA) issued practice guidelines in 2006 

that recommended intervention for moderate/severe or severe MR (grade 3+ to 4+). The 
 322 

applicant stated that the MitraClip® System is “indicated for percutaneous reduction of 

significant mitral regurgitation ... in patients who have been determined to be at 

prohibitive risk for mitral value surgery by a heart team, which includes a cardiac 

surgeon experienced in mitral valve surgery and a cardiologist experienced in mitral 

valve disease and in whom existing comorbidities would not preclude the expected 

benefit from correction of the mitral regurgitation.” 

 The MitraClip® System mitral valve repair procedure is based on the 

double-orifice surgical repair technique that has been used as a surgical technique in open 

chest, arrested-heart surgery for the treatment of MR since the early 1990s. According to 

the applicant, in utilizing “the double-orifice technique, a portion of the anterior leaflet is 

sutured to the corresponding portion of the posterior leaflet using standard techniques and 

forceps and suture, creating a point of permanent coaptation (“approximation”) of the two 

leaflets. When the suture is placed in the middle of the valve, the valve will have a 

functional double orifice during diastole.” 

 With regard to the newness criterion, the MitraClip® System received a premarket 

approval from the FDA on October 24, 2013. The MitraClip® System is indicated “for 

the percutaneous reduction of significant symptomatic mitral regurgitation (MR >= 3+) 

due to primary abnormality of the mitral apparatus (degenerative MR) in patients who 

have been determined to be at prohibitive risk for mitral valve surgery by a heart team, 

which includes a cardiac surgeon experienced in mitral valve surgery and a cardiologist 

experienced in mitral valve disease, and in whom existing comorbidities would not 

preclude the expected benefit from reduction of the mitral regurgitation.” The 
 323 

MitraClip® System became immediately available on the U.S. market following FDA 

approval. The MitraClip® System is a Class III device, and has an investigational device 

exemption (IDE) for the EVEREST study (Endovascular Valve Edge-to-Edge Repair 

Study) –IDE G030061, and for the COAPT study (Cardiovascular Outcomes Assessment 

of the MitraClip Percutaneous Therapy for Health Failure Patients with Functional Mitral 

Regurgitation) – IDE G120024. Effective October 1, 2010, ICD-9-CM procedure code 

35.97 (Percutaneous mitral valve repair with implant) was created to identify and 

describe the MitraClip® System technology. 

Abbott Vascular has also submitted an application for a National Coverage 

Decision (NCD) for the MitraClip® System device. We refer readers to the CMS Web 

site at: http://www.cms.gov/medicare-coverage-database/details/nca-trackingsheet.aspx?NCAId=273&NcaName=Transcatheter+Mitral+Valve+(TMV)+Procedures&

TimeFrame=90&DocType=All&bc=AAAAIAAACAAAAA%3d%3d& for information 

related to this ongoing NCD. The tracking sheet for this National Coverage Analysis 

(NCA) indicates an expected NCA completion date of August 16, 2014, which is after the 

FY 2015 IPPS/LTCH PPS final rule is scheduled to be published. The processes for 

evaluation and determination of an NCD, and the processes for evaluation and approval 

of an application for new technology add-on payments are made independent of each 

other. However, any payment made under the Medicare program for services provided to 

a beneficiary would be contingent on CMS’ coverage of the item, and any restrictions on 

the coverage would apply. We are inviting public comments on how the MitraClip® 

System meets the newness criterion for purposes of new technology add-on payments and 
 324 

the issues that may arise from concurrent NCD requests and new technology add-on 

payment application review and approval processes. 

 With regard to the cost criterion, the applicant conducted two analyses. The 

applicant noted that, while ICD-9-CM procedure code 35.97 maps to MS-DRGs 246 

(Percutaneous Cardiovascular Procedure with Drug- Eluting Stent with Major 

Complication or Comorbidity (MCC) or 4+ Vessels/Stents), 247 (Percutaneous 

Cardiovascular Procedure with Drug-Eluting Stent without MCC), 248 (Percutaneous 

Cardiovascular Procedure with Non-Drug-Eluting Stent with MCC or 4+ Vessels/Stents), 

249 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent without 

MCC), 250 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or 

AMI with MCC), and 251 (Percutaneous Cardiovascular Procedure without Coronary 

Artery Stent or AMI without MCC), clinical experience with the MitraClip® System 

device has demonstrated that it is extremely rare for a patient to receive stents 

concurrently during procedures using the MitraClip® System device. The applicant 

further cited the FY 2013 IPPS/LTCH PPS final rule (77 FR 53308) which stated, 

“According to the Food and Drug Administration's (FDA's) terms of the clinical trial for 

MitraClipTM, the device is to be implanted in patients without any additional surgeries 

performed. Therefore, based on these terms, we stated that while the procedure code is 

assigned to MS-DRGs 246 through 251, the most likely MS-DRG assignments would be 

MS-DRGs 250 and 251.” As a result, the applicant stated that it conducted its analyses 

solely for MS-DRGs 250 and 251 to demonstrate that the cases involving the MitraClip®
 325 

System device meet the incremental cost thresholds provided in Table 10 for those 

MS-DRGs. 

 The applicant researched the FY 2012 MedPAR file for claims for cases reporting 

ICD-9-CM procedure code 35.97. Under the first analysis and methodology, the 

applicant noted that this search yielded actual claims for cases in which the MitraClip® 

System device was used in procedures performed in an IDE study type setting, and 

hospitals obtained the MitraClip® System device at a reduced investigational price. The 

applicant further stated that it is likely that hospitals did not report the charges for the 

investigational device, or submitted claims for charges that were significantly less than 

the actual device acquisition costs (we refer readers to the explanation below). The 

applicant found 57 cases in MS-DRG 250 (29.38 percent of the total number of cases), 

and 137 cases in MS-DRG 251 (70.61 percent of the total number of cases), which 

resulted in an average case-weighted standardized charge per case of $232,670. 

 The applicant standardized the charges using the FY 2014 IPPS final rule impact 

file, and inflated the result using three different inflation factors. We note that, since the 

applicant used FY 2012 MedPAR data, we believe it is appropriate to use comparable 

data for standardization. Therefore, we believe use of the FY 2012 final rule impact file 

is more appropriate rather than the FY 2014 final rule impact file. The first analysis and 

methodology used an inflation factor of 4.57 percent, which was based on data from the 

BLS’ non-seasonally adjusted CPI for all urban consumers between January 2011 and 

January 2013. This resulted in an average case-weighted standardized charge per case of 

$94,517. The second methodology under the first analysis used an inflation factor of 
 326 

9.92 percent, which was based on the 2-year charge inflation factor listed in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50982). This resulted in an average case-weighted 

standardized charge per case of $96,199. The third methodology used under the first 

analysis used an inflation factor of 4.63 percent, which was based on the Medicare 

Economic Index (MEI) from the IPPS market basket update between the third quarter of 

2012 projected through the third quarter of 2014. This resulted in an average 

case-weighted standardized charge per case of $91,570. The applicant noted that all three 

methodologies used under the first analysis to determine each respective average 

case-weighted standardized charge per case were calculated without any adjustments to 

reflect the reduced investigational price, or inadequate hospital claim reporting and 

billing. 

 Using the FY 2014 IPPS Table 10 thresholds, the average case-weighted 

threshold for MS-DRGs 250 and 251 is$71,467 (all calculations above were performed 

using unrounded numbers). Because the average case-weighted standardized charge per 

case for the applicable MS-DRGs calculated under each methodology under the first 

analysis discussed above exceeds the average case-weighted threshold amount, the 

applicant maintained that the technology meets the cost criterion. 

 Under the second analysis, which used the same premise as the first analysis, the 

applicant researched the FY 2012 MedPAR file for claims for cases reporting procedure 

code 35.97 that mapped to MS-DRGs 250 and 251, except that the applicant excluded 

charges related to the MitraClip® System by removing all charges from the claim that 

would map to the implantable cost center on the cost report. The applicant then 
 327 

standardized the charges, inflated the result using the three inflation factors above, and 

added a fixed amount of commercial charges based on post-FDA approval pricing. This 

resulted in an average case weighted standardized charge per case of $139,536 under the 

first inflation factor (4.57 percent), $142,364 under the second inflation factor (9.2 

percent), and $139,568 under the third inflation factor (4.63 percent). 

 Using the FY 2014 IPPS Table 10 thresholds, the average case-weighted 

threshold for MS-DRGs 250 and 251 is $71,467 (all calculations above were performed 

using unrounded numbers). Because the average case-weighted standardized charge per 

case for the applicable MS-DRGs calculated under all three methodologies discussed 

above exceeds the average case-weighted threshold amount, the applicant maintained that 

the MitraClip® System meets the cost criterion. 

 We are inviting public comments on whether or not the MitraClip® System meets 

the cost criterion. In addition, we are inviting public comments on the methodologies 

used by the applicant in its two analyses. 

 The applicant asserted that the MitraClip® System meets the substantial clinical 

improvement criterion. Severe MR is associated with significant morbidity and mortality 

rates, and is a progressive condition. For symptomatic patients diagnosed with 

significant MR, surgical repair or replacement is considered the gold standard -- offering 

improvements in symptoms and longer survival rates. However, the applicant explained 

that studies have indicated that a significant proportion of patients are not eligible for 

mitral valve repair and/or replacement surgery because of risk factors, including reduced 

left ventricular function, significant comorbidities, and advanced age. As a result, the 
 328 

applicant stated that there is a significant unmet clinical need for patients diagnosed with 

severe MR who are too high-risk for surgery, who are receiving palliative medical 

management. 

 The applicant also stated that the MitraClip® System meets the substantial clinical 

improvement criterion based on clinical studies17,18,19,20,21,22,23,24,25 that have consistently 

shown that procedures performed using the MitraClip® System device lead to a 

significant reduction of MR; improvements in left ventricular (LV) function including 

LV volumes and dimensions; improved patient outcomes as measured by improvements 

in New York Heart Association (NYHA) functional class, improvement in health-related 

quality of life measures, and reductions in heart-failure related hospitalizations; and 

significantly lower mortality rates than predicted surgical mortality rates. 

 The applicant cited clinical data from the EVEREST II High-Risk Study and the 

EVEREST II (REALISM) Continued Access Study/Registry. The applicant also cited 

 

17 Feldman, et al., “Percutaneous Repair or Surgery for Mitral Regurgitation,” New England Journal of Medicine, 2011, Vol. 364, pp. 

1395-1406. 

18 Foster, et al., “Percutaneous Mitral Valve Repair in the Initial EVEREST Cohort: Evidence of Reverse Left Ventricular 

Remodeling,” Circulation in Cardivascular Imaging, July 2013, Vol. 6(4), pp. 522-530. 

19 Grayburn, et al., “The Relationship between the Magnitude of Reduction in Mitral Regurgitation Severity and Left Ventricular and 

Left Atrial Reverse Remodeling after MitraClip Therapy,” Circulation in Cardiovascular Imaging, September 2013, epub, September

6, 2013. 

20 Lim, et al., “Improved Functional Status and Quality of Life in Prohibitive Surgical Risk Patients With Degenerative Mitral 

Regurgitation Following Transcatheter Mitral Valve Repair with the MitraClip® System,” Journal of American College of 

Cardiology, 2013, In Press, Accepted Manuscript, Available online, October 31, 2013. 21 Maisano, F., et al., “Percutaneous Mitral Valve Interventions in the Real World: Early and One Year Results From the ACCESSEU, a Prospective, Multicenter, Non-Randomized Post-Approval Study of the MitraClip Therapy in Europ,” Journal of American 

College of Cardiology, 2013, doi: 10.1016/j.jacc.2013.02.094. 22 Mauri, et al., “4-Year Results of a Randomized Controlled Trial of Percutaneous Repair Versus Surgery for Mitral Regurgitation,” 

Journal of American College of Cardiology, Volume 62, Issue 4, 2013, p. 317-328. 

23 Munkholm ,et al., “Asystemic Review on the Safety and Efficacy of Percutaneousedge-to-edge Mitral Valve Repair with the 

MitraClip System for high surgical risk candidates,” Heart, June 27, 2013. 

24 Reichenspurner, H., et al., “Clinical Outcomes Through 12 Months in Patients With Degenerative Mitral Regurgitation Treated 

With the MitraClip Device in the ACCESS-EUrope Phase I Trial,” European Journal of Cardiology-and Thoracic Surgy, 2013, Vol. 

15, pp. 919-927. 

25 Whitlow, et al,. “Acute And 12-Month Results With Catheter-Based Mitral Valve Leaflet Repair: The EVEREST II (Endovascular 

Valve Edge-to-Edge Repair) High Risk Study,” Journal of American College of Cardiology, 2012, Vol. 59, pp. 130-139. 
 329 

clinical data from a high-risk cohort of patients (the EVEREST II High-Risk Cohort), 

which is an integrated analysis of the following: (1) patients within the EVEREST II 

High-Risk Study who met eligibility criteria for being too high-risk to undergo mitral 

valve repair surgery; and (2) patients within the EVEREST II (REALISM) Continued 

Access Study/Registry who were too high-risk for surgery using identical eligibility 

inclusion criteria. The applicant also cited data from the Prohibitive Risk Degenerative 

Mitral Regurgitation (DMR) Cohort, which is an analysis of retrospectively evaluated 

high-risk patients diagnosed with DMR enrolled in the EVEREST II studies that had 

1-year follow-up available. 

 In addition to the published clinical experience from the EVEREST studies, the 

applicant cited data on the use of the MitraClip® System device in a “real-world” setting 

published recently by a select number of European centers as part of their individual 

and/or multi-center commercial experience or enrollment in the MitraClip® System 

device group of the ACCESS-EU post-approval clinical trial in Europe. The European 

use of the MitraClip® System device is focused on patients who are too high-risk for 

surgery, and patients who are selected for therapy using a multi-disciplinary “heart team” 

approach. 

 The applicant stated that published reports on the MitraClip® System device and 

the procedures in which the device was used have consistently demonstrated a significant 

reduction in MR incidents that have been durable out to 1, 2, 3, and 4 years. The 

applicant cited the EVEREST II High-Risk Study (an analysis of 78 patients diagnosed 

with degenerative or functional MR enrolled in the trial), which stated that “objective 
 330 

measures of MR grade improved in the MitraClipTM group, including MR grade of <=2+ 

in 78 percent of surviving patients at 1 year. These patients also experienced clinically 

significant improvements in left ventricular volume measurements. The clinical 

significance of these improvements is reflected in the NYHA class improvements. At 

baseline, 89 percent of patients were NYHA III/IV, improving to Class I/II in 74 percent 

of surviving patients at 12 months. Quality of life scores also improved significantly. 

Finally, the number of admissions for heart failure was significantly reduced compared to 

the year prior to MitraClipTM therapy.” 

 The applicant cited clinical outcomes from the Prohibitive Risk DMR cohort. 

These results are the basis of the FDA premarket approval. Major effectiveness 

endpoints evaluated at 12 months demonstrated clinically important improvements in MR 

severity, with MR severity grades of 3+/4+ decreasing from 90.4 percent at baseline to 

16.7 percent at 1 year; NYHA Class III/IV decreasing from 86.6 percent at baseline to 

13.1 percent at 1 year; and the SF-36 Physical/Mental scale measuring 33.4/46.6 at 

baseline increasing to 39.4/52.2 at 1 year. 

 The applicant stated in its new technology add-on payment application that, 

“Heart failure hospitalizations were reduced by 73 percent in the 12 months post 

MitraClipTM procedure from the 12 month pre-MitraClipTM procedure...,” and “the 

primary safety analysis indicated low procedural (30-day) mortality (6.3 percent) after 

MitraClipTM in comparison with the STS predicted surgical mortality risk score for these 

patients (13.2 percent).” 
 331 

 The applicant discussed published results26 “assessing the relationship between 

the magnitude of reduction in MR and left ventricular (LV) and left atrial (LA) 

remodeling after the MitraClipTM therapy.” In this study of patients diagnosed with 

significant (grade 3+ or 4+) DMR or functional MR (FMR), the authors found that, “even 

reduction of MR severity to moderate (2+) is associated with LV and LA reverse 

remodeling. In both DMR and FMR, reduction in left ventricular end-diastolic volume 

(LVEDV) and LA volumes were improved proportionally to the degree of MR reduction 

at one year.” 

 In conclusion, the applicant cited data from the ACCESS-EU study, which noted 

improvement in disease-specific quality of life measures, including the Minnesota Living 

with Heart Failure Questionnaire and Six-Minute Walk Test. The applicant also provided 

data supporting the overall safety and effectiveness of the MitraClip® System device in 

European “real-world” outcome studies. 

 As noted in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27547 through 

27552), we are concerned that the applicant revised its initial FDA request for the use of 

the MitraClip® System device in all patients diagnosed with significant MR, after 

learning that the FDA expressed concern that the initial study, EVEREST II, 

demonstrated that, while the MitraClip® System device had clinically meaningful 

improvements in LV volume and QOL, the surgical option had better outcomes than the 

MitraClip® System device in surgical candidates. The FDA then required a second trial 

focused on high surgical risk patients. We note that the data evaluated by the FDA and 

 

26 Grayburn, et al., “The Relationship between the Magnitude of Reduction in Mitral Regurgitation Severity and Left Ventricular and 

Left Atrial Reverse Remodeling after MitraClip Therapy,” Circulation in Cardiovascular Imaging, September 2013, epub, 

September 6, 2013. 
 332 

presented by the applicant in its application for new technology add-on payments 

included information from the following: 

▪ EVEREST I feasibility trial; enrollment 2003-2006; 55 patients. 

▪ EVEREST II RCT; enrollment 2005-2008; 279 patients. 

▪ EVEREST II High-Risk Study; enrollment 2007-2008; 78 patients. (A 

comparator group of 36 patients was identified from patients who were screened for the 

study, but did not meet the mitral valve anatomic criteria for placement of the device.) 

▪ EVEREST (REALISM) Continued Access Study and compassionate use; 

enrollment 2009-2013; 49 patients. 

 The applicant provided comparisons of various outcomes prior to the procedure 

using the MitraClip® System device and outcomes 12 months later. MR severity, LV end 

diastolic volume, NYHA Class, SF36 Physical/Mental scale, and heart failure 

hospitalization rates all had clinically meaningful improvements. For the EVEREST II 

HRS, the applicant provided analysis demonstrating a significant survival benefit (76 

percent versus 55 percent/ p<0.047) over the comparator group. 

 In our review of the clinical trials’ data, we have the following key points of 

concern: 

● Post-hoc analyses of pooled data sets retain all of the individual shortcomings 

of the individual data sets; 

● Pooling does not enhance the utility and scientific value of uncontrolled 

single-arm registries with no comparators; and 

● Inappropriate pooling introduces additional confounders. 
 333 

 It is also unclear if the appropriate target population for the MitraClip® System 

device has been identified because the clinical trials conducted by the applicant included 

patients diagnosed with both DMR and FMR. This makes it difficult to determine which 

group of patients may benefit more, or less, from the new technology. For example, in a 

subgroup analysis of the EVEREST II RCT, the authors concluded that, older patients 

and those patients diagnosed with FMR or abnormal left ventricular function had results 

more comparable to surgical repair. Data results from 2 years of the EVEREST II RCT 

also demonstrated that surgery reduced incidents of MR more than the procedures 

performed using the percutaneous MitraClip® System device. However, both the surgical 

patients and the patients who were treated using the MitraClip® System device showed 

comparable results for improved left ventricular function, NYHA functional class, and 

quality of life. 

 We are inviting public comments on whether this technology meets the 

substantial clinical improvement criterion, particularly in comparison to other surgical 

therapies, such as mitral valve repair or replacement, and the appropriate target 

population for this technology. 

 We did not receive any public comments in response to the New Technology 

Town Hall meeting held on February 12, 2014 in regard to this technology. 

f. Responsive Neurostimulator (RNS®) System 

 NeuroPace, Inc. submitted an application for new technology add-on payments 

for FY 2015 for the use of the RNS® System. (We note that the applicant submitted an 

application for new technology add-on payments for FY 2014, but failed to receive FDA 
 334 

approval prior to the July 1 deadline.) Seizures occur when brain function is disrupted by 

abnormal electrical activity. Epilepsy is a brain disorder characterized by recurrent, 

unprovoked seizures. According to the applicant, the RNS® System is the first 

implantable medical device (developed by NeuroPace, Inc.) for treating persons 

diagnosed with epilepsy whose partial onset seizures have not been adequately controlled 

with antiepileptic medications. The applicant further stated that, the RNS® System is the 

first closed-loop, responsive system to treat partial onset seizures. Responsive electrical 

stimulation is delivered directly to the seizure focus in the brain when abnormal brain 

activity is detected. A cranially implanted programmable neurostimulator senses and 

records brain activity through one or two electrode-containing leads that are placed at the 

patient's seizure focus/foci. The neurostimulator detects electrographic patterns 

previously identified by the physician as abnormal, and then provides brief pulses of 

electrical stimulation through the leads to interrupt those patterns. Stimulation is 

delivered only when abnormal electrocorticographic activity is detected. The typical 

patient is treated with a total of 5 minutes of stimulation a day. The RNS® System 

incorporates remote monitoring, which allows patients to share information with their 

physicians remotely. 

 With respect to the newness criterion, the applicant stated that some patients 

diagnosed with partial onset seizures that cannot be controlled with antiepileptic 

medications may be candidates for the vagus nerve stimulator (VNS) or for surgical 

removal of the seizure focus. According to the applicant, these treatments are not 

appropriate for, or helpful to, all patients. Therefore, the applicant believed that there is 
 335 

an unmet clinical need for additional therapies for partial onset seizures. The applicant 

further stated that the RNS® System addresses this unmet clinical need by providing a 

novel treatment option for treating persons diagnosed with medically intractable partial 

onset seizures. The applicant received FDA premarket approval in November 2013. The 

following ICD-9-CM procedure codes are used to identify this technology: 01.20 

(Cranial implantation or replacement of neurostimulator pulse generator); 01.29 

(Removal of cranial neurostimulator pulse generator); and 02.93 (Implantation or 

replacement of intracranial neurostimulator lead(s)). We are inviting public comments on 

whether the technology meets the newness criterion. 

 With regard to the cost criterion, the applicant stated that substantially all cases 

eligible for the RNS® System would map to MS-DRG 024 (Craniotomy with Major 

Device Implant/Acute Complex Central Nervous System Principal Diagnosis without 

MCC). The applicant further stated that, while it is possible for some cases to occur in 

MS-DRG 023 (Craniotomy with Major Device Implant/Acute Complex Central Nervous 

System Principal Diagnosis with MCC or Chemotherapy Implant), it would be extremely 

rare because the applicant believed that these major complications and/or comorbidities 

would probably preclude a patient from receiving treatment using the RNS® System 

because the technology is an elective procedure. 

 The applicant submitted two analyses to demonstrate that the technology meets 

the cost criterion. For the first analysis, the applicant used clinical trial claims data 

collected in the RNS® System Pivotal Clinical Investigation to calculate the anticipated 

average case-weighted standardized charge per case. The applicant maintained that this 
 336 

analysis best represents the anticipated charges for the technology because it is based on 

actual cases treated using this technology. The applicant analyzed 163 claims from 28 

hospitals participating in the clinical trial. Five claims from one hospital were excluded 

because no hospital-specific information regarding standardization was available. The 

resulting 158 claims included dates of service ranging from May 2006 through 

May 2009. The average case-weighted standardized charge per case for these 158 claims 

was $54,691. 

 The applicant then standardized the charges for each claim. The applicant noted 

that it was not necessary to remove any charges from these claims because the technology 

was provided at no charge in the trial. After standardizing the charges for each claim, the 

applicant inflated the charges reported on each claim using the BLS’ CPI-IP data 

covering the same period. Specifically, because the publicly available FY 2012 MedPAR 

data do not identify the month of the discharge on inpatient claims, but do identify the 

calendar quarter, the applicant used a mid-month convention to determine the relevant 

monthly CPI-IP for each calendar quarter. The applicant then calculated the percentage 

change from the relevant quarter to the quarter of the most recently available CPI-IP, 

which was the August 2013 CPI-IP. Specifically, the applicant used the following 

assumptions: 

FY 2012 Calendar 

Quarter 

Midpoint of 

Quarter CPI IP Percent Change to August 2013 

Q4 2011 Nov-11 242.672 7.93%

Q1 2012 Feb-11 245.721 6.59%

Q2 2012 May-11 247.646 5.76%

Q3 2012 Aug-11 248.856 5.25%

Most recent as of Aug-13 261.915 
 337 

application 

Source as cited by applicant: Bureau of Labor Statistics’ Web site, accessed October 13, 2013; Base 

Period: December 1996 = 100. 

 After inflating the charges, the applicant estimated charges for the RNS® System 

by multiplying the device cost to the hospital by an anticipated hospital markup of 100 

percent, or conversely by dividing the device cost by a CCR of 0.50. The applicant based 

its estimated CCR on four analyses. First, the applicant reviewed the 2007 and 2008 

reports prepared by RTI for CMS on charge compression, which found that the national 

aggregate CCR for devices and implants was 0.43 and 0.467, as presented in the 

respective reports. Second, the applicant queried hospitals participating in the RNS®

System Pivotal trial, and these queries yielded a mean and median CCR for implantable 

devices of 0.37 and 0.36, respectively. Third, the applicant reviewed data from the (All 

Payor) Premier database for cases performed during 2000 through 2010 that reported 

ICD-9 CM procedure codes 02.93 and/or 86.95 on a claim, and calculated a mean and 

median CCR for implanted leads and neurostimulators of 0.50 and 0.44, respectively. 

The applicant then reviewed other discussions of past new technology add-on payment 

applications published in the Federal Register, and noted that other applicants used 

lower CCRs (higher markups) for implanted devices than the CCR of 0.50 used in the 

applicant's analyses. 

 Using this approach, the applicant added the anticipated hospital charge for the 

implantable RNS® System to the average case-weighted standardized charge per case, 

and determined a final average case-weighted standardized charge per case of $128,723. 

The anticipated hospital charge for the implantable RNS® System is $73,900. Using the 
 338 

FY 2014 IPPS Table 10 thresholds, the threshold for MS-DRG 024 is $91,197. Because 

the final average case-weighted standardized charge per case of $128,723 for MS-DRG 

024 exceeds the average case-weighted threshold amount, the applicant maintained that 

the RNS® System meets the cost criterion. 

 In the second analysis, which the applicant characterizes as supplementary, the 

applicant researched the FY 2012 MedPAR file for cases reporting the following 

combinations of ICD-9-CM procedures codes: 02.93 and 86.95, or procedures codes 

02.93 and 01.20 that mapped to MS-DRG 024. The applicant found 383 claims for cases 

reporting the combination of ICD-9-CM procedures codes 02.93 and 01.20, and pointed 

out that these cases were coded with procedure code 01.20 in error because no new 

RNS® System implantations occurred after May 2009. The applicant analyzed these 383 

claims, and found that more than 90 percent of these cases had a primary or secondary 

diagnosis of Parkinson's disease, essential tremor, or dystonia. These diagnoses are 

FDA-approved indications for deep brain stimulation (DBS). In addition, the applicant 

noted that the total covered charges for these cases were less than the estimated charges 

for a full DBS system, and hypothesized that these cases did not represent implantation of 

a full DBS system, but did represent the implantation of leads only. The applicant 

contacted two hospitals that reported claims for cases where total covered charges were 

less than the charges for a full DBS system, and the hospitals confirmed that their claims 

represented lead implantations only. Therefore, for the second analysis, the applicant 

included all of the cases assigned to MS-DRG 024 reporting a combination of ICD-9-CM 

procedures codes 02.93 and 86.95, and all of the cases assigned to MS-DRG 024 
 339 

reporting a combination of ICD-9-CM procedures codes 02.93 and 01.20 where the 

covered charges were greater than, or equal to, the estimated charges of a full DBS 

system. The applicant maintained that 374 claims from 106 providers met this criterion, 

and data represented claims from the fourth calendar quarter of 2011 through the third 

calendar quarter of 2012. Based on this assumption, the applicant calculated an average 

case-weighted standardized charge per case of $65,555. 

 The applicant then removed DBS charges from the average case-weighted 

standardized charge per case. The applicant estimated charges for a full DBS system, and 

maintained that the average cost for a full DBS system is $25,979. Similar to its first 

analysis, the applicant assumed a CCR of 0.50, or 100 percent markup, which resulted in 

estimated charges for a full DBS system of $51,958. After removing the DBS system 

charges, the applicant inflated the charges to the current period using the same 

methodology in the first analysis, added charges for the RNS® System, and determined a 

final average case-weighted standardized charge per case of $130,233. As noted above, 

the anticipated hospital charge for the implantable RNS® System is $73,900. Using the 

FY 2014 IPPS Table 10 thresholds, the average case-weighted threshold for MS-DRG 

024 is $91,197. Because the final average standardized charge per case of $130,233 for 

MS-DRG 024 exceeds the threshold amount, the applicant maintained that the 

RNS® System meets the cost criterion. 

 Under either analysis, the applicant maintained that the final average 

case-weighted standardized charge per case would exceed the average case-weighted 

threshold. We are inviting public comments on whether the RNS® System meets the cost 
 340 

criterion, particularly based on the assumptions and methodology used in the applicant's 

analyses. 

 With regard to substantial clinical improvement, as previously stated, some 

patients diagnosed with partial onset seizures may not be able to control their seizures 

with antiepileptic medications, VNS, or with surgical removal of the seizure focus. The 

applicant stated that the RNS® System provides treatment for those patients diagnosed 

with partial onset seizures who fail treatment with antiepileptic medications, or VNS 

therapy, and who are ineligible for resective surgery because of the extent and/or location 

of the seizure focus, or patients who do not elect surgery. According to the applicant, the 

RNS® System clinical trials provide Class I evidence that treatment using the RNS®

System substantially reduces disabling seizures in patients diagnosed with severe 

epilepsy, who have tried and failed treatment with antiepileptic medications, and in many 

cases, VNS or epilepsy surgery. The applicant maintained that the results from their 

clinical trials demonstrate significant and sustained improvements in health outcomes 

over the controlled period and over the long term. The applicant conducted a feasibility 

trial, which was designed to demonstrate adequate safety of its treatment, and provide 

evidence of effectiveness to support commencement of a randomized double-blinded 

pivotal trail. In addition, the applicant has an ongoing long-term treatment clinical 

investigation trial (LTT trial) to assess the long-term safety and effectiveness of the 

treatment on patients who have completed either the Feasibility trial, or the 

RNS® System Pivotal trial for an additional seven years. The LTT trial started in 

April 2006, and the final patient is expected to complete the trial in 2018. The applicant 
 341 

noted that patients enrolled in the LTT trial continued to experience a reduction in 

seizures over several years of follow-up, further demonstrating the positive effect of 

responsive stimulation from the RNS® System is durable. 

 The applicant stated that their pivotal trial met its primary effectiveness endpoint 

by proving that there was a statistically significant greater reduction in seizures in the 

treatment group compared to the control group (p = 0.012). Significant improvements at 

1 and 2 years post-implant included: 

● A significant reduction in disabling seizures of 44 percent and 53 percent at 

1 and 2 years, respectively; 

● Fifty-five percent of patients who reached 2 years post-implant experienced a 

50 percent or greater reduction in seizures; and 

● Significant improvements in overall quality of life, as well as individual 

quality of life measures including memory, language, attention, concentration and 

medication effects. 

 The applicant asserted that there was no negative effect of treatment using the 

RNS® System on neuropsychological function (including verbal functioning, 

visual spatial processing, and memory) or mood. The applicant concluded that the 

RNS® System Pivotal trial provides Class I evidence that responsive cortical stimulation 

is effective in significantly reducing seizure frequency in adults with one or two seizure 

foci who have failed two or more antiepileptic medication trials. The applicant stated 

that experience across all of the RNS® System trials demonstrates the reduction in seizure 

frequency of disabling partial onset seizures improves over time. In addition, the 
 342 

applicant noted that sustained improvements were also seen in quality of life. Finally, the 

applicant noted that safety and tolerability measures compare favorably to alternative 

treatments, such as antiepileptic medications, VNS, and epilepsy surgery. 

 With regard to the substantial clinical improvement criterion, we are concerned 

that the average age of the patients enrolled in the applicant's trials was 35 years. 

Although the applicant maintained that 31 percent of the patients enrolled in the pivotal 

trial were Medicare beneficiaries, we are unsure of the extent to which this technology 

would be used by Medicare beneficiaries because of the relatively young age of the 

majority of the patients enrolled in the pivotal trial. We also are concerned that further 

clarification on how the RNS® System compares to other neurostimulation treatments 

was not provided by the applicant. 

 Because the applicant included claims with DBS charges in one of its cost 

analyses, we believe that the similarities and differences between DBS and the 

RNS® System may also be relevant under the substantial clinical improvement criterion. 

In addition, we are concerned that the time period in the clinical trial may not be 

sufficient to confirm durability. In the RNS® System Pivotal Clinical Investigation, the 

primary effectiveness endpoint considered seizure frequency over the last 3 months of the 

blinded period of the trial. We note that the applicant is currently conducting a 5-year 

study. We are inviting public comments on whether the RNS® System meets the 

substantial clinical improvement criterion, particularly in regard to the degree in which 

the technology would be used by Medicare beneficiaries, the comparison to other 

neurostimulation treatments, and its durability. 
 343 

 We received public comments in response to the New Technology Town Hall 

meeting held on February 12, 2014, regarding this technology and the application for new 

technology add-on payments. We summarize these comments below. 

 Comment: One commenter, a physician, stated that even with the release of 

multiple new antiepileptic medications in the past 20 years, over one-third of people 

diagnosed with epilepsy cannot obtain adequate seizure control. The commenter noted 

that seizures lead to loss of employment and driving licenses and are socially disabling. 

The commenter further noted that uncontrolled seizures can cause physical injury and 

even significantly increased risk of death. The commenter stated that only a fraction of 

these patients are candidates for potentially curative resective brain surgery and 

antiepileptic medications can have disabling or severe adverse effects, such as lethargy, 

ataxia, organ or blood cell damage, Stevens-Johnson syndrome, and psychiatric changes 

including suicidal ideation. For this reason, the commenter believed that new treatments 

are still needed. 

 The commenter asserted that the RNS® System represents a much needed new 

therapy for patients who are desperate to get seizures under control and lead a productive 

life. The commenter stated that of its patients that participated in the clinical trials, these 

patients have demonstrated significant and sustained benefits from treatment with the 

RNS® System. The commenter noted that two patients had a significant reduction in the 

amount of seizures per month, and are now able to obtain driver licenses and both show 

improved quality of life. 
 344 

 The commenter also noted that the RNS® System is a unique therapy for the 

following reasons: (1) While medications are chemicals that circulate to every organ, the 

RNS® System delivers therapy directly to the epileptic focus; (2) RNS® therapy is 

delivered automatically, avoiding compliance problems that occur with medications; and 

(3) the RNS® System constantly records data on seizure occurrences that is available to 

the clinician at any time which can track a patient’s progress without depending on the 

patient’s memory or willingness to report seizures. The commenter asserted that no other 

therapy offers this capability. 

 The commenter urged CMS to approve the new technology add-on payment 

application for the RNS® System, which the commenter believed would help ensure 

access to this novel therapy for Medicare beneficiaries for whom there are otherwise no 

good treatment options available. 

 Another commenter, also a physician, stated that some of the benefits of the 

RNS® System therapy include a significant reduction in the seizure frequency and 

severity, and for some patients, extended periods of seizure freedom. The commenter 

explained that this reduction in the seizure frequency improves over time, is sustained 

over several years of follow-up, and can result in improved cognition and a better quality 

of life. The commenter further stated that some patients have been able to live 

independently for the first time in their life, take care of children, resume driving, go back 

to school and/or obtain employment. The commenter concluded the following 

comparisons between the RNS® System and the vagus nerve stimulator (VNS): 
 345 

● In clinical trials, the RNS® System subjects experienced a greater reduction in 

seizures than VNS subjects. The median percent reduction in seizures was: 1 year: RNS 

– 44 percent and VNS – 31 percent; 2 years: RNS – 53 percent and VNS – 41 percent. 

● VNS therapy results in stimulation-related side effects, including coughing, 

difficulties with speech and throat pain. RNS® therapy does not result in chronic side 

effects. 

● About one-third of patients in RNS® System pivotal trial had previously failed 

therapy with a VNS. These subjects achieved the same positive improvements in health 

outcomes from the RNS® System as patients that had not previously tried a VNS. 

● In the commenter’s experience, not only is the frequency of the seizure activity 

improved but also the severity of the seizures can improve with the RNS® System. 

 The commenter further noted the “positive long-term results of RNS therapy.” 

The commenter stated that therapy is being evaluated in the ongoing LTT trial, in which 

patients are enrolled for an additional 7 years after completing the initial 2-year clinical 

trial with some patients having the implant for over 9 years. The commenter asserted that 

the long-term data clearly show that the therapy is durable. Specifically, the commenter 

noted that seizure reductions are maintained at 50 percent or greater through 7 years (that 

is, the median percent reduction in seizures is about 60 percent at 7 years). The 

commenter added that the vast majority of its patients have elected to continue treatment 

with the device given their response to the RNS® therapy. The commenter encouraged 

CMS to approve new technology add-on payments for the RNS® System. 
 346 

 Response: We appreciate the commenters’ support. We considered these 

comments in our evaluation of the RNS® System new technology add-on payment 

application for FY 2015 and in the development of this proposed rule. As stated above, 

we are inviting additional public comments on whether the RNS® System meets the 

substantial clinical improvement criterion, particularly in regard to the degree in which 

the technology would be used by Medicare beneficiaries, the comparison to other 

neurostimulation treatments, and its durability.
 347 

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

A. Background 

 Section 1886(d)(3)(E) of the Act requires that, as part of the methodology for 

determining prospective payments to hospitals, the Secretary adjust the standardized 

amounts “for area differences in hospital wage levels by a factor (established by the 

Secretary) reflecting the relative hospital wage level in the geographic area of the hospital 

compared to the national average hospital wage level.” We currently define hospital 

labor market areas based on the delineations of statistical areas established by the Office 

of Management and Budget (OMB). A discussion of the proposed FY 2015 hospital 

wage index based on the statistical areas appears under section III.B. of the preamble of 

this proposed rule. 

 Section 1886(d)(3)(E) of the Act requires the Secretary to update the wage index 

annually and to base the update on a survey of wages and wage-related costs of 

short-term, acute care hospitals. This provision also requires that any updates or 

adjustments to the wage index be made in a manner that ensures that aggregate payments 

to hospitals are not affected by the change in the wage index. The proposed adjustment 

for FY 2015 is discussed in section II.B. of the Addendum to this proposed rule. 

 As discussed in section III.H. of the preamble of this proposed rule, 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 
 348 

implementation of the provisions of sections 1886(d)(8)(B), 1886(d)(8)(C), and 

1886(d)(10) of the Act are equal to the aggregate prospective payments that would have 

been made absent these provisions. The proposed budget neutrality adjustment for 

FY 2015 is discussed in section II.A.4.b. of the Addendum to this proposed rule. 

 Section 1886(d)(3)(E) of the Act also provides for the collection of data every 

3 years on the occupational mix of employees for short-term, acute care hospitals 

participating in the Medicare program, in order to construct an occupational mix 

adjustment to the wage index. A discussion of the occupational mix adjustment that we 

are proposing to apply to the FY 2015 wage index appears under section III.F. of the 

preamble of this proposed rule. 

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

1. Background 

 The wage index is calculated and assigned to hospitals on the basis of the labor 

market area in which the hospital is located. Under section 1886(d)(3)(E) of the Act, 

beginning with FY 2005, we delineate hospital labor market areas based on the 

Core-Based Statistical Areas (CBSAs) established by the Office of Management and 

Budget (OMB). The current statistical areas used in FY 2014 are based on OMB 

standards published on December 27, 2000 (65 FR 82228) and Census 2000 data and 

Census Bureau population estimates for 2007 and 2008 (OMB Bulletin No. 10-02). For a 

discussion of OMB’s delineations of CBSAs and our implementation of the CBSA 

definitions, we refer readers to the preamble of the FY 2005 IPPS final rule (69 FR 49026 

through 49032). We also discussed in the FY 2012 IPPS/LTCH PPS final rule 
 349 

(76 FR 51582) and the FY 2013 IPPS/LTCH PPS final rule (77 FR 53365) that, in 2013, 

OMB planned to announce new labor market area delineations based on new standards 

adopted in 2010 (75 FR 37246) and the 2010 Census of Population and Housing data. As 

stated in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27552) and final rule 

(78 FR 50586), on February 28, 2013, OMB issued OMB Bulletin No. 13-01, which 

established revised delineations for Metropolitan Statistical Areas, Micropolitan 

Statistical Areas, and Combined Statistical Areas, and provided guidance on the use of 

the delineations of these statistical areas. A copy of this bulletin may be obtained at 

http://www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b-13-01.pdf. 

According to OMB, “[t]his bulletin provides the delineations of all Metropolitan 

Statistical Areas, Metropolitan Divisions, Micropolitan Statistical Areas, Combined 

Statistical Areas, and New England City and Town Areas in the United States and Puerto 

Rico based on the standards published on June 28, 2010, in the Federal Register

(75 FR 37246-37252) and Census Bureau data.” In this FY 2015 IPPS/LTCH PPS 

proposed rule, when referencing the new OMB geographic boundaries of statistical areas, 

we are using the term “delineations” rather than the term “ definitions” that we have used 

in the past, consistent with OMB’s use of the terms (75 FR 37249). 

 In order to implement these changes for the IPPS, it is necessary to identify the 

new labor market area delineation for each county and hospital in the country. While the 

revisions OMB published on February 28, 2013 are not as sweeping as the changes OMB 

announced in 2003, the February 28, 2013 bulletin does contain a number of significant 

changes. For example, under the new OMB delineations, there would be new CBSAs, 
 350 

urban counties that would become rural, rural counties that would become urban, and 

existing CBSAs would be split apart. In addition, the effect of the new OMB 

delineations on various hospital reclassifications, the out-migration adjustment 

(established by section 505 of Pub. L. 108-173), and treatment of hospitals located in 

certain rural counties (that is, “Lugar” hospitals) provided for under section 

1886(d)(8)(B) of the Act must be considered. These are just a few of the many issues 

that need to be reviewed regarding the effects of the new OMB labor market area 

delineations prior to proposing and establishing policies. 

 However, because the bulletin was not issued until February 28, 2013, with 

supporting data not available until later, and because the changes made by the bulletin 

and their ramifications needed to be extensively reviewed and verified, we were unable to 

undertake such a lengthy process before publication of the FY 2014 IPPS/LTCH PPS 

proposed rule and, thus, did not implement changes to the wage index for FY 2014 based 

on these new OMB delineations. In the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50586), we stated that we intended to propose changes to the wage index based 

on the new OMB delineations in this FY 2015 proposed rule. As discussed below, in this 

proposed rule, we are proposing to implement the new OMB delineations as described in 

the February 28, 2013 OMB Bulletin No. 13-01, effective for the FY 2015 IPPS wage 

index. 

2. Proposed Implementation of New Labor Market Area Delineations 

 As discussed previously, CMS delayed implementing the new OMB labor market 

area delineations to allow for sufficient time to assess the new changes. We believe it is 
 351 

important for the IPPS to use the latest labor market area delineations available as soon as 

is reasonably possible in order to maintain a more accurate and up-to-date payment 

system that reflects the reality of population shifts and labor market conditions. While 

CMS and other stakeholders have explored potential alternatives to the current 

CBSA-based labor market system (we refer readers to the CMS Web site at: 

www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/WageIndex-Reform.html), no consensus has been achieved regarding how best to implement a 

replacement system. As discussed in the FY 2005 IPPS final rule (69 FR 49027), “While 

we recognize that MSAs are not designed specifically to define labor market areas, we 

believe they do represent a useful proxy for this purpose.” We further believe that using 

the most current delineations will increase the integrity of the IPPS wage index system by 

creating a more accurate representation of geographic variations in wage levels. We have 

reviewed our findings and impacts relating to the new OMB delineations, and find no 

compelling reason to further delay implementation. Therefore, we are proposing to 

implement the new OMB delineations as described in the February 28, 2013 OMB 

Bulletin No. 13-01, effective for the FY 2015 IPPS wage index. We are proposing to use 

these new delineations to calculate area wage indexes in a manner that is generally 

consistent with the CBSA-based methodologies finalized in the FY 2005 IPPS final rule, 

and refined in subsequent rulemaking. We also are proposing a wage index transition 

period applicable to all hospitals that experience negative impacts due to the proposed 

implementation of the new OMB delineations. This transition is discussed in more detail 

below. 
 352 

a. Micropolitan Statistical Areas 

 As discussed in the FY 2005 IPPS final rule (69 FR 49029 through 49032), CMS 

considered whether to use Micropolitan Statistical Areas to define the labor market areas 

for the purpose of the IPPS wage index. OMB defines a “Micropolitan Statistical Area” 

as a CBSA “associated with at least one urban cluster that has a population of at least 

10,000, but less than 50,000” (75 FR 37252). We refer to these areas as Micropolitan 

Areas. After extensive impact analysis, CMS determined the best course of action would 

be to treat all hospitals located in Micropolitan Areas as “rural” and include them in the 

calculation of each State’s rural wage index. Because Micropolitan areas tend to 

encompass smaller population centers and contain fewer hospitals than MSAs, we 

determined that if Micropolitan Areas were to be treated as separate labor market areas, 

the IPPS wage index would have included drastically more single-provider labor market 

areas. This larger number of labor market areas with fewer hospitals could create 

instability in year-to-year wage index values for a large number of hospitals; could 

reduce the averaging effect of the wage index, thus lessening some of the efficiency 

incentive inherent in a system based on the average hourly wages for a large number of 

hospitals; and could arguably create an inequitable system when so many hospitals have 

wage indexes based solely on their own wage data while other hospitals’ wage indexes 

are based on an average hourly wage across many hospitals. For these reasons, we 

adopted a policy to include Micropolitan Areas in the State’s rural wage area, and have 

continued this policy through the present. 
 353 

 Based upon the new 2010 Decennial Census data, a number of urban counties 

have switched status and have joined or became Micropolitan Areas, and some counties 

that once were part of a Micropolitan Area, under current OMB delineations, have 

become urban. Overall, there are fewer Micropolitan Areas (541) under the new OMB 

delineations based on the 2010 Census than existed under the latest data from the 2000 

Census (581). We believe that the best course of action would be to continue the policy 

established in the FY 2005 IPPS final rule and include hospitals located in Micropolitan 

Areas in each State’s rural wage index. These areas continue to be defined as having 

relatively small urban cores (populations of 10,000-49,999). We do not believe it would 

be appropriate to calculate a separate wage index for areas that typically may include 

only a few hospitals for the reasons set forth in the FY 2005 IPPS/LTCH PPS final rule, 

as discussed above. Therefore, in conjunction with our proposal to implement the new 

OMB labor market area delineations beginning in FY 2015, we are proposing to continue 

to treat Micropolitan Areas as “rural” and to include the Micropolitan Areas in the 

calculation of each State’s rural wage index. 

b. Urban Counties That Would Become Rural under the New OMB Delineations 

 As previously discussed, we are proposing to implement the new OMB labor 

market area delineations (based upon the 2010 Decennial Census data) beginning in 

FY 2015. Our analysis shows that a total of 37 counties (and county equivalents) and 12 

hospitals that were once considered part of an urban CBSA would be considered to be 

located in a rural area, beginning in FY 2015, under these new OMB delineations. The 
 354 

following chart lists the 37 urban counties that would be rural if we finalize our proposal 

to implement the new OMB delineations. 

COUNTIES THAT WOULD LOSE URBAN STATUS 

County State 

Previous 

CBSA 

Number 

CBSA 

Greene County IN 14020 Bloomington, IN 

Anson County NC 16740 Charlotte-Gastonia-Rock Hill, NC-SC 

Franklin County IN 17140 Cincinnati-Middletown, OH-KY-IN 

Stewart County TN 17300 Clarksville, TN-KY 

Howard County MO 17860 Columbia, MO 

Delta County TX 19124 Dallas-Fort Worth-Arlington, TX 

Pittsylvania County VA 19260 Danville, VA 

Danville City VA 19260 Danville, VA 

Preble County OH 19380 Dayton, OH 

Gibson County IN 21780 Evansville, IN-KY 

Webster County KY 21780 Evansville, IN-KY 

Franklin County AR 22900 Fort Smith, AR-OK 

Ionia County MI 24340 Grand Rapids-Wyoming, MI 

Newaygo County MI 24340 Grand Rapids-Wyoming, MI 

Greene County NC 24780 Greenville, NC 

Stone County MS 25060 Gulfport-Biloxi, MS 

Morgan County WV 25180 Hagerstown-Martinsburg, MD-WV 

San Jacinto County TX 26420 Houston-Sugar Land-Baytown, TX 

Franklin County KS 28140 Kansas City, MO-KS 

Tipton County IN 29020 Kokomo, IN 

Nelson County KY 31140 Louisville/Jefferson County, KY-IN 

Geary County KS 31740 Manhattan, KS 

Washington County OH 37620 Parkersburg-Marietta-Vienna, WV-OH 

Pleasants County WV 37620 Parkersburg-Marietta-Vienna, WV-OH 

George County MS 37700 Pascagoula, MS 

Power County ID 38540 Pocatello, ID 

Cumberland County VA 40060 Richmond, VA 

King and Queen 

County VA 40060 Richmond, VA 

Louisa County VA 40060 Richmond, VA 

Washington County MO 41180 St. Louis, MO-IL 

Summit County UT 41620 Salt Lake City, UT 
 355 

COUNTIES THAT WOULD LOSE URBAN STATUS 

County State 

Previous 

CBSA 

Number 

CBSA 

Erie County OH 41780 Sandusky, OH 

Franklin County MA 44140 Springfield, MA 

Ottawa County OH 45780 Toledo, OH 

Greene County AL 46220 Tuscaloosa, AL 

Calhoun County TX 47020 Victoria, TX 

Surry County VA 47260 

Virginia Beach-Norfolk-Newport News, 

VA-NC 

 We are proposing that the wage data for all hospitals located in the counties listed 

above would now be considered rural when calculating their respective State’s rural wage 

index. We recognize that rural areas typically have lower area wage index values than 

urban areas, and hospitals located in these counties may experience a negative impact in 

their IPPS payment due to the proposed adoption of the new OMB delineations. We refer 

readers to section III.B.2.e. of the preamble of this proposed rule for a discussion of the 

proposed wage index transition period, in particular, the discussion regarding the 3-year 

transition for hospitals located in these specific counties. 

c. Rural Counties That Would Become Urban under the New OMB Delineations 

 As previously discussed, we are proposing to implement the new OMB labor 

market area delineations (based upon the 2010 Decennial Census data) beginning in 

FY 2015. Analysis of these OMB labor market area delineations shows that a total of 

105 counties (and county equivalents) and 81 hospitals that were located in rural areas 

would be located in urban areas under the new OMB delineations. The following chart 
 356 

lists the 105 rural counties that would be urban if we finalize our proposal to implement 

the new OMB delineations. 

COUNTIES THAT WOULD GAIN URBAN STATUS 

County State

New 

CBSA 

Number

CBSA 

Utuado Municipio PR 10380 Aguadilla-Isabela, PR 

Linn County OR 10540 Albany, OR 

Oldham County TX 11100 Amarillo, TX 

Morgan County GA 12060 Atlanta-Sandy Springs-Roswell, GA 

Lincoln County GA 12260 Augusta-Richmond County, GA-SC 

Newton County TX 13140 Beaumont-Port Arthur, TX 

Fayette County WV 13220 Beckley, WV 

Raleigh County WV 13220 Beckley, WV 

Golden Valley County MT 13740 Billings, MT 

Oliver County ND 13900 Bismarck, ND 

Sioux County ND 13900 Bismarck, ND 

Floyd County VI 13980 Blacksburg-Christiansburg-Radford, VA 

De Witt County IL 14010 Bloomington, IL 

Columbia County PA 14100 Bloomsburg-Berwick, PA 

Montour County PA 14100 Bloomsburg-Berwick, PA 

Allen County KY 14540 Bowling Green, KY 

Butler County KY 14540 Bowling Green, KY 

St. Mary's County MD 15680 California-Lexington Park, MD 

Jackson County IL 16060 Carbondale-Marion, IL 

Williamson County IL 16060 Carbondale-Marion, IL 

Franklin County PA 16540 Chambersburg-Waynesboro, PA 

Iredell County NC 16740 Charlotte-Concord-Gastonia, NC-SC 

Lincoln County NC 16740 Charlotte-Concord-Gastonia, NC-SC 

Rowan County NC 16740 Charlotte-Concord-Gastonia, NC-SC 

Chester County SC 16740 Charlotte-Concord-Gastonia, NC-SC 

Lancaster County SC 16740 Charlotte-Concord-Gastonia, NC-SC 

Buckingham County VA 16820 Charlottesville, VA 

Union County IN 17140 Cincinnati, OH-KY-IN 

Hocking County OH 18140 Columbus, OH 
 357 

COUNTIES THAT WOULD GAIN URBAN STATUS 

County State

New 

CBSA 

Number

CBSA 

Perry County OH 18140 Columbus, OH 

Walton County FL 18880 Crestview-Fort Walton Beach-Destin, FL 

Hood County TX 23104 Dallas-Fort Worth-Arlington, TX 

Somervell County TX 23104 Dallas-Fort Worth-Arlington, TX 

Baldwin County AL 19300 Daphne-Fairhope-Foley, AL 

Monroe County PA 20700 East Stroudsburg, PA 

Hudspeth County TX 21340 El Paso, TX 

Adams County PA 23900 Gettysburg, PA 

Hall County NE 24260 Grand Island, NE 

Hamilton County NE 24260 Grand Island, NE 

Howard County NE 24260 Grand Island, NE 

Merrick County NE 24260 Grand Island, NE 

Montcalm County MI 24340 Grand Rapids-Wyoming, MI 

Josephine County OR 24420 Grants Pass, OR 

Tangipahoa Parish LA 25220 Hammond, LA 

Beaufort County SC 25940 Hilton Head Island-Bluffton-Beaufort, SC 

Jasper County SC 25940 Hilton Head Island-Bluffton-Beaufort, SC 

Citrus County FL 26140 Homosassa Springs, FL 

Butte County ID 26820 Idaho Falls, ID 

Yazoo County MS 27140 Jackson, MS 

Crockett County TN 27180 Jackson, TN 

Kalawao County HI 27980 Kahului-Wailuku-Lahaina, HI 

Maui County HI 27980 Kahului-Wailuku-Lahaina, HI 

Campbell County TN 28940 Knoxville, TN 

Morgan County TN 28940 Knoxville, TN 

Roane County TN 28940 Knoxville, TN 

Acadia Parish LA 29180 Lafayette, LA 

Iberia Parish LA 29180 Lafayette, LA 

Vermilion Parish LA 29180 Lafayette, LA 

Cotton County OK 30020 Lawton, OK 

Scott County IN 31140 Louisville/Jefferson County, KY-IN 

Lynn County TX 31180 Lubbock, TX 

Green County WI 31540 Madison, WI 

Benton County MS 32820 Memphis, TN-MS-AR 
 358 

COUNTIES THAT WOULD GAIN URBAN STATUS 

County State

New 

CBSA 

Number

CBSA 

Midland County MI 33220 Midland, MI 

Martin County TX 33260 Midland, TX 

Le Sueur County MN 33460 Minneapolis-St. Paul-Bloomington, MN-WI 

Mille Lacs County MN 33460 Minneapolis-St. Paul-Bloomington, MN-WI 

Sibley County MN 33460 Minneapolis-St. Paul-Bloomington, MN-WI 

Maury County TN 34980 

Nashville-Davidson--Murfreesboro--

Franklin, TN 

Craven County NC 35100 New Bern, NC 

Jones County NC 35100 New Bern, NC 

Pamlico County NC 35100 New Bern, NC 

St. James Parish LA 35380 New Orleans-Metairie, LA 

Box Elder County UT 36260 Ogden-Clearfield, UT 

Gulf County FL 37460 Panama City, FL 

Custer County SD 39660 Rapid City, SD 

Fillmore County MN 40340 Rochester, MN 

Yates County NY 40380 Rochester, NY 

Sussex County DE 41540 Salisbury, MD-DE 

Worcester County MA 41540 Salisbury, MD-DE 

Highlands County FL 42700 Sebring, FL 

Webster Parish LA 43340 Shreveport-Bossier City, LA 

Cochise County AZ 43420 Sierra Vista-Douglas, AZ 

Plymouth County IA 43580 Sioux City, IA-NE-SD 

Union County SC 43900 Spartanburg, SC 

Pend Oreille County WA 44060 Spokane-Spokane Valley, WA 

Stevens County WA 44060 Spokane-Spokane Valley, WA 

Augusta County VA 44420 Staunton-Waynesboro, VA 

Staunton City VA 44420 Staunton-Waynesboro, VA 

Waynesboro City VA 44420 Staunton-Waynesboro, VA 

Little River County AR 45500 Texarkana, TX-AR 

Sumter County FL 45540 The Villages, FL 

Pickens County AL 46220 Tuscaloosa, AL 

Gates County NC 47260 

Virginia Beach-Norfolk-Newport News, 

VA-NC 

Falls County TX 47380 Waco, TX 

Columbia County WA 47460 Walla Walla, WA 
 359 

COUNTIES THAT WOULD GAIN URBAN STATUS 

County State

New 

CBSA 

Number

CBSA 

Walla Walla County WA 47460 Walla Walla, WA 

Peach County GA 47580 Warner Robins, GA 

Pulaski County GA 47580 Warner Robins, GA 

Culpeper County VA 47894 

Washington-Arlington-Alexandria, DC-VAMD-WV 

Rappahannock County VA 47894 

Washington-Arlington-Alexandria, DC-VAMD-WV 

Jefferson County NY 48060 Watertown-Fort Drum, NY 

Kingman County KS 48620 Wichita, KS 

Davidson County NC 49180 Winston-Salem, NC 

Windham County CT 49340 Worcester, MA-CT 

 We are proposing that when calculating the area wage index, the wage data for 

hospitals located in these counties would be included in their new respective urban 

CBSAs. Typically, hospitals located in an urban area would receive a higher wage index 

value than hospitals located in their State’s rural area. However, with regard to the wage 

index applicable to individual hospitals, we are proposing to implement a transitional 

wage index adjustment for any hospital that would receive a lower wage index under the 

new OMB delineations than it would have received under the current CBSA definitions. 

We refer readers to section III.B.2.e. of the preamble of this proposed rule for further 

discussion of this proposed transition. 
 360 

d. Urban Counties That Would Move to a Different Urban CBSA under the New OMB 

Delineations 

 In addition to rural counties becoming urban and urban counties becoming rural, 

several urban counties would shift from one urban CBSA to another urban CBSA under 

our proposal to adopt the new OMB delineations. In certain cases, adopting the new 

OMB delineations would involve a change only in CBSA name or number, while the 

CBSA continues to encompass the same constituent counties. For example, CBSA 29140 

(Lafayette, IN) would experience both a change to its number and its name, and become 

CBSA 29200 (Lafayette-West Lafayette, IN), while all of its three constituent counties 

would remain the same. We have identified 19 counties that would remain in a CBSA 

that experienced a change in name or number under the new delineations, but would 

retain the same constituent counties, as shown in the following table. 

COUNTIES THAT WOULD REMAIN IN CBSA THAT CHANGED 

NUMBER 

Prior 

CBSA 

Number 

New 

CBSA 

Number 

County State 

14484 14454 Norfolk County MA 

14484 14454 Plymouth County MA 

14484 14454 Suffolk County MA 

47644 47664 Lapeer County MI 

47644 47664 Livingston County MI 

47644 47664 Macomb County MI 

47644 47664 Oakland County MI 

47644 47664 St. Clair County MI 

26180 46520 Honolulu County HI 

29140 29200 Benton County IN 

29140 29200 Carroll County IN 

29140 29200 Tippecanoe County IN 
 361 

COUNTIES THAT WOULD REMAIN IN CBSA THAT CHANGED 

NUMBER 

Prior 

CBSA 

Number 

New 

CBSA 

Number 

County State 

42044 11244 Orange County CA 

42060 42200 Santa Barbara County CA 

44600 48260 Jefferson County OH 

44600 48260 Brooke County WV 

44600 48260 Hancock County WV 

13644 43524 Frederick County MD 

13644 43524 Montgomery County MD 

 We are not discussing further in this section these proposed changes because they 

are inconsequential changes with respect to the IPPS wage index. However, in other 

cases, if we adopt the new OMB delineations, counties would shift between existing and 

new CBSAs, changing the constituent makeup of the CBSAs. 

 In one type of change, an entire CBSA would be subsumed by another CBSA. 

For example, CBSA 37380 (Palm Coast, FL) currently is a single county (Flagler, FL) 

CBSA. Flagler County would become a part of CBSA 19660 (Deltona-Daytona BeachOrmond Beach, FL) under the new OMB delineations. 

 In another type of change, some CBSAs have counties that would split off to 

become part of or to form entirely new labor market areas. For example, CBSA 37964 

(Philadelphia Metropolitan Division) currently is comprised of five Pennsylvania 

counties (Bucks, Chester, Delaware, Montgomery, and Philadelphia). If we adopt the 

new OMB delineations, Montgomery, Bucks, and Chester counties would split off and 

form the new CBSA 33874 (Montgomery County-Bucks County-Chester County, PA 
 362 

Metropolitan Division), while Delaware and Philadelphia counties would remain in 

CBSA 37964. 

 Finally, in some cases, a CBSA would lose counties to another existing CBSA if 

we adopt the new OMB delineations. For example, Lincoln County and Putnam County, 

WV would move from CBSA 16620 (Charleston, WV) to CBSA 26580 (HuntingtonAshland, WV-KY-OH). CBSA 16620 still would exist in the new labor market 

delineations with fewer constituent counties. 

 The following chart lists the urban counties that would move from one urban 

CBSA to another urban CBSA if we adopted the new OMB delineations. 

COUNTIES THAT WOULD CHANGE TO ANOTHER 

CBSA 

Prior CBSA New CBSA County State 

11300 26900 Madison County IN 

11340 24860 Anderson County SC 

14060 14010 McLean County IL 

37764 15764 Essex County MA 

16620 26580 Lincoln County WV 

16620 26580 Putnam County WV 

16974 20994 DeKalb County IL 

16974 20994 Kane County IL 

21940 41980 Ceiba Municipio PR 

21940 41980 Fajardo Municipio PR 

21940 41980 Luquillo Municipio PR 

26100 24340 Ottawa County MI 

31140 21060 Meade County KY 

34100 28940 Grainger County TN 

35644 35614 Bergen County NJ 

35644 35614 Hudson County NJ 

20764 35614 Middlesex County NJ 

20764 35614 Monmouth County NJ 
 363 

COUNTIES THAT WOULD CHANGE TO ANOTHER 

CBSA 

Prior CBSA New CBSA County State 

20764 35614 Ocean County NJ 

35644 35614 Passaic County NJ 

20764 35084 Somerset County NJ 

35644 35614 Bronx County NY 

35644 35614 Kings County NY 

35644 35614 New York County NY 

35644 20524 Putnam County NY 

35644 35614 Queens County NY 

35644 35614 Richmond County NY 

35644 35614 Rockland County NY 

35644 35614 Westchester County NY 

37380 19660 Flagler County FL 

37700 25060 Jackson County MS 

37964 33874 Bucks County PA 

37964 33874 Chester County PA 

37964 33874 Montgomery County PA 

39100 20524 Dutchess County NY 

39100 35614 Orange County NY 

41884 42034 Marin County CA 

41980 11640 Arecibo Municipio PR 

41980 11640 Camuy Municipio PR 

41980 11640 Hatillo Municipio PR 

41980 11640 

Quebradillas 

Municipio PR 

48900 34820 Brunswick County NC 

49500 38660 Guánica Municipio PR 

49500 38660 

Guayanilla 

Municipio PR 

49500 38660 Peñuelas Municipio PR 

49500 38660 Yauco Municipio PR 

 If hospitals located in these counties move from one CBSA to another under the 

new OMB delineations, there may be impacts, both negative and positive, upon their 
 364 

specific wage index values. We refer readers to section III.B.2.e. of the preamble of this 

proposed rule for a discussion of our proposals to moderate the impact of our proposed 

adoption of the new OMB delineations. 

e. Proposed Transition Period 

(1) Background 

 Overall, we believe implementing the new OMB labor market area delineations 

would result in wage index values being more representative of the actual costs of labor 

in a given area. However, we recognize that some hospitals would experience decreases 

in wage index values as a result of our proposed implementation of the new labor market 

area delineations. We also realize that some hospitals would have higher wage index 

values due to our proposed implementation of the new labor market area delineations. 

 In the past, we have provided for transition periods when adopting changes that 

have significant payment implications, particularly large negative impacts. As discussed 

in the FY 2005 IPPS final rule (69 FR 49032 through 49034), we evaluated several 

options to ease the transition to the new CBSA system, which we implemented starting in 

FY 2005 and which is the system currently in use. 

 As discussed in that rule, we determined that the transition to the current wage 

index system would have the largest negative impacts upon hospitals that were originally 

considered urban, but would be considered rural under the new definitions. To alleviate 

the decreased payments associated with having a rural wage index, in calculating the area 

wage index, in the FY 2005 IPPS final rule, we allowed urban hospitals that became rural 
 365 

under new definitions to maintain their assignment to the labor market area where they 

were located for FY 2004. This adjustment was granted for a period of 3 fiscal years. 

 In the FY 2005 IPPS final rule, for all hospitals that experienced negative 

payment impacts due to new definitions (for example, they were moved to an urban 

CBSA with a lower wage index value than their previous rural or urban labor market 

area), we implemented a 1-year blended adjustment. We calculated wage indexes for all 

hospitals using both old and new labor market definitions. Hospitals received 50 percent 

of their wage index based on the new OMB delineations, and 50 percent of their wage 

index based on their current labor market area. This adjustment only applied to hospitals 

that would have experienced a drop in wage index values due to a change in labor market 

definitions. Hospitals that benefitted from the labor market area transition received their 

new wage index at the time the new labor market definitions became effective. 

 We continue to have the same concerns expressed in the FY 2005 IPPS final 

rulemaking. Therefore, we are proposing a similar transition methodology to mitigate 

any negative financial impacts experienced by hospitals due to our proposal to implement 

the new OMB labor market area delineations for FY 2015. 

(2) Proposed Transition for Hospitals in Urban Areas That Would Become Rural 

 For hospitals that are currently located in an urban county that would become 

rural under the new OMB delineations, and would have no form of wage index 

reclassification or redesignation in place for FY 2015 (that is, MGCRB reclassifications 

under section 1886(d)(10) of the Act, redesignations under section 1886(d)(8)(B) of the 

Act, or rural reclassifications under section 1886(d)(8)(E) of the Act), we are proposing a 
 366 

policy to assign them the urban wage index value of the CBSA in which they are 

physically located for FY 2014 for a period of 3 fiscal years (with the rural and imputed 

floors applied and with the rural floor budget neutrality adjustment applied to the area 

wage index). As stated in the FY 2005 IPPS proposed rule (69 FR 28252), we have in 

the past provided transitions when adopting changes that have significant payment 

implications, particularly large negative impacts. We believe it is appropriate to apply a 

3-year transition period for hospitals located in urban counties that would become rural 

under the new OMB delineations, given the potentially significant payment impacts for 

these hospitals. This is consistent with the transition policy adopted in FY 2005 (69 FR 

49032 through 49034). We continue to believe, as we stated in the FY 2005 IPPS final 

rule (69 FR 49033), that the longer transition period is appropriate because, as a group, 

we expect these hospitals would experience a steeper and more abrupt reduction in their 

wage index due to the labor market revisions compared to other hospitals. Assigning 

these hospitals the urban wage index value of the CBSA in which they are physically 

located for FY 2014 for a period of 3 fiscal years (with the rural and imputed floors 

applied and with the rural floor budget neutrality adjustment applied to the area wage 

index) would be the most similar to the actual payment wage index that these hospitals 

received in FY 2014, thereby minimizing the negative impact of adopting the new OMB 

delineations for these hospitals. Accordingly, for FYs 2015, 2016, and 2017, assuming 

no other form of wage index reclassification or redesignation is granted, we are proposing 

to assign these hospitals the area wage index value of the urban CBSA to which they 

geographically were located in FY 2014 (with the rural and imputed floors applied and 
 367 

with the rural floor budget neutrality adjustment applied to the area wage index). For 

example, if urban CBSA 12345 consisted of three counties in FY 2014, and, under the 

new OMB delineations, one of those counties, County X, would no longer be part of 

CBSA 12345 and would become rural for FY 2015, we are proposing that hospitals in 

County X would be assigned the FY 2015 wage index of CBSA 12345, computed using 

the remaining two counties, with the rural and imputed floors applied and with the rural 

floor budget neutrality adjustment applied to the area wage index. We believe that 

assigning the wage index of the hospitals’ current area is the simplest and most effective 

method for mitigating negative payment impacts due to the proposed adoption of the new 

OMB delineations. We have identified relatively few hospitals that are located in urban 

counties that would become rural, and fewer yet that do not have a reclassification or 

redesignation in effect for FY 2015. Because we believe that these urban to rural 

transitions would be the most likely to cause significant negative payment impacts, we 

believe that these hospitals should be granted a longer transition period than hospitals that 

may be switching between urban labor market areas, which as discussed later, we are 

proposing may receive 1-year blended wage index. 

 We note that there are situations where a hospital cannot be assigned the wage 

index value of the CBSA to which it geographically belonged in FY 2014 because that 

CBSA would be split and no longer exist and some or all of the constituent counties 

would be added to another urban labor market area under the new OMB delineations. If 

the hospital cannot be assigned the wage index value of the CBSA to which it is 

geographically located in FY 2014 because that CBSA would be split apart and no longer 
 368 

exist, and some or all of its constituent counties would be added to another urban labor 

market area under the new OMB delineations, we are proposing that hospitals located in 

such counties that would become rural under the new OMB delineations would be 

assigned the wage index of the FY 2015 urban labor market area that contains the urban 

county in their FY 2014 CBSA to which they are closest (with the rural and imputed 

floors applied and with the rural floor budget neutrality adjustment applied) for a period 

of 3 fiscal years. We believe this approach of assigning the wage index of the FY 2015 

urban labor market area that contains the urban county in their FY 2014 CBSA to which 

they are closest (with the rural and imputed floors applied and with the rural floor budget 

neutrality adjustment applied) would most closely approximate the hospitals’ FY 2014 

actual payment wage index, thereby minimizing the negative effects of the proposed 

change in the OMB delineations. For example, George County, MS and Jackson County, 

MS, together, in FY 2014, comprise the urban CBSA 37700 (Pascagoula, MS). Under 

the new OMB delineations, George County would be considered rural and Jackson 

County, MS would become part of the urban labor market area of Gulfport-BiloxiPascagoula, MS (CBSA 25060). In this instance, we are proposing that hospitals in 

George County, MS would be assigned the FY 2015 wage index for CBSA 25060 

(Gulfport-Biloxi-Pascagoula, MS), with the rural and imputed floors applied and with the 

rural floor budget neutrality adjustment applied. 

 Furthermore, we are proposing that any hospital that is currently located in an 

urban county that would become rural for FY 2015 under the new OMB delineations, but 

also has a reclassification or redesignation in effect for FY 2015 (from a pre-existing 
 369 

reclassification or redesignation granted prior to FY 2015), would not be eligible for the 

3-year transition wage index. This is because if the hospital is reclassified or 

redesignated in some manner, it would instead receive a wage index that reflects its own 

choice to obtain its reclassified or redesignated status. Accordingly, if a hospital is 

currently located in an urban county that would become rural for FY 2015 under the new 

OMB delineations and such hospital sought and was granted reclassification or 

redesignation for FY 2015 or such hospital seeks and is granted any reclassification or 

redesignation for FY 2016 or FY 2017, we are proposing that the hospital would 

permanently lose its 3-year transitional assigned wage index status, and would not be 

eligible to reinstate it. For example, if a hospital that is currently urban but would 

become rural under the new OMB delineations received a 3-year transition wage index in 

FY 2015 based on the wage index of the urban CBSA to which it was geographically 

located in FY 2014 and then by its own choice, reclassifies to obtain a different area 

wage index in FY 2016, the hospital would not be eligible to reinstate the transition wage 

index, even if it opts to cancel its reclassification for FY 2017. We are proposing the 

transition adjustment to assist hospitals if they experience a negative payment impact 

specifically due to the proposed adoption of the new OMB delineations in FY 2015. If a 

hospital chooses in a future fiscal year to forego this transition adjustment by obtaining 

some form of reclassification or redesignation, we do not believe reinstatement of this 

transition adjustment would be appropriate. The purpose of the adjustment is to assist 

hospitals that may be negatively impacted by the new OMB delineations in transitioning 

to a wage index based on these delineations. By obtaining a reclassification or 
 370 

redesignation, we believe that the hospital has made the determination that the transition 

adjustment is not necessary because it has other viable options for mitigating the impact 

of the transition to the new OMB delineations. 

 With respect to the wage index computation, we are proposing to follow our 

existing policy regarding the inclusion of a hospital’s wage index data in the CBSA in 

which it is geographically located (we refer readers to Step 6 of the method for 

computing the unadjusted wage index in the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51592)). Accordingly, beginning with FY 2015, we are proposing that the wage 

data of all hospitals receiving this type of 3-year transition adjustment would be included 

in the statewide rural area in which they are geographically located under the new OMB 

labor market area delineations of FY 2015. After the 3-year transition period, beginning 

in FY 2018, we are proposing that these formerly urban hospitals discussed above would 

receive their statewide rural wage index, absent any reclassification or redesignation. 

 In addition, we are proposing that the hospitals receiving this 3-year transition 

because they are in counties that were urban under the current CBSA definitions, but 

would be rural under the new OMB delineations, would not be considered urban 

hospitals. Rather, they would maintain their status as rural hospitals for other payment 

considerations. This is because our proposal to apply a 3-year transitional wage index for 

these newly rural hospitals only applies for the purpose of calculating the wage index 

under our proposal to adopt the new CBSA delineations. We are not proposing 

transitions for other IPPS payment policies that may be impacted by the proposed 

adoption of the new CBSA delineations. However, we will continue to apply the existing 
 371 

regulations at § 412.102 with respect to determining DSH payments in the first year after 

a hospital loses urban status (we refer readers to section II.B.2.e.(7) of the preamble of 

this proposed rule). 

(3) Proposed Transition for Hospitals Deemed Urban under Section 1886(d)(8)(B) of the 

Act Where the Urban Area Would Become Rural under the New OMB Delineations 

 As discussed in section II.H.3. of the preamble of this proposed rule, there are 

some hospitals that currently are geographically located in rural areas but are deemed to 

be urban under section 1886(d)(8)(B) of the Act. For FY 2015, some of these hospitals 

currently redesignated under section 1886(d)(8)(B) of the Act would no longer be eligible 

for deemed urban status under the new OMB delineations, as discussed in detail in 

section III.H.3. of the preamble of this proposed rule. Similar to the policy implemented 

in the FY 2005 IPPS final rule (69 FR 49059), and consistent with the policy we are 

proposing for other hospitals in counties that were urban and would become rural under 

the new OMB delineations, we are proposing to apply the 3-year transition to these 

hospitals currently redesignated to urban areas under section 1886(d)(8)(B) of the Act 

that would no longer be deemed urban under the new OMB delineations and would revert 

to being rural. That is, for FYs 2015, 2016, and 2017, assuming no other form of wage 

index reclassification or redesignation is granted, we are proposing to assign these 

hospitals the FY 2015 area wage index value of hospitals reclassified to the urban CBSA 

(that is, the attaching wage index) to which they were redesignated in FY 2014 (with the 

rural and imputed floors applied and with the rural floor budget neutrality adjustment 

applied). If the hospital cannot be assigned the reclassified wage index value of the 
 372 

CBSA to which it was redesignated in FY 2014 because that CBSA would split apart and 

no longer exist, and some or all of its constituent counties would be added to another 

urban labor market area under the new OMB delineations, we are proposing that such 

hospitals would be assigned the wage index of the hospitals reclassified to the FY 2015 

urban labor market area that contains the urban county in their FY 2014 redesignated 

CBSA to which they are closest for a period of 3 fiscal years. We are proposing to assign 

these hospitals the area wage index of hospitals reclassified to a CBSA because hospitals 

deemed urban under section 1886(d)(8)(B) of the Act are treated as reclassified under 

current policy, under which such hospitals receive an area wage index that includes wage 

data of all hospitals reclassified to the area. 

(4) Proposed Transition for Hospitals That Would Experience a Decrease in Wage Index 

under the New OMB Delineations 

 While we believe that instituting the latest OMB labor market area delineations 

would create a more accurate wage index system, we also recognize that implementing 

the new OMB delineations may cause some short-term instability in hospital payments. 

Therefore, in addition to the 3-year transition adjustment for hospitals being transitioned 

from urban to rural status as discussed above, we are proposing a 1-year blended wage 

index for all hospitals that would experience any decrease in their actual payment wage 

index (that is, a hospital’s actual wage index used for payment, which accounts for all 

applicable effects of reclassification and redesignation) exclusively due to the proposed 

implementation of the new OMB delineations. Similar to the policy adopted in the 

FY 2005 IPPS final rule (69 FR 49033), we are proposing that a post-reclassified wage 
 373 

index with the rural and imputed floor applied would be computed based on the hospital’s 

FY 2014 CBSA (that is, using all of its FY 2014 constituent county/ies), and another 

post-reclassified wage index with the rural and imputed floor applied would be computed 

based on the hospital’s new FY 2015 CBSA (that is, the FY 2015 constituent county/ies). 

We are proposing to compare these two wage indexes. If the proposed FY 2015 wage 

index with FY 2015 CBSAs would be lower than the proposed FY 2015 wage index with 

FY 2014 CBSAs, we are proposing that a blended wage index would be computed, 

consisting of 50 percent of each of the two wage indexes added together. We are 

proposing that this blended wage index would be the hospital’s wage index for FY 2015. 

We believe a 1-year, 50/50 blend would mitigate the short-term instability and negative 

payment impacts due to the proposed implementation of the new OMB delineations, 

providing hospitals with a transition period during which they may adjust to their new 

geographic CBSA or may assess any reclassification options that would be available to 

them starting in FY 2016. We are proposing a longer 3-year transition adjustment for 

hospitals losing urban status because there are significantly fewer affected urban-to-rural 

hospitals, and we believe the negative impacts to a hospital shifting from urban to rural 

status would typically be greater than other types of transitions. We believe that a 

transition period longer than 1 year to address other impacts of the proposed adoption of 

new OMB delineations would reduce the accuracy of the overall labor market area wage 

index system because far more hospitals would be affected. 

 In addition, for FY 2015, for hospitals that would receive the proposed 3-year 

transition, it is possible that receiving the FY 2015 wage index (with the rural and 
 374 

imputed floors applied and with the rural floor budget neutrality adjustment applied) of 

the CBSA where the hospital is geographically located for FY 2014 might still be less 

than the FY 2015 wage index that the hospital would have received in the absence of the 

adoption of the new OMB delineations (particularly in States where the rural floor is 

historically very high). Therefore, such a hospital may additionally benefit from 

application of the 50/50 blended wage indexes. Accordingly, we are proposing to include 

the assignment of the 3-year transitional wage index in our calculation of the FY 2015 

portion of the 50/50 blended wage index for that hospital. After FY 2015, such a hospital 

may revert to the second year of the 3-year transition. For example, if Hospital X 

(formerly part of CBSA 12345, now rural) is assigned CBSA 12345’s FY 2015 wage 

index value of 1.0000 as part of the 3-year transition, but that FY 2015 wage index value 

would have been 1.1000 under the previous OMB delineations, that hospital would 

receive a 50/50 blended wage index of 1.0500 for FY 2015. In FY 2016 and FY 2017, 

Hospital X would still be eligible to receive the remaining 2 years of the 3-year transition 

wage index of CBSA 12345 (that is, in FY 2016, Hospital X would receive the FY 2016 

wage index of CBSA 12345 (with the rural and imputed floors applied and with the rural 

floor budget neutrality adjustment applied)), and in FY 2017, Hospital X would receive 

the FY 2017 wage index of CBSA 12345 (with the rural and imputed floors applied and 

with the rural floor budget neutrality adjustment applied). 
 375 

(5) Impact of Proposed Adoption of New OMB Labor Market Area Delineations 

 To illustrate how the proposed adoption of the new OMB labor market area 

delineations would impact hospitals’ proposed FY 2015 wage indexes, we compared the 

proposed FY 2015 occupational mix adjusted post-reclassified wage indexes with rural 

floor budget neutrality applied under the FY 2014 CBSAs and under the proposed 

FY 2015 CBSAs using the new OMB delineations. (This analysis does not include the 

effects of the out-migration adjustment, the frontier floor, the proposed 3-year hold 

harmless transition wage indexes, or the proposed 1-year transition blended wage 

indexes). As a result of applying the proposed new OMB delineations to the wage data, 

the proposed wage index values for 2,362 urban hospitals (83.8 percent) and 396 (64.0 

percent) rural hospitals would increase. The wage index values of 2,337 (82.9 percent) 

urban hospitals would increase by less than 5 percent, and the wage index values of 13 

(0.5 percent) urban hospitals would increase by at least 5 percent but less than 10 percent. 

The wage index values of 12 (0.4 percent) urban hospitals would increase by greater than 

or equal to 10 percent. The wage index values of 369 (59.6 percent) rural hospitals 

would increase by less than 5 percent, 18 rural hospitals (2.9 percent) would increase by 

at least 5 percent but less than 10 percent, and 9 rural hospitals (1.5 percent) would 

increase by greater than or equal to 10 percent. However, the wage index values for 451 

urban hospitals (16.0 percent) and 223 (36.0 percent) rural hospitals would decrease. The 

wage index values of 396 (14.0 percent) urban hospitals would decrease by less than 5 

percent, 40 urban hospitals (1.4 percent) would decrease by at least 5 percent but less 

than 10 percent, and 15 urban hospitals (0.5 percent) would decrease by greater than or 
 376 

equal to 10 percent. The wage index values of 198 (32.0 percent) rural hospitals would 

decrease by less than 5 percent, 24 rural hospitals (3.9 percent) would decrease by 5 

percent and less than 10 percent, and 1 rural hospital (0.2 percent) would decrease by 

greater than or equal to 10 percent. The wage index values of 6 (0.2 percent) urban 

hospitals and zero rural hospitals would remain unchanged by the adoption of the new 

OMB CBSA delineations. The largest positive impacts would be for 8 hospitals in 5 

States (Texas, Minnesota, Louisiana, Alabama, and Michigan) that would be moving 

from a rural to an urban area (ranging from a 16.57 percent to a 22.91 percent increase in 

wage index), and for 10 hospitals that would be moving from one urban CBSA (FY 2014 

CBSA 20764, Edison-New Brunswick, NJ) to new urban CBSA 35614 (New YorkJersey City-White Plains, NY-NJ), representing a 15.12 percent increase in wage index. 

The largest negative impacts would be for 5 hospitals in 4 States (New York, Alabama, 

Idaho, and North Carolina) that would be moving from an urban to a rural area (ranging 

from a 13.08 percent to a 27.25 percent decrease in wage index), and for 8 hospitals that 

would be moving from one urban CBSA (FY 2014 CBSA 35644, New York-White 

Plains-Wayne, NY-NJ) to new urban CBSA 20524 (Dutchess County-Putnam County, 

NY), representing a 11.42 percent decrease in wage index. These results illustrate that 

hospitals that would move from rural CBSAs to urban CBSAs generally would benefit 

significantly, while hospitals that would move from urban to rural CBSAs generally 

would have larger negative impacts. For all hospitals combined, the wage index values 

of 2,758 (80.2 percent) overall would be increasing, and 674 (19.6 percent) overall would 

be decreasing, indicating that most hospitals would be positively affected by the adoption 
 377 

of the new OMB delineations. Furthermore, the magnitude of the changes would be 

relatively small overall, with only 132 hospitals (3.8 percent) experiencing either an 

increase or decrease of at least 5 percent. 

 The following table shows the impact of the proposed adoption of the new OMB 

delineations on hospitals’ proposed FY 2015 wage indexes, comparing the proposed 

FY 2015 occupational mix adjusted post-reclassified wage indexes with rural floor 

budget neutrality applied under the FY 2014 CBSAs and the proposed FY 2015 CBSAs 

using the new OMB delineations. (This analysis does not include the effects of the 

out-migration adjustment, the frontier floor, the proposed 3-year hold harmless transition 

wage indexes, or the proposed 1-year transition blended wage indexes). 

 
 378 

Percent Change in FY 2015 Wage 

Index 

Number of 

PostReclassified 

Rural 

Hospitals 

based on 

FY 2014 

CBSA 

Number of 

PostReclassified 

Urban 

Hospitals 

based on 

FY 2014 

CBSA 

Total 

Number 

of 

Hospitals 

Decrease greater than or equal to 

10.0 1 15 16 

Decrease greater than or equal to 

5.0 but less than 10.0 24 40 64 

Decrease greater than or equal to 

2.0 but less than 5.0 36 94 130 

Decrease greater than 0.0 but less 

than 2.0 162 302 464 

No change 0 6 6 

Increase greater than 0.0 but less 

than 2.0 365 2,304 2,669 

Increase greater than or equal to 2.0 

but less than 5.0 4 33 37 

Increase greater than or equal to 5.0 

but less than 10.0 18 13 31 

Increase greater than or equal to 

10.0 9 12 21 

Total 619 2,819 3,438 

(6) Proposed Budget Neutrality 

 For FY 2015, we are proposing to apply both the 3-year transition and 50/50 

blended wage index adjustments in a budget neutral manner. We are proposing to make 

an adjustment to the standardized amount to ensure that the total payments, including the 

effect of the transition provisions, would equal what payments would have been if we 

would not be providing for any transitional wage indexes under the new OMB 

delineations. For a complete discussion on this proposed budget neutrality adjustment for 

FY 2015, we refer the reader to section II.A.4.b. of the Addendum to this proposed rule. 
 379 

 We note that, consistent with past practice (69 FR 49034), we are not adopting the 

new OMB delineations themselves in a budget neutral manner. We do not believe that 

the revision to the labor market areas in and of itself constitutes an “adjustment or 

update” to the adjustment for area wage differences, as provided under section 

1886(d)(3)(E) of the Act. 

(7) Proposals with Respect to Determining Disproportionate Share Hospital (DSH) 

Payments 

 As noted in the FY 2005 IPPS final rule (69 FR 49033), the provisions of 

§ 412.102 of the regulations would continue to apply with respect to determining DSH 

payments. Specifically, in the first year after a hospital loses urban status, the hospital 

would receive an additional payment that equals two-thirds of the difference between the 

urban DSH payments applicable to the hospital before its redesignation from urban to 

rural and the rural DSH payments applicable to the hospital subsequent to its 

redesignation from urban to rural. In the second year after a hospital loses urban status, 

the hospital would receive an additional payment that equals one-third of the difference 

between the urban DSH payments applicable to the hospital before its redesignation from 

urban to rural and the rural DSH payments applicable to the hospital subsequent to its 

redesignation from urban to rural. 

 We also are proposing to make changes to the regulations to delete 

§ 412.64(b)(1)(ii)(D). In this regulation section, we currently define a “hospital 

reclassified as rural” as a hospital located in a county that, in FY 2004, was urban but was 

redesignated as rural after September 30, 2004, as a result of the most recent census data 
 380 

and implementation of the new MSA definitions announced by OMB on June 6, 2003. 

Because this term is not used in § 412.64, but is used in § 412.102, we are proposing to 

delete § 412.64(b)(1)(ii)(D) and revise the language at § 412.102 to address the 

circumstances set forth in § 412.64(b)(1)(ii)(D). The regulation at § 412.102, which 

addresses special treatment of hospitals located in areas that are changing from urban to 

rural as a result of a geographic redesignation, is the only location that currently 

references a “hospital reclassified as rural”, as defined at § 412.64(b)(1)(ii)(D). To avoid 

confusion with urban hospitals that choose to reclassify as rural under § 412.103, we are 

proposing to revise the regulation text at § 412.102 so that it no longer refers to the 

defined term “hospital reclassified as rural,” and instead specifically states the 

circumstances in which § 412.102 applies. In addition, we are proposing to modify the 

regulation text so that it would apply to all transitions from urban to rural status that 

occur as a result of any future adoption of new or revised OMB standards for delineating 

statistical areas adopted by CMS. Specifically, we are proposing to revise the regulations 

at § 412.102 to state that “An urban hospital that was part of an MSA, but was 

redesignated as rural as a result of the most recent OMB standards for delineating 

statistical areas adopted by CMS, may receive an adjustment to its rural Federal payment 

amount for operating costs for 2 successive fiscal years as provided in paragraphs (a) and 

(b) of this section. . . .” 
 381 

C. Worksheet S-3 Wage Data for the Proposed FY 2015 Wage Index 

 The proposed FY 2015 wage index values are based on the data collected from 

the Medicare cost reports submitted by hospitals for cost reporting periods beginning in 

FY 2011 (the FY 2014 wage indexes were based on data from cost reporting periods 

beginning during FY 2010). 

1. Included Categories of Costs 

 The proposed FY 2015 wage index includes the following categories of data 

associated with costs paid under the IPPS (as well as outpatient costs): 

 • Salaries and hours from short-term, acute care hospitals (including paid lunch 

hours and hours associated with military leave and jury duty); 

 • Home office costs and hours; 

 • Certain contract labor costs and hours (which includes direct patient care, 

certain top management, pharmacy, laboratory, and nonteaching physician Part A 

services, and certain contract indirect patient care services (as discussed in the FY 2008 

final rule with comment period (72 FR 47315 through 47318)); and 

 • Wage-related costs, including pension costs (based on policies adopted in the 

FY 2012 IPPS/LTCH PPS final rule (76 FR 51586 through 51590)) and other deferred 

compensation costs. 

2. Excluded Categories of Costs 

 Consistent with the wage index methodology for FY 2014, the proposed wage 

index for FY 2015 also excludes the direct and overhead salaries and hours for services 

not subject to IPPS payment, such as skilled nursing facility (SNF) services, home health 
 382 

services, costs related to GME (teaching physicians and residents) and certified registered 

nurse anesthetists (CRNAs), and other subprovider components that are not paid under 

the IPPS. The proposed FY 2015 wage index also excludes the salaries, hours, and wagerelated costs of hospital-based rural health clinics (RHCs), and Federally qualified health 

centers (FQHCs) because Medicare pays for these costs outside of the IPPS (68 FR 

45395). In addition, salaries, hours, and wage-related costs of CAHs are excluded from 

the wage index, for the reasons explained in the FY 2004 IPPS final rule (68 FR 45397 

through 45398). 

3. Use of Wage Index Data by Providers Other Than Acute Care Hospitals under the 

IPPS 

 Data collected for the IPPS wage index are also currently used to calculate wage 

indexes 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 indexes for non-IPPS providers, other than for LTCHs. 

Such comments should be made in response to separate proposed rules for those 

providers. 

D. Verification of Worksheet S-3 Wage Data 

 The wage data for the proposed FY 2015 wage index were obtained from 

Worksheet S-3, Parts II and III of the Medicare cost report for cost reporting periods 

beginning on or after October 1, 2010, and before October 1, 2011. For wage index 

purposes, we refer to cost reports during this period as the “FY 2011 cost report,” the 
 383 

“FY 2011 wage data,” or the “FY 2011 data.” Instructions for completing the wage 

index sections of Worksheet S-3 are included in the Provider Reimbursement Manual 

(PRM), Part 2 (Pub. No. 15-2), Chapter 40, Sections 4005.2 through 4005.4 for Form 

CMS-2552-10. The data file used to construct the proposed FY 2015 wage index 

includes FY 2011 data submitted to us as of February 27, 2014. As in past years, we 

performed an extensive review of the wage data, mostly through the use of edits designed 

to identify aberrant data. 

 We asked our MACs to revise or verify data elements that result in specific edit 

failures. For the proposed FY 2015 wage index, we identified and excluded 50 providers 

with data that were too aberrant to include in the proposed wage index, although if data 

elements for some of these providers are corrected, we intend to include some of these 

providers in the final FY 2015 wage index. We instructed MACs to complete their data 

verification of questionable data elements and to transmit any changes to the wage data 

no later than April 9, 2014. We intend that all unresolved data elements will be resolved 

by the date the FY 2015 final rule is issued. The revised data will be reflected in the 

FY 2015 IPPS final rule. 

 In constructing the proposed FY 2015 wage index, we included the wage data for 

facilities that were IPPS hospitals in FY 2011, 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 
 384 

index represents the labor market area’s current wages as compared to the national 

average of wages. However, we excluded the wage data for CAHs as discussed in the 

FY 2004 IPPS final rule (68 FR 45397 through 45398). For this proposed rule, we 

removed 6 hospitals that converted to CAH status on or after February 14, 2013, the 

cut-off date for CAH exclusion from the FY 2014 wage index, and through and including 

February 13, 2014, the cut-off date for CAH exclusion from the FY 2015 wage index. 

After removing hospitals with aberrant data and hospitals that converted to CAH status, 

the proposed FY 2015 wage index is calculated based on 3,400 hospitals. 

 For the proposed FY 2015 wage index, we allotted the wages and hours data for a 

multicampus hospital among the different labor market areas where its campuses are 

located in the same manner that we allotted such hospitals’ data in the FY 2014 wage 

index (78 FR 50587). Table 2 containing the proposed FY 2015 wage index associated 

with this proposed rule (available via the Internet on the CMS Web site) includes separate 

wage data for the campuses of 6 multicampus hospitals. 

 Questions have been raised recently regarding the reporting of contract 

housekeeping and dietary services on Worksheet S-3, Part II, lines 33 and 35 of the 

Medicare cost report. CMS finalized its proposal to begin collecting contract labor costs 

and hours for housekeeping, and dietary (along with management services and the 

overhead services of administrative and general) in the FY 2003 IPPS final rule 

(67 FR 50022 through 50023). At that time, we stated, “We continue to consider whether 

to expand our contract labor definition to include more types of contract services in the 

wage index. In particular, we have examined whether to include the costs for acquired 
 385 

dietary and housekeeping services, as many hospitals now provide these services through 

contracts. Costs for these services tend to be below the average wages for all hospital 

employees. Therefore, excluding the costs and hours for these services if they are 

provided under contract, while including them if the services are provided directly by the 

hospital, creates an incentive for hospitals to contract for these services in order to 

increase their average hourly wage for wage index purposes” (67 FR 50022). In the 

FY 2003 IPPS proposed rule, we explained that we selected the three overhead services 

of administrative and general, housekeeping, and dietary because they are provided at all 

hospitals, either directly or through contracts, and together they comprise about 60 

percent of a hospital’s overhead hours (67 FR 31433). In the FY 2003 IPPS final rule, 

we stated that we “will monitor the hospital industry for information regarding the 

hospitals’ ability to provide the data. Further, we will work with hospitals and 

intermediaries [MACs] to develop acceptable methods for tracking the costs and hours. 

Finally, before including these additional costs in the wage index, we will provide a 

detailed analysis of the impact of including these additional costs in the wage index 

values in the Federal Register and provide for public comment. Our final decision on 

whether to include contract indirect patient care labor costs in our calculation of the wage 

index will depend on the outcome of our analyses and public comments” (67 FR 50023). 

 Subsequent to the issuance of the FY 2003 IPPS final rule, we revised Worksheet 

S-3, Part II of the Medicare cost report (CMS Form 2552-96) to add four lines for the 

reporting of contract labor salaries, wages, and hours. The lines added for contract 

housekeeping and dietary services were lines 26.01 and 27.01, respectively. (Line 9.03 
 386 

for contract management and line 22.01 for contract administrative and general (A&G) 

services were also added at that time). These lines were effective with cost reporting 

periods beginning on or after October 1, 2003 (that is, FY 2004). Because the cost report 

data used for the wage index are on a 4-year lag, data from these new contract labor lines 

would first be available for the FY 2008 wage index. 

 In the FY 2008 rulemaking process, we provided an analysis of the effect on the 

inclusion in the wage index of the wages and hours related to the new contract labor 

lines. At that time, 56 hospitals (1.6 percent) failed edits for contract housekeeping line 

26.01; and 99 hospitals (2.8 percent) failed edits for contract dietary line 27.01 

(72 FR 24680 and 24782). We also noted that “many of these edit failures are for wage 

data that are not to be included in the wage index and will be excluded through the wage 

index calculation . . . . In addition, some of the aberrant data will be resolved by the final 

rule through the correction process” (72 FR 24680 and 24782). The small percentage of 

hospitals that failed edits for these contract labor lines indicates that the vast majority of 

hospitals completing these contract labor lines were able to obtain and report reasonable 

salaries, wages, and hours associated with contract housekeeping and dietary services. In 

the FY 2008 IPPS final rule, we stated that we believe that “the impact of this policy is 

generally very minor, and we do not believe the additional complexity of a transition 

wage index is warranted for an impact this small. Further, we continue to believe it is 

prudent policy to include in the wage index the costs for these contract indirect patient 

care services” (72 FR 47316). Therefore, we adopted the policy to include the new 

contract labor lines in the wage index, beginning with the FY 2008 wage index. 
 387 

 The questions that have recently come to our attention involve hospitals that 

consistently do not provide documentable salaries, wages, and hours for their contracted 

housekeeping and/or dietary services. (On the Medicare cost report (CMS Form 

2552-10), contract housekeeping is on Worksheet S-3, Part II, line 33 and contract dietary 

is on line 35). When this situation occurs, CMS has instructed the Medicare contractors 

to use reasonable estimates, such as regional average hourly rates, as a substitute for 

actual wages and hours, and to report the estimates on the hospital’s Worksheet S-3, Part 

II, line 33 or line 35, respectively. Our policy has been to use reasonable estimates for 

these housekeeping and dietary lines, rather than report zeroes for wages and hours, 

because, as discussed above and as stated in the FY 2003 IPPS final rule, “[c]osts for 

these services tend to be below the average wages for all hospital employees. Therefore, 

excluding the costs and hours for these services if they are provided under contract, while 

including them if the services are provided directly by the hospital, creates an incentive 

for hospitals to contract for these services in order to increase their average hourly wage 

for wage index purposes” (57 FR 50022). We understand that the reason many hospitals 

provide for failing to report such contract wages and hours is that their contracts do not 

clearly specify this information, often because they use a single vendor to provide several 

different contract labor services. We believe that allowing hospitals to routinely use 

contracts that do not clearly break out the salaries, wages, and hours associated with these 

services as a reason for not being able to report proper salaries, wages, and hours for 

these cost report lines undermines the purpose of instituting these lines in the first place. 

Furthermore, because every hospital must provide housekeeping and dietary services, and 
 388 

because the wage index is a relative measure of the value of the labor provided to a 

hospital in a particular labor market area, to report zeroes for salaries, wages, and hours 

for housekeeping and dietary services is not only unrealistic (in that every hospital 

provides for these services), but also misrepresents the labor costs in that area and 

undermines our policy. Consequently, CMS has instructed the Medicare contractors not 

to zero out these line items when a hospital cannot document the housekeeping or dietary 

salaries, wages, and hours, but instead to use a reasonable estimation of these wages and 

hours. 

 In this proposed rule, we are reiterating our requirement that all hospitals must 

document salaries, wages, and hours for the purpose of reporting this information on 

Worksheet S-3, Part II, lines 32, 33, 34, and/or 35 (for either directly employed 

housekeeping and dietary employees on lines 32 and 34, and contract labor on lines 33 

and 35). It is not acceptable for a hospital to request that the Medicare contractor zero 

out these line items if the hospital’s contract does not specifically break out the actual 

wages and hours. As indicated above, and stated in the FY 2008 IPPS proposed rule 

(72 FR 24680 and 24782), a small percentage of hospitals failed edits associated with the 

contract housekeeping and dietary lines, showing that the vast majority of hospitals 

reporting data on these lines were able to obtain and report reasonable salaries, wages, 

and hours associated with contract housekeeping and dietary services. We encourage 

hospitals to ensure that their contracts clearly specify the salaries, wages, and hours 

related to all of their contract labor. Because these line items have been included in the 

cost report since FY 2004, we believe that hospitals have had adequate notice and time to 
 389 

structure their contracts so that the wages and hours of contract employees can be 

determined and included in the cost reports. We expect hospitals to provide accurate data 

on their cost reports. 

 We understand that there may be rare situations where a hospital would not have 

documentable salaries, wages, and hours for contract housekeeping and dietary services. 

In these situations, we believe that it is appropriate and necessary to use reasonable 

estimates for these numbers in order to determinate the best, most realistic, wage index 

that we can. As discussed previously, housekeeping and dietary services are unique in 

that the costs for housekeeping and dietary services tend to be below the average wages 

for all hospital employees. Thus, an incentive is created for hospitals to avoid reporting 

these contract labor salaries, wages, and hours on the cost report in order to increase their 

average hourly wage for wage index purposes. To deter hospitals from not reporting this 

information and to ensure that the wage index more accurately reflects the labor costs in 

an area, we believe that it is both necessary and appropriate for the Medicare contractors 

to estimate such salaries, wages, and hours in the rare instance where a hospital cannot 

provide such information. Therefore, in the absence of documentable wages and hours 

for contract housekeeping and dietary services, Medicare contractors would continue to 

use reasonable estimates for these services. Examples of reasonable estimates are 

regional average hourly rates, including an average of the wages and hours for dietary 

and housekeeping services of other hospitals in the same CBSA as the hospital in 

question. Hospitals also may conduct time studies to determine hours worked. If, for 

whatever reason, regional averages or time studies cannot be used, Medicare contractors 
 390 

may use data from the Bureau of Labor Statistics to obtain average wages and hours for 

housekeeping and dietary services. Commenters may also suggest alternatives for 

imputing reasonable estimates for possible consideration by CMS. In all cases, Medicare 

contractors must determine that the data used are reasonable. 

E. Method for Computing the Proposed FY 2015 Unadjusted Wage Index 

 The method used to compute the proposed FY 2015 wage index without an 

occupational mix adjustment follows the same methodology that we used to compute the 

FY 2012, FY 2013, and FY 2014 final wage indexes without an occupational mix 

adjustment (76 FR 51591 through 51593, 77 FR 53366 through 53367, and 78 FR 50587 

through 50588, respectively). 

 As discussed in the FY 2012 final rule, in “Step 5,” for each hospital, we adjust 

the total salaries plus wage-related costs to a common period to determine total adjusted 

salaries plus wage-related costs. To make the wage adjustment, we estimate the 

percentage change in the employment cost index (ECI) for compensation for each 30-day 

increment from October 14, 2010, through April 15, 2012, for private industry hospital 

workers from the BLS’ Compensation and Working Conditions. We have consistently 

used the ECI as the data source for our wages and salaries and other price proxies in the 

IPPS market basket, and we are not proposing any changes to the usage for FY 2015. 

The factors used to adjust the hospital’s data were based on the midpoint of the cost 

reporting period, as indicated in the following table. 
 391 

MIDPOINT OF COST REPORTING PERIOD 

After Before Adjustment Factor 

10/14/2010 11/15/2010 1.02230 

11/14/2010 12/15/2010 1.02078 

12/14/2010 01/15/2011 1.01929 

01/14/2011 02/15/2011 1.01782 

02/14/2011 03/15/2011 1.01637 

03/14/2011 04/15/2011 1.01494 

04/14/2011 05/15/2011 1.01355 

05/14/2011 06/15/2011 1.01219 

06/14/2011 07/15/2011 1.01084 

07/14/2011 08/15/2011 1.00948 

08/14/2011 09/15/2011 1.00811 

09/14/2011 10/15/2011 1.00674 

10/14/2011 11/15/2011 1.00538 

11/14/2011 12/15/2011 1.00403 

12/14/2011 01/15/2012 1.00269 

01/14/2012 02/15/2012 1.00134 

02/14/2012 03/15/2012 1.00000 

03/14/2012 04/15/2012 0.99866 

 For example, the midpoint of a cost reporting period beginning January 1, 2011, 

and ending December 31, 2011, is June 30, 2011. An adjustment factor of 1.01084 would 

be applied to the wages of a hospital with such a cost reporting period. 

 Using the data as described above and in the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50587 through 50588), the proposed FY 2015 national average hourly wage 

(unadjusted for occupational mix) is $39.1525. The proposed FY 2015 Puerto Rico 

overall average hourly wage (unadjusted for occupational mix) is $17.0010. 

F. Proposed Occupational Mix Adjustment to the Proposed FY 2015 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 
 392 

hospital participating in the Medicare program, in order to construct an occupational mix 

adjustment to the wage index, for application beginning October 1, 2004 (the FY 2005 

wage index). The purpose of the occupational mix adjustment is to control for the effect 

of hospitals’ employment choices on the wage index. For example, hospitals may choose 

to employ different combinations of registered nurses, licensed practical nurses, nursing 

aides, and medical assistants for the purpose of providing nursing care to their patients. 

The varying labor costs associated with these choices reflect hospital management 

decisions rather than geographic differences in the costs of labor. 

1. Development of Data for the Proposed FY 2015 Occupational Mix Adjustment Based 

on the 2010 Occupational Mix Survey 

 As provided for under section 1886(d)(3)(E) of the Act, we collect data every 

3 years on the occupational mix of employees for each short-term, acute care hospital 

participating in the Medicare program. 

 As discussed in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50588), the 

occupational mix adjustment to the FY 2014 wage index was based on data collected on 

the 2010 Medicare Wage Index Occupational Mix Survey (Form CMS-10079 (2010)). 

For the FY 2015 wage index, we are proposing to again use occupational mix data 

collected on the 2010 survey to compute the occupational mix adjustment for FY 2015. 

We are including data for 3,165 hospitals that also have wage data included in the 

proposed FY 2015 wage index. 
 393 

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

 As stated earlier, section 304(c) of Pub. L. 106-554 amended section 

1886(d)(3)(E) of the Act to require CMS to collect data every 3 years on the occupational 

mix of employees for each short-term, acute care hospital participating in the Medicare 

program. We used occupational mix data collected on the 2010 survey to compute the 

occupational mix adjustment for FY 2013, FY 2014, and the proposed FY 2015 wage 

index associated with this proposed rule. Therefore, a new measurement of occupational 

mix will be required for FY 2016. 

 On December 7, 2012, we published in the Federal Register a notice soliciting 

comments on the proposed 2013 Medicare Wage Index Occupational Mix Survey 

(77 FR 73032 through 73033). The new 2013 survey, which will be applied to the 

FY 2016 wage index, includes the same data elements and definitions as the 2010 survey 

and provides for the collection of hospital-specific wages and hours data for nursing 

employees for calendar year 2013 (that is, payroll periods ending between 

January 1, 2013 and December 31, 2013). The comment period for the notice ended on 

February 5, 2013. After considering the public comments that we received on the 

December 2012 notice, we made a few minor editorial changes and published the 2013 

survey in the Federal Register on February 28, 2013 (78 FR 13679). This survey was 

approved by OMB on May 14, 2013, and is available on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/Downloads/WAGE-INDEX-OCCUPATIONAL-MIXSURVEY2013.pdf. 
 394 

 The 2013 Occupational Mix Survey Hospital Reporting Form CMS-10079 for the 

Wage Index Beginning FY 2016 (in excel format) is available on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2016-Wage-IndexOccupationalMix.html. Hospitals are required to submit their completed 2013 surveys to 

their MACs by July 1, 2014. The preliminary, unaudited 2013 survey data will be 

released afterward, along with the FY 2012 Worksheet S-3 wage data, for the FY 2016 

wage index review and correction process. 

3. Calculation of the Proposed Occupational Mix Adjustment for FY 2015 

 For FY 2015, we are proposing to calculate the occupational mix adjustment 

factor using the same methodology that we used for the FY 2012, FY 2013, and FY 2014 

wage indexes (76 FR 51582 through 51586, 77 FR 53367 through 53368, and 

78 FR 50588 through 50589, respectively). As a result of applying this methodology, the 

proposed FY 2015 occupational mix adjusted national average hourly wage (based on the 

proposed new OMB delineations) is $39.1177. The proposed FY 2015 occupational mix 

adjusted Puerto Rico-specific average hourly wage (based on the proposed new OMB 

delineations) is $17.0526. 

 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 2015 wage 

index. For the FY 2015 proposed wage index, because we are using the Worksheet S-3, 
 395 

Parts II and III wage data of 3,400 hospitals, and we are using the occupational mix 

surveys of 3,165 hospitals for which we also have Worksheet S-3 wage data, that 

represents a “response” rate of 93.1 percent (3,165/3,400). In the proposed FY 2015 

wage index established in this proposed rule, we applied proxy data for noncompliant 

hospitals, new hospitals, or hospitals that submitted erroneous or aberrant data in the 

same manner that we applied proxy data for such hospitals in the FY 2012 wage index 

occupational mix adjustment (76 FR 51586). 

 In the FY 2011 IPPS/LTCH PPS proposed rule and final rule (75 FR 23943 and 

75 FR 50167, respectively), we stated that, in order to gain a better understanding of why 

some hospitals are not submitting the occupational mix data, we will require hospitals 

that do not submit occupational mix data to provide an explanation for not complying. 

This requirement was effective beginning with the 2010 occupational mix survey. We 

instructed fiscal intermediaries/MACs to continue gathering this information as part of 

the FY 2014 and FY 2015 wage index desk review process. We stated that we would 

review these data for future analysis and consideration of potential penalties for 

noncompliant hospitals. 

G. Analysis and Implementation of the Proposed Occupational Mix Adjustment and the 

Proposed FY 2015 Occupational Mix Adjusted Wage Index 

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

Occupational Mix Adjusted Wage Index 

 As discussed in section III.F. of the preamble of this proposed rule, for FY 2015, 

we are proposing to apply the proposed occupational mix adjustment to 100 percent of 
 396 

the proposed FY 2015 wage index. We calculated the proposed occupational mix 

adjustment using data from the 2010 occupational mix survey data, using the 

methodology described in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51582 through 

51586). 

 Using the occupational mix survey data and applying the occupational mix 

adjustment to 100 percent of the proposed FY 2015 wage index results in a proposed 

national average hourly wage (based on the new OMB delineations) of $39.1177 and a 

proposed Puerto-Rico specific average hourly wage of $17.0526. After excluding data of 

hospitals that either submitted aberrant data that failed critical edits, or that do not have 

FY 2011 Worksheet S-3, Parts II and III, cost report data for use in calculating the 

proposed FY 2015 wage index, we calculated the proposed FY 2015 wage index using 

the occupational mix survey data from 3,165 hospitals. For the FY 2015 proposed wage 

index, because we are using the Worksheet S-3, Parts II and III wage data of 3,400 

hospitals, and we are using the occupational mix survey data of 3,165 hospitals for which 

we also have Worksheet S-3 wage data, those data represent a “response” rate of 93.1 

percent (3,165/3,400). The proposed FY 2015 national average hourly wages for each 

occupational mix nursing subcategory as calculated in Step 2 of the occupational mix 

calculation are as follows: 

Occupational Mix Nursing Subcategory Proposed Average 

Hourly Wage 

National RN 37.388291241

National LPN and Surgical Technician 21.767178303

National Nurse Aide, Orderly, and Attendant 15.31155016

National Medical Assistant 17.246724132

National Nurse Category 31.744397958
 397 

 The proposed national average hourly wage for the entire nurse category as 

computed in Step 5 of the occupational mix calculation is $31.744397958. Hospitals 

with a nurse category average hourly wage (as calculated in Step 4) of greater than the 

national nurse category average hourly wage receive an occupational mix adjustment 

factor (as calculated in Step 6) of less than 1.0. Hospitals with a nurse category average 

hourly wage (as calculated in Step 4) of less than the national nurse category average 

hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of 

greater than 1.0. 

 Based on the 2010 occupational mix survey data, we determined (in Step 7 of the 

occupational mix calculation) that the national percentage of hospital employees in the 

nurse category is 43.43 percent, and the national percentage of hospital employees in the 

all other occupations category is 56.57 percent. At the CBSA level, using the new OMB 

delineations proposed for FY 2015, the percentage of hospital employees in the nurse 

category ranged from a low of 21.88 percent in one CBSA to a high of 73.27 percent in 

another CBSA. 

 We compared the proposed FY 2015 occupational mix adjusted wage indexes for 

each CBSA to the proposed unadjusted wage indexes for each CBSA. We used the 

proposed FY 2015 new OMB delineations for this analysis. As a result of applying the 

proposed occupational mix adjustment to the wage data, the proposed wage index values 

for 215 (52.8 percent) urban areas and 29 (61.7 percent) rural areas would increase. One 

hundred and sixteen (28.5 percent) urban areas would increase by 1 percent but less than 

5 percent, and 4 (1.0 percent) urban areas would increase by 5 percent or more. Fourteen 
 398 

(29.8 percent) rural areas would increase by 1 percent but less than 5 percent, and no 

rural areas would increase by 5 percent or more. However, the wage index values for 190 

(46.7 percent) urban areas and 18 (38.3 percent) rural areas would decrease. Eighty 

(19.7 percent) urban areas would decrease by 1 percent but less than 5 percent, and 1 (0.2 

percent) urban area would decrease by 5 percent or more. Seven (14.9 percent) rural 

areas would decrease by 1 percent and less than 5 percent, and no rural areas would 

decrease by 5 percent or more. The largest positive impacts would be 6.56 percent for an 

urban area and 3.35 percent for a rural area. The largest negative impacts would be 5.32 

percent for an urban area and 1.71 percent for a rural area. Two urban areas’ wage 

indexes, but no rural area wage indexes, would remain unchanged by application of the 

occupational mix adjustment. These results indicate that a larger percentage of rural 

areas (61.7 percent) would benefit from the occupational mix adjustment than would 

urban areas (52.8 percent). However, approximately one-third (38.3 percent) of rural 

CBSAs would still experience a decrease in their wage indexes as a result of the 

occupational mix adjustment. 

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

a. Proposed Rural Floor 

 Section 4410(a) of Pub. L. 105-33 provides that, for discharges on or after 

October 1, 1997, the area wage index applicable to any hospital that is located in an urban 

area of a State may not be less than the area wage index applicable to hospitals located in 

rural areas in that State. This provision is referred to as the “rural floor.” Section 3141 of 

Pub. L. 111-148 also requires that a national budget neutrality adjustment be applied in 
 399 

implementing the rural floor. In the proposed FY 2015 wage index associated with this 

proposed rule and available on the CMS Web site, based on the proposed implementation 

of the new OMB delineations discussed in section III.B. of the preamble of this proposed 

rule, we estimated that 441 hospitals would receive an increase in their FY 2015 

proposed wage index due to the application of the rural floor. 

b. Proposed Imputed Floor for FY 2015 

 In the FY 2005 IPPS final rule (69 FR 49109 through 49111), we adopted the 

“imputed floor” policy as a temporary 3-year regulatory measure to address concerns 

from hospitals in all-urban States that have argued that they are disadvantaged by the 

absence of rural hospitals to set a wage index floor for those States. Since its initial 

implementation, we have extended the imputed floor policy four times, the last of which 

was adopted in the FY 2014 IPPS/LTCH PPS final rule and is set to expire on 

September 30, 2014. (We refer readers to further discussion of the imputed floor in the 

FY 2014 IPPS/LTCH PPS final rule (78 FR 50589 through 50590) and to our regulations 

at 42 CFR 412.64(h)(4).) There were previously two all-urban States, New Jersey and 

Rhode Island, that have a range of wage indexes assigned to hospitals in the State, 

including through reclassification or redesignation (we refer readers to discussions of 

geographic reclassifications and redesignations in section III.H. of the preamble of this 

proposed rule). However, as we explain below, the method as of FY 2012 for computing 

the imputed floor (the original methodology) benefitted only New Jersey, and not Rhode 

Island. 
 400 

 In computing the imputed floor for an all-urban State under the original 

methodology, we calculated the ratio of the lowest-to-highest CBSA wage index for each 

all-urban State as well as the average of the ratios of lowest-to-highest CBSA wage 

indexes of those all-urban States. We then compared the State’s own ratio to the average 

ratio for all-urban States and whichever is higher is multiplied by the highest CBSA wage 

index value in the State--the product of which established the imputed floor for the State. 

Under the current OMB labor market area delineations that we used for the FY 2014 

wage index, Rhode Island has only one CBSA (Providence-New Bedford-Fall River, 

RI-MA) and New Jersey has 10 CBSAs. Therefore, under the original methodology, 

Rhode Island’s own ratio equaled 1.0, and its imputed floor was equal to its original 

CBSA wage index value. However, because the average ratio of New Jersey and Rhode 

Island was higher than New Jersey’s own ratio, this methodology provided a benefit for 

New Jersey, but not for Rhode Island. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53368 through 53369), we 

retained the imputed floor calculated under the original methodology as discussed above, 

and established an alternative methodology for computing the imputed floor wage index 

to address the concern that the original imputed floor methodology guaranteed a benefit 

for one all-urban State with multiple wage indexes (New Jersey) but could not benefit the 

other all-urban State (Rhode Island). The alternative methodology for calculating the 

imputed floor was established using data from the application of the rural floor policy for 

FY 2013. Under the alternative methodology, we first determined the average percentage 

difference between the post-reclassified, pre-floor area wage index and the 
 401 

post-reclassified, rural floor wage index (without rural floor budget neutrality applied) for 

all CBSAs receiving the rural floor. (Table 4D associated with the FY 2013 IPPS/LTCH 

PPS final rule (which is available on the CMS Web site) included the CBSAs receiving a 

State’s rural floor wage index.) The lowest post-reclassified wage index assigned to a 

hospital in an all-urban State having a range of such values then is increased by this 

factor, the result of which establishes the State’s alternative imputed floor. We amended 

§ 412.64(h)(4) of the regulations to add new paragraphs to incorporate the finalized 

alternative methodology, and to make reference and date changes. 

 In summary, for the FY 2013 wage index, we did not make any changes to the 

original imputed floor methodology at § 412.64(h)(4) and, therefore, made no changes to 

the New Jersey imputed floor computation for FY 2013. Instead, for FY 2013, we 

adopted a second, alternative methodology for use in cases where an all-urban State has a 

range of wage indexes assigned to its hospitals, but the State cannot benefit from the 

methodology in existing § 412.64(h)(4). 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50589 through 50590), we 

extended the imputed floor policy (both the original methodology and the alternative 

methodology) for 1 additional year, through September 30, 2014, while we continued to 

explore potential wage index reforms. 

 For FY 2015, we are proposing to continue the extension of the imputed floor 

policy (both the original methodology and alternative methodology) for another year, 

through September 30, 2015, as we continue to explore potential wage index reforms. As 

discussed in section III.B. of the preamble of this proposed rule, we are proposing to 
 402 

adopt the new OMB labor market area delineations beginning in FY 2015. Under 

OMB’s new labor market area delineations based on Census 2010 data, Delaware would 

become an all-urban State, along with New Jersey and Rhode Island. Under the new 

OMB delineations, Delaware would have three CBSAs, New Jersey would have seven 

CBSAs, and Rhode Island would continue to have only one CBSA (ProvidenceWarwick, RI-MA). We refer readers to a detailed discussion of our proposal to adopt the 

new OMB labor market area delineations in section III.B. of the preamble of this 

proposed rule. We are proposing to revise the regulations at § 412.64(h)(4) and (h)(4)(vi) 

to reflect the proposed 1-year extension of the imputed floor. We are inviting public 

comments on our proposal regarding the 1-year extension of the imputed floor. 

 The wage index and impact tables associated with this FY 2015 IPPS/LTCH PPS 

proposed rule that are available on the CMS Web site reflect the proposed continued 

application of the imputed floor policy at § 412.64(h)(4) and a national budget neutrality 

adjustment for the imputed floor for FY 2015. There are 12 providers in New Jersey, and 

1 provider in Delaware that would receive an increase in their FY 2015 wage index due 

to the proposed continued application of the imputed floor policy under the original 

methodology. The wage index and impact tables for this FY 2015 proposed rule also 

reflect the proposed application of the second alternative methodology for computing the 

imputed floor, which would benefit four hospitals in Rhode Island. 

c. Proposed State Frontier Floor 

 Section 10324 of Pub. L. 111-148 requires that hospitals in frontier States cannot 

be assigned a wage index of less than 1.0000 (we refer readers to regulations at 
 403 

42 CFR 412.64(m) and to a discussion of the implementation of this provision in the 

FY 2011 IPPS/LTCH PPS final rule (75 FR 50160 through 50161)). Based on the 

proposed implementation of the new OMB delineations discussed in section III.B. of the 

preamble of this proposed rule, 46 hospitals would receive the frontier floor value of 

1.0000 for their proposed FY 2015 wage index in this proposed rule. These hospitals are 

located in Montana, North Dakota, South Dakota, and Wyoming. Although Nevada is 

also defined as a frontier State, its proposed FY 2015 rural floor value of 1.1373 is 

greater than 1.0000, and therefore, no Nevada hospitals would receive a frontier floor 

value for their proposed FY 2015 wage index. 

 The areas affected by the proposed rural, imputed, and frontier floor policies for 

the proposed FY 2015 wage index are identified in Table 4D associated with this 

proposed rule, which is available on the CMS Web site. 

3. Proposed FY 2015 Wage Index Tables 

 The proposed wage index values for FY 2015 (except those for hospitals 

receiving wage index adjustments under section 1886(d)(13) of the Act), included in 

Tables 4A, 4B, 4C, and 4F, available on the CMS Web site, include the proposed 

occupational mix adjustment, geographic reclassification or redesignation as discussed in 

section III.H. of the preamble of this proposed rule, and the application of the rural, 

imputed, and frontier State floors as discussed in section III.G.2. of the preamble of this 

proposed rule. We note that because we are proposing to adopt the new OMB labor 

market area delineations for FY 2015, these tables have additional tabulations to account 

for wage index calculations computed under the previous and the new OMB delineations. 
 404 

 Tables 3A and 3B, available on the CMS Web site, list the proposed 3-year 

average hourly wage for each labor market area before the redesignation or 

reclassification of hospitals based on FYs 2009, 2010, and 2011 cost reporting periods. 

Table 3A lists these data for urban areas, and Table 3B lists these data for rural areas. In 

addition, Table 2, which is available on the CMS Web site, includes the proposed 

adjusted average hourly wage for each hospital from the FY 2009 and FY 2010 cost 

reporting periods, as well as the FY 2011 period used to calculate the proposed FY 2015 

wage index. The proposed 3-year averages are calculated by dividing the sum of the 

dollars (adjusted to a common reporting period using the method described in Step 5 in 

section III.G. of the preamble of this proposed rule) across all 3 years, by the sum of the 

hours. If a hospital is missing data for any of the previous years, its proposed average 

hourly wage for the 3-year period is calculated based on the data available during that 

period. The proposed average hourly wages in Tables 2, 3A, and 3B, which are available 

on the CMS Web site, include the proposed occupational mix adjustment. The proposed 

wage index values in Tables 4A, 4B, 4C, and 4D also include the proposed national rural 

floor budget neutrality adjustment (which includes the proposed imputed floor). The 

proposed wage index values in Table 2 also include the proposed out-migration 

adjustment for eligible hospitals. As stated above, because we are proposing to adopt the 

new OMB labor market area delineations for FY 2015, these tables have additional 

tabulations to account for wage index calculations computed under the current labor 

market definitions and the new OMB labor market area delineations. In addition, for 

certain applicable hospitals, the proposed wage index values included in Table 2 are 
 405 

computed to reflect the proposed transitional wage index or the 50/50 blended wage 

index discussed in detail in section III.B.2.e. of the preamble of this proposed rule. 

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

1. General Policies and Effects of Reclassification and Redesignation 

 Under section 1886(d)(10) of the Act, the MGCRB considers applications by 

hospitals for geographic reclassification for purposes of payment under the IPPS. 

Hospitals must apply to the MGCRB to reclassify not later than 13 months prior to the 

start of the fiscal year for which reclassification is sought (generally by September 1). 

Generally, hospitals must be proximate to the labor market area to which they are seeking 

reclassification and must demonstrate characteristics similar to hospitals located in that 

area. The MGCRB issues its decisions by the end of February for reclassifications that 

become effective for the following fiscal year (beginning October 1). The regulations 

applicable to reclassifications by the MGCRB are located in 42 CFR 412.230 through 

412.280. (We refer readers to a discussion in the FY 2002 IPPS final rule (66 FR 39874 

and 39875) regarding how the MGCRB defines mileage for purposes of the proximity 

requirements.) The general policies for reclassifications and redesignations that we are 

proposing for FY 2015, and the policies for the effects of hospitals’ reclassifications and 

redesignations on the wage index, are the same as those discussed in the FY 2012 

IPPS/LTCH PPS final rule for the FY 2012 final wage index (76 FR 51595 and 51596). 

Also, in the FY 2012 IPPS/LTCH PPS final rule, we discussed the effects on the wage 

index of urban hospitals reclassifying to rural areas under 42 CFR 412.103. Hospitals 

that are geographically located in States without any rural areas are ineligible to apply for 
 406 

rural reclassification in accordance with the provisions of 42 CFR 412.103. While our 

general policies on geographic reclassification, redesignations under section 

1886(d)(8)(B) of the Act, and urban hospitals reclassifying to rural under 

42 CFR 412.103 will remain unchanged for FY 2015, we note that, due to our proposed 

adoption of the new OMB labor market area delineations for FY 2015, there are 

numerous unique classification considerations for FY 2015 that are discussed in more 

detail in section III.H. of the preamble of this proposed rule. For a discussion of the new 

CBSA changes based on the new OMB labor market area delineations and our proposed 

implementation of those changes, we refer readers to sections III.B. and VI.C. of the 

preamble of this proposed rule. 

2. FY 2015 MGCRB Reclassifications 

a. FY 2015 Reclassification Requirements and Approvals 

 Under section 1886(d)(10) of the Act, the MGCRB considers applications by 

hospitals for geographic reclassification for purposes of payment under the IPPS. The 

specific procedures and rules that apply to the geographic reclassification process are 

outlined in regulations under 42 CFR 412.230 through 412.280. 

 In February 2014, the MGCRB completed its review of FY 2015 reclassification 

requests. Based on such reviews, there were 379 hospitals approved for wage index 

reclassifications by the MGCRB starting in FY 2015. Because MGCRB wage index 

reclassifications are effective for 3 years, for FY 2015, hospitals reclassified beginning 

during FY 2013 or FY 2014 are eligible to continue to be reclassified to a particular labor 

market area based on such prior reclassifications for the remainder of their 3-year period. 
 407 

There were 172 hospitals approved for wage index reclassifications in FY 2013, and 287 

hospitals approved for wage index reclassifications in FY 2014. Of all the hospitals 

approved for reclassification for FY 2013, FY 2014, and FY 2015, as of February 2014, 

838 hospitals are in a reclassification status for FY 2015. 

 Under the regulations at 42 CFR 412.273, hospitals that have been reclassified by 

the MGCRB are permitted to withdraw their applications within 45 days of the 

publication of a proposed rule. For information about withdrawing, terminating, or 

canceling a previous withdrawal or termination of a 3-year reclassification for wage 

index purposes, we refer readers to 42 CFR 412.273, as well as the FY 2002 IPPS final 

rule (66 FR 39887 through 39888) and the FY 2003 IPPS final rule (67 FR 50065 

through 50066). Additional discussion on withdrawals and terminations, and 

clarifications regarding reinstating reclassifications and “fallback” reclassifications, were 

included in the FY 2008 IPPS final rule (72 FR 47333). 

 Changes to the wage index that result from withdrawals of requests for 

reclassification, terminations, wage index corrections, appeals, and the Administrator’s 

review process for FY 2015 will be incorporated into the wage index values published in 

the FY 2015 IPPS/LTCH PPS final rule. These changes affect not only the wage index 

value for specific geographic areas, but also the wage index value 

redesignated/reclassified hospitals receive; that is, whether they receive the wage index 

that includes the data for both the hospitals already in the area and the 

redesignated/reclassified hospitals. Further, the wage index value for the area from 

which the hospitals are redesignated/reclassified may be affected. 
 408 

b. Effects of Implementation of New OMB Labor Market Area Delineations on 

Reclassified Hospitals 

 Because hospitals that have been reclassified beginning in FY 2013, 2014, or 

2015 were reclassified based on the current labor market delineations, if we adopt the 

new OMB labor market area delineations beginning in FY 2015, the areas to which they 

have been reclassified, or the areas where they are located, may change. Under the new 

OMB delineations, many existing CBSAs would be reconfigured. Hospitals with current 

reclassifications are encouraged to verify area wage indexes on Tables 4A-2 and 4B-2 

associated with this proposed rule (which are available via the Internet on the CMS Web 

site), and confirm that the areas to which they have been reclassified for FY 2015 would 

continue to provide a higher wage index than their geographic area wage index. 

Hospitals may withdraw their FY 2015 reclassifications by contacting the MGCRB 

within 45 days from the publication of this proposed rule. 

 In some cases, adopting the new OMB delineations would result in counties 

splitting apart from CBSAs to form new CBSAs, or counties shifting from one CBSA 

designation to another CBSA. Reclassifications granted under section 1886(d)(10) of the 

Act are effective for 3 fiscal years so that a hospital or county group of hospitals would 

be assigned a wage index based upon the wage data of hospitals in a nearby labor market 

area for a 3-year period. If CBSAs are split apart, or if counties shift from one CBSA to 

another under the new OMB delineations, it raises the question of how to continue a 

hospital’s reclassification for the remainder of its 3-year reclassification period, if that 

area to which the hospital reclassified no longer exists, in whole or in part. We dealt with 
 409 

this question in FY 2005 as well when CMS adopted the current OMB labor market area 

definitions. Consistent with the policy CMS implemented in the FY 2005 IPPS final rule 

(69 FR 49054 through 49056), if a CBSA would be reconfigured due to the new OMB 

delineations and it would not be possible for the reclassification to continue seamlessly to 

the reconfigured CBSA, we believe it is appropriate for us to determine the best 

alternative location to reassign current reclassifications for the remaining 3 years. 

Therefore, to maintain the integrity of a hospital’s 3-year reclassification period, we are 

proposing a policy to assure that current geographic reclassifications (applications 

approved in FY 2013, FY 2014, or FY 2015) that would be affected by CBSAs that are 

split apart or counties that shift to another CBSA under the new OMB delineations, 

would ultimately be assigned to a CBSA under the new OMB delineations that contains 

at least one county from the reclassified CBSA under the current FY 2014 OMB 

definitions, and would be generally consistent with rules that govern geographic 

reclassification. That is, consistent with policy finalized in FY 2005 (69 FR 49054 and 

49055), we are proposing a general policy that affected reclassified hospitals would be 

assigned to a CBSA that (1) would contain the most proximate county that is located 

outside of the hospital’s proposed FY 2015 geographic labor market area, and (2) is part 

of the original FY 2014 CBSA to which the hospital is reclassified. We believe that by 

assigning reclassifications to the CBSA that contains the nearest eligible county (as 

described above) satisfies the statutory requirement at section 1886(d)(10)(v) of the Act 

by maintaining reclassification status for a period of 3 fiscal years, while generally 

respecting the longstanding principle of geographic proximity in the labor market 
 410 

reclassification process. The hospitals that we are proposing to reassign to a different 

CBSA based on our proposed policy above are listed in a special Table 9A-2 for this 

proposed rule, which is available via the Internet on the CMS Web site. In addition, we 

are proposing to allow a hospital, or county group of hospitals, to request reassignment to 

another CBSA that would contain a county that is part of the current FY 2014 CBSA to 

which they are reclassified, if the hospital or county group of hospitals can demonstrate 

compliance with applicable reclassification proximity rules, as described later in this 

section. 

 We recognize that this proposed reclassification reassignment described for 

hospitals that are reclassified to CBSAs that would split apart or to counties that would 

shift to another CBSA under the new OMB delineations may result in the reassignment of 

the hospital for the remainder of its 3-year reclassification period to a CBSA having a 

lower wage index than the wage index that would have been assigned for the reclassified 

hospital in the absence of the proposed adoption of the new OMB delineations. 

Therefore, as discussed in section III.B.2.e.(4) of the preamble of this proposed rule, we 

are proposing that all hospitals that would experience a decrease in their FY 2015 wage 

index value due to the proposed implementation of the new OMB delineations would 

receive a 50/50 blended wage index adjustment in FY 2015. For FY 2015, using 

FY 2015 wage data, we are proposing to calculate a wage index value based on the 

current FY 2014 OMB definitions, and a wage index value based upon the proposed new 

OMB delineations (including reclassification assignments discussed in this section). If 

the wage index under the proposed new OMB delineations would be lower than the wage 
 411 

index calculated with the current (FY 2014) OMB definitions, the hospital would be 

assigned a blended wage index (50 percent of the current; 50 percent of the proposed). 

We believe that this proposed transitional adjustment would mitigate negative payment 

impacts for FY 2015, and would afford hospitals additional time to fully assess any 

additional reclassification options available to them under the new OMB delineations. 

 We are including the following descriptions of specific situations where we have 

determined that reassignment of reclassification areas would be appropriate. 

(1) Reclassifications to CBSAs That Would be Subsumed by Other CBSAs 

 We identified 66 counties that are currently located in CBSAs that would be 

subsumed by another CBSA under the new OMB labor market area delineations. As a 

result, hospitals reclassifying to those CBSAs would now find that their reclassifications 

are to a CBSA that no longer exists. For these hospitals, we are proposing to reassign 

reclassifications to the newly configured CBSA to which all of the original constituent 

counties in the FY 2014 CBSA are transferred. For example, CBSA 11300 (Anderson, 

IN) would no longer exist under the proposed FY 2015 delineations. The only 

constituent county in CBSA 11300, Madison County, IN, would be moving to CBSA 

26900 (Indianapolis-Carmel-Anderson, IN). Because the original Anderson, IN labor 

market area no longer exists, we are proposing to reassign reclassifications from the 

original Anderson, IN labor market area to a newly configured CBSA where the original 

constituent county or counties are transferred, which is Indianapolis-Carmel-Anderson, 

IN. For hospitals reclassified to a CBSA that would be subsumed by another CBSA, the 
 412 

following table reflects the hospitals’ current reclassified CBSA, and the CBSA to which 

CMS is proposing to assign them for FY 2015. 

Proposed Hospital Reclassification 

Reassignments for Hospitals Reclassified to a 

CBSA That Would be Subsumed by Another 

CBSA 

CMS 

Certification 

Number (CCN) 

Current 

Reclassified 

CBSA 

Proposed 

CBSA 

050022 42044 11244 

050054 42044 11244 

050102 42044 11244 

050243 42044 11244 

050292 42044 11244 

050329 42044 11244 

050390 42044 11244 

050423 42044 11244 

050534 42044 11244 

050573 42044 11244 

050684 42044 11244 

050686 42044 11244 

050701 42044 11244 

050765 42044 11244 

050770 42044 11244 

140067 14060 14010 

150089 11300 26900 

220001 14484 14454 

220002 14484 14454 

220008 14484 14454 

220011 14484 14454 

220019 14484 14454 

220020 14484 14454 

220049 14484 14454 

220058 14484 14454 

220062 14484 14454 

220063 14484 14454 

220070 14484 14454 

220073 14484 14454 
 413 

Proposed Hospital Reclassification 

Reassignments for Hospitals Reclassified to a 

CBSA That Would be Subsumed by Another 

CBSA 

CMS 

Certification 

Number (CCN) 

Current 

Reclassified 

CBSA 

Proposed 

CBSA 

220074 14484 14454 

220082 14484 14454 

220084 14484 14454 

220090 14484 14454 

220095 14484 14454 

220098 14484 14454 

220101 14484 14454 

220105 14484 14454 

220163 14484 14454 

220171 14484 14454 

220175 14484 14454 

220176 14484 14454 

230002 47644 47664 

230020 47644 47664 

230024 47644 47664 

230053 47644 47664 

230089 47644 47664 

230104 47644 47664 

230142 47644 47664 

230146 47644 47664 

230165 47644 47664 

230176 47644 47664 

230244 47644 47664 

230270 47644 47664 

230273 47644 47664 

230297 47644 47664 

300017 37764 15764 

300023 37764 15764 

300029 37764 15764 

390151 13644 43524 

410001 14484 14454 

410004 14484 14454 

410005 14484 14454 
 414 

Proposed Hospital Reclassification 

Reassignments for Hospitals Reclassified to a 

CBSA That Would be Subsumed by Another 

CBSA 

CMS 

Certification 

Number (CCN) 

Current 

Reclassified 

CBSA 

Proposed 

CBSA 

410007 14484 14454 

410010 14484 14454 

410011 14484 14454 

410012 14484 14454 

(2) Reclassification to CBSAs Where the CBSA Number or Name Has Changed or to 

CBSAs Containing Counties That Would Be Moving to Another CBSA 

 We identified six CBSAs with current reclassifications that would maintain the 

same constituent counties, but the CBSA number or name would change if we adopted 

the new OMB delineations. For example, CBSA 29140 (Lafayette, IN) currently 

contains three counties (Benton, Carroll, and Tippecanoe Counties). The CBSA name 

and number for these counties would change to CBSA 29200 (Lafayette-West Lafayette, 

IN) under the new OMB delineations. Because the constituent counties in these CBSAs 

would not change under the new delineations, we would consider these CBSAs to be 

unchanged, and we are not proposing any reassignment for hospitals reclassified to those 

labor market areas. Table 9A-2 for this proposed rule (which is available via the Internet 

on the CMS Web site) reflects the proposed revised CBSA number effective in FY 2015. 

 We identified eight CBSAs with current reclassifications that have one or more 

counties that would split off and move to a new CBSA or to a different existing CBSA 

under the new OMB delineations. These CBSAs are shown in the following table. 
 415 

Current 

FY 

2014 

CBSA 

Current FY 2014 CBSA Name 

16620 Charleston, WV 

16974 Chicago-Joliet-Naperville, IL 

20764 Edison-New Brunswick, NJ 

31140 Louisville/Jefferson County, KY-IN 

35644 New York-White Plains-Wayne, NY-NJ 

37964 Philadelphia, PA 

39100 Poughkeepsie-Newburgh-Middletown, NY 

48900 Wilmington, NC 

 We have determined that 69 hospitals have current reclassifications to one of 

these CBSAs. Similar to the methodology finalized in the FY 2005 IPPS final rule 

(69 FR 49054 through 49055), we are proposing to follow the general policy discussed in 

section III.H..2.b. of the preamble of this proposed rule. Specifically, we are proposing 

that affected reclassified hospitals would be assigned to a CBSA (under the new OMB 

delineations) that would contain the most proximate county that is (1) located outside of 

the hospital’s proposed FY 2015 geographic labor market area; and (2) is included in the 

current CBSA to which they are reclassified. For each of the 69 hospitals, we conducted 

a mapping analysis and determined driving distances from their geographic location to 

the borders of each county (that is in the reclassified CBSA under the FY 2014 

delineations) and is also included in a CBSA under the new OMB delineations, excluding 

any counties that would be located in the hospital’s proposed FY 2015 geographic labor 

market area. Following the general reassignment principle that we are proposing, we are 

proposing to reassign those reclassified hospitals to the CBSA which contains the 

geographically closest county. For example, there are hospitals that currently are 
 416 

reclassified to CBSA 39100 (Poughkeepsie-Newburgh-Middletown, NY) under the 

FY 2014 delineations, which is comprised of Dutchess County and Orange County, NY. 

Under the new OMB delineations, Dutchess County would become part of new CBSA 

20524 (Dutchess County-Putnam County, NY), while Orange County would join CBSA 

35614 (New York-Jersey City-White Plains, NY-NJ Metropolitan Division). Therefore, 

we mapped the distances from one reclassified hospital to the border of Dutchess County 

and Orange County, NY (the two counties that were part of CBSA 39100 under the 

FY 2014 delineations). Our analysis showed that the hospital is 2.2 miles from Dutchess 

County, and 25.9 miles from Orange County. Therefore, we are proposing to reassign 

this hospital’s reclassification from the FY 2014 CBSA 39100 to the new CBSA 20524. 

 We also identified affected county group reclassifications. For these 

reclassifications, we would follow our proposed policy discussed above, except that, for 

county group reclassifications, we are proposing to reassign hospitals in a county group 

reclassification to the CBSA under the new OMB delineations to which the majority of 

hospitals in the group reclassification are geographically closest. Because hospitals in a 

county group applied as a group, we believe the reassignment should also be applied to 

the whole group. For example, the hospitals of Fairfield County, CT are reclassified as a 

group to CBSA 35644 under the FY 2014 delineations. Under the new OMB 

delineations, CBSA 35644 would no longer exist and would be split into the following 

two new CBSAs: 20524 (Dutchess County-Putnam County, NY) and 35614 (New YorkJersey City-White Plains, NY-NJ). Of the six hospitals in the group reclassification, all 

but one would be closer to an eligible county (Westchester, NY) in CBSA 35614 than to 
 417 

an eligible county (Putnam, NY) in CBSA 20524. Because these hospitals in Fairfield, 

CT applied as a group, we believe the reassignment should also be applied to the whole 

group. Therefore, we are proposing to assign the hospitals in this group reclassification 

to CBSA 35614, the reconfigured CBSA to which the majority of the hospitals in the 

group reclassification are geographically closest. 

 To summarize, of the 69 hospitals reclassified to one of the 8 CBSAs in the 

preceding table that have counties that would split off and move to a new CBSA or a 

different existing CBSA under the new OMB delineations, there are 27 hospitals that 

would maintain the same reclassified CBSA number under our proposals. Another 28 

hospitals would be reassigned to a reconfigured CBSA that would contain a similar 

number of counties from their current reclassified CBSA. For example, the new CBSA 

35614 (New York-Jersey City-White Plains, NY-NJ Metropolitan Division) would 

contain 10 out of 11 counties from current (FY 2014) CBSA 35644 (New York-White 

Plains-Wayne, NY-NJ Metropolitan Division). 

 For the remaining 14 reclassified hospitals, we are proposing to assign them to a 

CBSA (under the new OMB delineations) that would have a different CBSA number 

from the labor market area to which they are currently reclassified (under the current 

FY 2014 delineations). This is because if the original CBSA to which the hospitals are 

reclassified is losing counties to another urban CBSA, it may be that the original 

reclassification determination would not be reflective of the new delineations. In 

addition, because proximity to a CBSA is a requirement of reclassifications approved 

under section 1886(d)(10) of the Act, we believe it is appropriate to propose to reassign 
 418 

reclassification status to an urban CBSA that contains the county (from the hospital’s 

current CBSA reclassification) that is closest to the hospital. We believe this would more 

accurately reflect the geographic labor market area of the reclassified hospital. For 

example, under the FY 2014 delineations, CBSA 37964 (Philadelphia, PA Metropolitan 

Division) is comprised of five counties (Bucks, Chester, Delaware, Montgomery, and 

Philadelphia Counties, PA). Under the new OMB delineations, CBSA 37964 would 

retain the same CBSA name and number, but three counties (Bucks, Chester, and 

Montgomery) would split off to form the new CBSA 33874 (Montgomery County-Bucks 

County-Chester County, PA Metropolitan Division). While CBSA 37964 exists under 

the FY 2014 and proposed new labor market area delineations, the fact that three counties 

would be moved to another CBSA means that current reclassifications to CBSA 37964 

(Philadelphia) may be more proximate to new CBSA 33874. Therefore, if reclassified 

hospitals, or the majority of hospitals in a county group, are geographically closer to a 

county in CBSA 33874 than to a county in CBSA 37964, we are proposing to reassign 

the reclassification to that area, new CBSA 33874 (Montgomery County-Bucks CountyChester County, PA Metropolitan Division). 

 Consistent with refinements implemented in the FY 2005 IPPS final rule 

(69 FR 49055), we are proposing to allow hospitals that reclassified under section 

1886(d)(10) of the Act to one of the eight CBSAs that split (that is, current FY 2014 

CBSAs 16620, 16974, 20764, 31140, 35644, 37964, 39100, 48900) to be reclassified to 

any CBSA containing a county from their original reclassification labor market area, 

provided that the hospital demonstrates that it meets the applicable proximity 
 419 

requirements under 42 CFR 412.230(b) and (c) (for individual hospitals), 

42 CFR 412.232(a)(1) (for a rural group), and 42 CFR 412.234(a)(2) and (a)(3) (for an 

urban group) to that CBSA. Hospitals that wish to be reassigned to an alternate CBSA 

(other than the CBSA to which their reclassification would be reassigned in this proposed 

rule) for which they meet the applicable proximity criteria may request reassignment 

within 45 days from the publication of this proposed rule. Hospitals must send a request 

to WageIndex@cms.hhs.gov and provide documentation certifying that they meet the 

requisite proximity criteria for reassignment to an alternate CBSA, as described above. 

We believe this option of allowing hospitals to submit a request to CMS would provide 

hospitals with greater flexibility with respect to their reclassification reassignment, while 

ensuring that the proximity requirements are met. We believe that where the proximity 

requirements are met, the reclassified wage index would be consistent with the labor 

market area to which the hospitals were originally approved for reclassification. Under 

this proposed policy, a hospital may request to be assigned a reclassification to any 

CBSA that contains any county from the CBSA to which it is currently reclassified. 

However, to be reassigned to an area that is not the most proximate to the hospital (or the 

majority of hospitals in a county group), we believe it is necessary that the hospital 

demonstrates that it complies with the applicable proximity criteria. If a hospital cannot 

demonstrate proximity to an alternate CBSA, the hospital would not be considered for 

reclassification to that labor market area, and reassignment would remain with the closest 

eligible (new) CBSA. 
 420 

 As discussed previously in this section, under the new OMB delineations, we 

identified CBSA 35644 (New York-White Plains-Wayne, NY-NJ Metropolitan Division) 

as one of the examples of the eight CBSAs that would have at least one county that 

would split off and join another new CBSA (Putnam County joined Dutchess County, 

NY to form new CBSA 20524), while also having multiple counties assigned to a 

reconfigured CBSA 35614 (New York-Jersey City-White Plains, NY-NJ Metropolitan 

Division). CBSA 35614 would also add Orange County, NY under the new OMB 

delineations. The hospitals that are currently located in CBSA 39100 (PoughkeepsieNewburgh-Middletown, NY) are currently part of a group reclassification of Orange 

County, NY to CBSA 35644 (New York-White Plains-Wayne, NY-NJ Metropolitan 

Division). As discussed above, we are proposing to reassign current reclassifications to 

the CBSA that contains the most proximate county that is located outside of the 

reclassified hospital’s proposed geographic labor market area, and is currently part of 

the original CBSA to which the hospital is reclassified. In the case of the Orange County, 

NY group reclassification, the closest (and only) county from the original reclassified 

area (CBSA 35644), that would not be located in Orange County’s proposed home labor 

market area (CBSA 35614) is Putnam County, NY. Therefore, we are proposing to 

reassign the Orange County group reclassification to CBSA 20524 (Putnam CountyDutchess County, NY). If the hospitals from the Orange County, NY group 

reclassification do not wish to maintain this assignment, we encourage them to formally 

terminate the current group reclassification within 45 days from the publication of this 

proposed rule, as discussed earlier in this section. 
 421 

 The following table shows proposed hospital reclassification assignments for 

hospitals reclassified to CBSAs from which counties would be split off and moved to a 

different CBSA under the new OMB delineations. The following table shows the current 

reclassified CBSA and the CBSA to which CMS is proposing reassignment. 

Proposed Hospital Reclassification 

Reassignments for Hospitals That Are 

Reclassified to CBSAs From Which 

Counties Would Be Split Off and 

Moved to a Different CBSA 

CMS 

Certification 

Number 

(CCN) 

Current 

Reclassified 

CBSA 

Proposed 

Reassigned 

CBSA 

070006 35644 35614 

070010 35644 35614 

070018 35644 35614 

070028 35644 35614 

070033 35644 35614 

070034 35644 35614 

140B10 16974 16974 

140012 16974 20994 

140033 16974 16974 

140084 16974 16974 

140100 16974 16974 

140110 16974 16974 

140130 16974 16974 

140155 16974 16974 

140161 16974 16974 

140186 16974 16974 

140202 16974 16974 

140291 16974 16974 

150002 16974 16974 

150004 16974 16974 

150008 16974 16974 
 422 

Proposed Hospital Reclassification 

Reassignments for Hospitals That Are 

Reclassified to CBSAs From Which 

Counties Would Be Split Off and 

Moved to a Different CBSA 

CMS 

Certification 

Number 

(CCN) 

Current 

Reclassified 

CBSA 

Proposed 

Reassigned 

CBSA 

150034 16974 16974 

150090 16974 16974 

150125 16974 16974 

150126 16974 16974 

150165 16974 16974 

150166 16974 16974 

180012 31140 31140 

180048 31140 31140 

310002 35644 35614 

310009 35644 35614 

310014 37964 37964 

310015 35644 35614 

310017 35644 35614 

310031 20764 35614 

310038 35644 20524 

310039 35644 20524 

310050 35644 35614 

310054 35644 35614 

310070 35644 20524 

310076 35644 35614 

310083 35644 35614 

310096 35644 35614 

310108 35644 20524 

310119 35644 35614 

330027 35644 35614 

330106 35644 35614 

330126 35644 20524 

330135 35644 20524 

330167 35644 35614 

330181 35644 35614 
 423 

Proposed Hospital Reclassification 

Reassignments for Hospitals That Are 

Reclassified to CBSAs From Which 

Counties Would Be Split Off and 

Moved to a Different CBSA 

CMS 

Certification 

Number 

(CCN) 

Current 

Reclassified 

CBSA 

Proposed 

Reassigned 

CBSA 

330182 35644 35614 

330198 35644 35614 

330205 35644 20524 

330224 39100 20524 

330225 35644 35614 

330259 35644 35614 

330264 35644 20524 

330331 35644 35614 

330332 35644 35614 

330372 35644 35614 

340042 48900 48900 

340068 48900 34820 

390044 37964 33874 

390096 37964 33874 

390316 37964 33874 

420085 48900 48900 

510062 16620 16620 

510070 16620 16620 

 Table 9A-2 for this proposed rule (which is available via the Internet on the CMS 

Web site) reflects all proposed reassignments of hospital reclassifications. We are 

proposing that hospitals that disagree with our determination of the most proximate 

county must provide an alternative method for determining proximity to CMS within 45 

days from the publication of this proposed rule. 
 424 

 The hospital’s request for reassignment should contain the hospital’s name, 

address, CCN, and point of contact information. All requests must be sent to 

WageIndex@cms.hhs.gov. Changes to a hospital’s CBSA assignment on the basis of a 

hospital’s disagreement with our determination of closest county, or on the basis of being 

granted a reassignment due to meeting applicable proximity criteria to an eligible CBSA 

will be announced in the FY 2015 IPPS final rule. 

(3) Reclassifications to CBSAs That Would Contain Hospital’s Geographic County 

 We identified 14 reclassified hospitals that would be geographically located in 

their reclassified labor market area under the new OMB delineations. For example, 

hospital 34-0015 is located in Rowan County, NC. Rowan County is currently a 

Micropolitan Statistical Area in NC, and treated as rural. The hospital is reclassified to 

CBSA 16740 (Charlotte-Concord-Rock Hill, NC-SC). Under the new OMB delineations, 

CBSA 16740 (Charlotte-Concord-Gastonia, NC-SC) would include Rowan County. 

Therefore, the current reclassification would become redundant. CBSA 16740 did not 

lose any counties to another labor market area; therefore, assignment to another alternate 

CBSA would not be an option under our proposed methodology. Because, by definition, 

a hospital would not be “reclassified” to its own geographic labor market area, and 

maintaining that “reclassified” status to its own geographic labor market area would serve 

no beneficial purpose for a hospital, we expect that all such affected hospitals would wish 

to terminate their reclassification status. Therefore, we are assuming for purposes of this 

proposed rule that the affected hospitals would be terminating their reclassification status 

for the remaining years of their 3-year reclassification period, and for FY 2015, we are 
 425 

proposing to assign them the wage index of the CBSA in which they are geographically 

located. Affected hospitals should inform CMS if they wish to retain their current 

reclassification by sending notice to WageIndex@cms.hhs.gov within 45 days from the 

publication of this proposed rule. If an affected hospital does not inform us that they 

wish to retain their current reclassification, we will assume that the hospital has elected to 

terminate the reclassification. For purposes of this proposed rule, we are presenting 

tables under the presumption that all 14 hospitals will opt to cancel their reclassification 

status. We are proposing to assign these hospitals the wage index value of their home 

area from Table 4A-2 for this proposed rule (which is available via the Internet on the 

CMS Web site), and not include them as reclassified hospitals in Table 9A-2 for this 

proposed rule (which is available via the Internet on the CMS Web site). 

 
 426 

Hospitals Reclassified to Proposed Home 

Labor Market Area 

CMS 

Certification 

Number 

(CCN) 

Current 

Geographic 

CBSA 

Proposed 

Geographic 

CBSA 

340015 34 16740 

340129 34 16740 

340144 34 16740 

420036 42 16740 

450596 45 23104 

420027 11340 24860 

150088 11300 26900 

150113 11300 26900 

190003 19 29180 

440073 44 34980 

460017 46 36260 

460039 46 36260 

190144 19 43340 

490019 49 47894 

 We have included a footnote for Table 9A-2 for this proposed rule indicating that 

these hospitals have been removed from this table, pending notification by the hospitals. 

c. Applications for Reclassifications for FY 2016 

 Applications for FY 2016 reclassifications are due to the MGCRB by 

September 2, 2014 (the first working day of September 2014). We note that this is also 

the deadline for canceling a previous wage index reclassification withdrawal or 

termination under 42 CFR 412.273(d). As discussed in section III.B. of the preamble of 

this proposed rule, we are proposing to adopt the new OMB labor market area 

delineations announced on February 28, 2013. Therefore, hospitals would apply for 

reclassifications based on the new OMB delineations we are proposing to use for 
 427 

FY 2015. Applications and other information about MGCRB reclassifications may be 

obtained via the Internet on the CMS Web site at: http://www.cms.gov/Regulations-andGuidance/Review-Boards/MGCRB/index.html, or by calling the MGCRB at 

(410) 786-1174. The mailing address of the MGCRB is: 2520 Lord Baltimore Drive, 

Suite L, Baltimore, MD 21244-2670.3. 

 We also are proposing changes to the regulations at § 412.232(b)(2) and 

§ 412.234(a)(3)(iv) to include reference to the most recent OMB standards for delineating 

statistical areas (using the most recent Census Bureau data and estimates) that were 

adopted by CMS. For rural groups, the group of hospitals must demonstrate that the 

county in which the hospitals are located meets the standards for redesignation to an 

MSA as an “outlying county.” For urban groups, hospitals located in counties that are in 

the same combined statistical area or CBSA as the urban area to which they seek 

redesignation qualify as meeting the proximity requirements for reclassification to the 

urban area to which they seek redesignation. We are not proposing any changes to the 

reclassification policy, but would include language to reflect use of the most recent OMB 

standards for delineating statistical areas (using the most recent Census Bureau data and 

estimates) that were adopted by CMS in consideration of group reclassification 

applications submitted for review in FY 2015 (that is submitted by September 30, 2014, 

reviewed by the MGCRB in FY 2015, to be effective in FY 2016) and future years. 
 428 

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

 Section 1886(d)(8)(B)(i) 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 urban 

metropolitan statistical area to which the greatest number of workers in the county 

commute” if certain adjacency and commuting criteria are met. The criteria utilize 

standards for designating Metropolitan Statistical Areas published in the Federal 

Register by the Director of the Office of Management and Budget (OMB) based on the 

most recently available decennial population data. Effective beginning FY 2005, we used 

OMB’s CBSA standards based on the 2000 Census and the 2000 Census 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. 

 As discussed in section III.B. of the preamble to this proposed rule, we are 

proposing to implement OMB’s revised labor market area delineations based on the 

Census 2010 data for purposes of determining applicable wage indexes for acute care 

hospitals beginning in FY 2015. As we have done in the past, we also are proposing to 

use the new OMB delineations to identify rural counties that would qualify as “Lugar” 

under section 1886(d)(8)(B) of the Act and therefore would be redesignated to urban 

areas for FY 2015. We are proposing to revise the regulations at § 412.64(b)(3)(i) to 

reflect the most recent OMB standards for delineating statistical areas adopted by CMS. 

By applying the new OMB delineations, the number of qualifying counties, shown in the 

following chart, would increase from 98 to 127. After evaluating and analyzing the 2010 
 429 

Census commuting data, we are proposing that, effective for discharges on or after 

October 1, 2014, in accordance with section 1886(d)(8)(B) of the Act, hospitals located in 

the rural counties listed in the first column of the following table would be designated as 

part of the urban area listed in the second column based on the criteria discussed above. 

We note that rural counties that no longer meet the qualifying criteria to be Lugar are 

discussed below in section III.H.3.c. of the preamble of this proposed rule. 

Rural Counties Containing Hospitals Redesignated as Urban 

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

(Based on New OMB Delineations and Census 2010 Data)

RURAL COUNTY LUGAR DESIGNATED CBSA NEW 

County Name State CBSA CBSA Name 

Chambers County AL 12220 Auburn-Opelika, AL New 

Cherokee County AL 40660 Rome, GA 

Cleburne County AL 11500 Anniston-Oxford-Jacksonville, AL New

Macon County AL 12220 Auburn-Opelika, AL 

Talladega County AL 11500 Anniston-Oxford-Jacksonville, AL 

Denali Borough AK 21820 Fairbanks, AK New

Hot Spring County AR 26300 Hot Springs, AR 

Litchfield County CT 35300 New Haven-Milford, CT 

Bradford County FL 27260 Jacksonville, FL 

Levy County FL 23540 Gainesville, FL 

Washington County FL 37460 Panama City, FL New

Chattooga County GA 40660 Rome, GA 

Jackson County GA 12060 Atlanta-Sandy Springs-Roswell, GA 

Lumpkin County GA 12060 Atlanta-Sandy Springs-Roswell, GA 

Polk County GA 40660 Rome, GA 

Talbot County GA 17980 Columbus, GA-AL 

Oneida County ID 36260 Ogden-Clearfield, UT New

Christian County IL 44100 Springfield, IL 

Iroquois County IL 28100 Kankakee, IL 

Logan County IL 44100 Springfield, IL 

Mason County IL 37900 Peoria, IL 

Ogle County IL 40420 Rockford, IL 
 430 

RURAL COUNTY LUGAR DESIGNATED CBSA NEW 

County Name State CBSA CBSA Name 

Union County IL 16060 Carbondale-Marion, IL 

Clinton County IN 29200 Lafayette-West Lafayette, IN 

Greene County IN 14020 Bloomington, IN New

Henry County IN 26900 Indianapolis-Carmel-Anderson, IN 

Marshall County IN 43780 South Bend-Mishawaka, IN-MI New

Parke County IN 45460 Terre Haute, IN New

Spencer County IN 21780 Evansville, IN-KY 

Starke County IN 16980 Chicago-Naperville-Elgin, IL-IN-WI 

Tipton County IN 26900 Indianapolis-Carmel-Anderson, IN New

Warren County IN 29200 Lafayette-West Lafayette, IN 

Boone County IA 11180 Ames, IA 

Buchanan County IA 47940 Waterloo-Cedar Falls, IA 

Cedar County IA 26980 Iowa City, IA 

Delaware County IA 20220 Dubuque, IA New

Iowa County IA 26980 Iowa City, IA New

Jasper County IA 19780 Des Moines-West Des Moines, IA New

Franklin County KS 28140 Kansas City, MO-KS New

Nelson County KY 31140 Louisville/Jefferson County, KY-IN New

Assumption Parish LA 12940 Baton Rouge, LA 

Jefferson Davis Parish LA 29340 Lake Charles, LA New

St. Landry Parish LA 29180 Lafayette, LA New

Oxford County ME 30340 Lewiston-Auburn, ME New

Caroline County MD 12580 Baltimore-Columbia-Towson, MD New

Franklin County MA 44140 Springfield, MA New

Allegan County MI 24340 Grand Rapids-Wyoming, MI 

Ionia County MI 24340 Grand Rapids-Wyoming, MI New

Lenawee County MI 11460 Ann Arbor, MI New

Newaygo County MI 24340 Grand Rapids-Wyoming, MI New

Shiawassee County MI 29620 Lansing-East Lansing, MI 

Tuscola County MI 40980 Saginaw, MI 

Goodhue County MN 33460 

Minneapolis-St. Paul-Bloomington, 

MN-WI 

New

Meeker County MN 33460 

Minneapolis-St. Paul-Bloomington, 

MN-WI 

New

Rice County MN 33460 

Minneapolis-St. Paul-Bloomington, 

MN-WI 

New
 431 

RURAL COUNTY LUGAR DESIGNATED CBSA NEW 

County Name State CBSA CBSA Name 

Pearl River County MS 25060 Gulfport-Biloxi-Pascagoula, MS 

Stone County MS 25060 Gulfport-Biloxi-Pascagoula, MS New

Dade County MO 44180 Springfield, MO 

Otoe County NE 30700 Lincoln, NE New

Douglas County NV 16180 Carson City, NV New

Lyon County NV 16180 Carson City, NV 

Los Alamos County NM 42140 Santa Fe, NM 

Cayuga County NY 45060 Syracuse, NY 

Cortland County NY 27060 Ithaca, NY New

Genesee County NY 40380 Rochester, NY 

Greene County NY 10580 Albany-Schenectady-Troy, NY 

Lewis County NY 48060 Watertown-Fort Drum, NY New

Montgomery County NY 10580 Albany-Schenectady-Troy, NY New

Schuyler County NY 27060 Ithaca, NY 

Seneca County NY 40380 Rochester, NY New

Camden County NC 47260 

Virginia Beach-Norfolk-Newport 

News, VA-NC 

New

Caswell County NC 15500 Burlington, NC 

Granville County NC 20500 Durham-Chapel Hill, NC 

Greene County NC 24780 Greenville, NC New

Harnett County NC 39580 Raleigh, NC 

Polk County NC 43900 Spartanburg, SC 

Wilson County NC 40580 Rocky Mount, NC New

Traill County ND 24220 Grand Forks, ND-MN New

Ashtabula County OH 17460 Cleveland-Elyria, OH 

Champaign County OH 44220 Springfield, OH 

Columbiana County OH 49660 

Youngstown-Warren-Boardman, 

OH-PA 

Harrison County OH 48260 Weirton-Steubenville, WV-OH New

Preble County OH 19380 Dayton, OH New

Clinton County PA 48700 Williamsport, PA 

Fulton County PA 25180 Hagerstown-Martinsburg, MD-WV New

Greene County PA 38300 Pittsburgh, PA 

Lawrence County PA 38300 Pittsburgh, PA New

Schuylkill County PA 39740 Reading, PA 

Susquehanna County PA 13780 Binghamton, NY 
 432 

RURAL COUNTY LUGAR DESIGNATED CBSA NEW 

County Name State CBSA CBSA Name 

Adjuntas Municipio PR 38660 Ponce, PR New

Coamo Municipio PR 41980 San Juan-Carolina-Caguas, PR New

Las Marías Municipio PR 32420 Mayagüez, PR New

Maricao Municipio PR 32420 Mayagüez, PR New

Salinas Municipio PR 25020 Guayama, PR New

Clarendon County SC 44940 Sumter, SC 

Colleton County SC 16700 Charleston-North Charleston, SC New

Lee County SC 44940 Sumter, SC 

Marion County SC 22500 Florence, SC New

Newberry County SC 17900 Columbia, SC New

Meigs County TN 17420 Cleveland, TN 

Blanco County TX 12420 Austin-Round Rock, TX New

Bosque County TX 47380 Waco, TX 

Calhoun County TX 47020 Victoria, TX New

Fannin County TX 19100 Dallas-Fort Worth-Arlington, TX 

Grimes County TX 17780 College Station-Bryan, TX 

Harrison County TX 30980 Longview, TX 

Henderson County TX 46340 Tyler, TX 

Hill County TX 19100 Dallas-Fort Worth-Arlington, TX New

Milam County TX 12420 Austin-Round Rock, TX 

Van Zandt County TX 19100 Dallas-Fort Worth-Arlington, TX 

Willacy County TX 15180 Brownsville-Harlingen, TX 

King and Queen 

County VA 40060 Richmond, VA 

New

Louisa County VA 40060 Richmond, VA New

Madison County VA 16820 Charlottesville, VA New

Orange County VA 47900 

Washington-Arlington-Alexandria, 

DC-VA-MD-WV 

New

Page County VA 25500 Harrisonburg, VA 

Shenandoah County VA 49020 Winchester, VA-WV 

Southampton County VA 47260 

Virginia Beach-Norfolk-Newport 

News, VA-NC 

New

Surry County VA 47260 

Virginia Beach-Norfolk-Newport 

News, VA-NC 

New

Island County WA 42660 Seattle-Tacoma-Bellevue, WA 

Mason County WA 36500 Olympia-Tumwater, WA 
 433 

RURAL COUNTY LUGAR DESIGNATED CBSA NEW 

County Name State CBSA CBSA Name 

Jackson County WV 16620 Charleston, WV 

Morgan County WV 25180 Hagerstown-Martinsburg, MD-WV New

Roane County WV 16620 Charleston, WV 

Green Lake County WI 22540 Fond du Lac, WI 

Jefferson County WI 33340 

Milwaukee-Waukesha-West Allis, 

WI 

Walworth County WI 33340 

Milwaukee-Waukesha-West Allis, 

WI 
 434 

a. Proposed New Lugar Areas for FY 2015 

 Of the 127 qualifying counties identified as Lugar counties based on the new 

OMB delineations, 58 counties would be newly designated as Lugar for FY 2015 if we 

finalize our proposed adoption of the new OMB delineations. Hospitals in these 

counties, with at least 25 percent of their workers commuting to a higher wage area, 

effective October 1, 2014, will be deemed to be located in the CBSA to which the highest 

number of their workers commute (which is identified in the column titled “Lugar 

Designated CBSA” in the table above). Hospitals in these counties would receive the 

reclassified urban wage index of the corresponding Lugar Designated CBSA, unless they 

choose to waive their Lugar status, as discussed later in this section. 

 Some areas that are currently urban counties would be geographically rural if we 

adopted the new OMB delineations and would meet the requirements for redesignation as 

Lugar areas. As described in section III.B.2.e.(2) of the preamble of this proposed rule, 

we are proposing a 3-year hold harmless transitional wage index adjustment for hospitals 

located in urban counties that become rural under the new OMB delineations. Because 

Lugar status is a form of redesignation, hospitals that currently are located in urban 

counties that would become rural under the new OMB delineations and are also 

considered Lugar areas under the new OMB delineations would not be eligible for the 

3-year transition wage index adjustment unless they choose to waive Lugar status for 

FY 2015 (as discussed later in this section) and seek no other form of wage index 

reclassification. 
 435 

b. Hospitals Redesignated under Section 1886(d)(8)(B) of the Act Seeking 

Reclassification by the MGCRB 

 As in the past, hospitals redesignated under section 1886(d)(8)(B) of the Act are 

also eligible to be reclassified to a different area by the MGCRB. Using Table 4C 

associated with this proposed rule (which is available via the Internet on the CMS Web 

site), affected hospitals may compare the reclassified wage index for the labor market 

area into which they would be reclassified by the MGCRB to the reclassified wage index 

for the area to which they are redesignated under section 1886(d)(8)(B) of the Act. 

Hospitals may withdraw from an MGCRB reclassification within 45 days of the 

publication of this FY 2015 proposed rule. (We refer readers to the FY 2012 IPPS/LTCH 

PPS final rule (76 FR 51598 through 51599) for the procedural rules and requirements for 

a hospital that is redesignated under section 1886(d)(8)(B) of the Act and seeking 

reclassification under the MGCRB, as well as our policy of measuring the urban area, 

exclusive of the Lugar County, for purposes of meeting proximity requirements.) 

 We treat New England deemed counties in a manner consistent with how we treat 

Lugar counties. (We refer readers to the FY 2008 IPPS final rule with comment period 

(72 FR 47337 through 47338) for a discussion of this policy.) 

c. Rural Counties No Longer Meeting the Criteria to be Redesignated as Lugar 

 If we adopt the new OMB delineations, 29 rural counties would no longer meet 

the qualifying criteria to be redesignated as Lugar effective October 1, 2014, either 

because they would be geographically located in an urban area, or they would fail to meet 
 436 

the 25-percent cumulative out-migration threshold with application of the new 2010 

Census commuting data. 

 Counties that were deemed urban under section 1886(d)(8)(B) of the Act in 

FY 2014, but would be geographically located in an urban area under the new OMB 

delineations for FY 2015 are: 

 Windham County, CT 

 Flagler County, FL 

 Walton County, FL 

 Morgan County, GA 

 Peach County, GA 

 De Witt County, IL 

 Allen County, KY 

 St. James Parrish, LA 

 Montcalm County, MI 

 Fillmore County, MN 

 Lincoln County, NC 

 Cotton County, OK 

 Linn County, OR 

 Adams County, PA 

 Monroe County, PA 

 Falls County, TX 

 Buckingham County, VA 
 437 

 Floyd County, VA 

 Green County, WI 

 Counties that would fail to meet the 25-percent threshold in FY 2015 are: 

 Banks County, GA 

 Hendry County, FL 

 Bingham County, ID 

 Oceana County, MI 

 Columbia County, NY 

 Sullivan County, NY 

 Wyoming County, NY 

 Oconee County, SC 

 Middlesex County, VA 

 Wahkiakum County, WA 

 In section III.B.2.e.(2) of the preamble of this proposed rule, to help ease dramatic 

negative impacts in payment for hospitals designated as urban under the current FY 2014 

OMB delineations, but would be classified as rural under the new OMB delineations, for 

FYs 2015, 2016, and 2017, assuming no other form of wage index reclassification or 

redesignation is granted, we are proposing to assign these hospitals the FY 2015 area 

wage index value of the urban CBSA to which they geographically belonged in FY 2014 

(with the rural and imputed floors applied and with the rural floor budget neutrality 

adjustment applied to the area wage index). (For purposes of the wage index 

computation, the wage data of these hospitals would remain assigned to the statewide 
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rural area in which they are located.) Similarly, we are proposing that the same 3-year 

transition apply to hospitals located in those counties that would lose their deemed urban 

designation under section 1886(d)(8)(B) of the Act and would become rural if we adopt 

the new OMB delineations. Because these hospitals would, in fact, lose their designated 

urban status, we are proposing to extend the 3-year hold harmless transitional wage index 

adjustment to these hospitals located in counties formerly designated as urban under 

section 1886(d)(8)(B) of the Act. That is, for FYs 2015, 2016, and 2017, assuming no 

other form of wage index reclassification or redesignation is granted, we are proposing to 

assign these hospitals the FY 2015 area wage index value of the urban CBSA to which 

they were designated as urban in FY 2014 (with the rural and imputed floors applied and 

with the rural floor budget neutrality adjustment applied). We are proposing to use the 

wage data from these hospitals as part of computing the rural wage index. In addition, 

during this 3-year transition period, these hospitals would be eligible to apply for 

reclassification by the MGCRB. As discussed in section III.B.2.e.(3) of the preamble of 

this proposed rule, we are proposing that if a hospital is currently located in an urban 

county that would become rural for FY 2015 under the new OMB delineations, and such 

hospital seeks and is granted any reclassification or redesignation during FYs 2015, 2016, 

or 2017, the hospital would permanently lose its 3-year transitional assigned wage index, 

and would not be able to reinstate it. Similarly, we are proposing that this policy also 

apply to hospitals located in those counties that would lose their deemed urban 

designation under section 1886(d)(8)(B) of the Act and would become rural if we adopt 
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the new OMB delineations. In FY 2018, we are proposing that these hospitals would 

receive their statewide rural wage index. 

4. Waiving Lugar Redesignation for the Out-Migration Adjustment 

 In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 through 51600), we 

adopted the policy that, beginning with FY 2012, an eligible hospital that waives its 

Lugar status in order to receive the out-migration adjustment has effectively waived its 

deemed urban status and, thus, is rural for all purposes under the IPPS, including being 

considered rural for the DSH payment adjustment, effective for the fiscal year in which 

the hospital receives the out-migration adjustment. (We refer readers to a discussion of 

DSH payment adjustment under section IV.F. of the preamble of this proposed rule.) 

 In addition, we adopted a minor procedural change that would allow a Lugar 

hospital that qualifies for and accepts the out-migration adjustment (through written 

notification to CMS within 45 days from the publication of the proposed rule) to waive 

its urban status for the full 3-year period for which its out-migration adjustment is 

effective. By doing so, such a Lugar hospital would no longer be required during the 

second and third years of eligibility for the out-migration adjustment to advise us 

annually that it prefers to continue being treated as rural and receive the out-migration 

adjustment. Therefore, under the procedural change, a Lugar hospital that requests to 

waive its urban status in order to receive the rural wage index in addition to the 

out-migration adjustment would be deemed to have accepted the out-migration 

adjustment and agrees to be treated as rural for the duration of its 3-year eligibility 

period, unless, prior to its second or third year of eligibility, the hospital explicitly 
 440 

notifies CMS in writing, within the required period (generally 45 days from the 

publication of the proposed rule), that it instead elects to return to its deemed urban status 

and no longer wishes to accept the out-migration adjustment. If the hospital does notify 

CMS that it is electing to return to its deemed urban status, it would again be treated as 

urban for all IPPS payment purposes. 

 We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 

through 51600) for a detailed discussion of the policy and process for waiving Lugar 

status for the out-migration adjustment. 

5. Update of Application of Urban to Rural Reclassification Criteria 

 Section 401(a) of the Medicare, Medicaid, and SCHIP Balanced Budget 

Refinement Act of 1999 (Pub. L. 106-113), which amended section 1886(d)(8) of the Act 

by adding a new paragraph (E), directed the Secretary to treat any subsection (d) hospital 

located in an urban area as being located in the rural area of the State in which the 

hospital is located, providing that the hospital applied for reclassification in a manner 

determined by the Secretary and met certain criteria. As discussed in the FY 2001 

interim final rule (65 FR 47029 through 47031), we codified in regulation at § 412.103 

the application process and the qualifying criteria for any hospital seeking rural 

reclassification. 

 In order to be approved for a rural reclassification, a hospital must meet one of 

three criteria. The first criterion, located at § 412.103(a)(1), qualifies a hospital located in 

a rural census tract of an MSA area, as determined under the most recent version of the 

Goldsmith Modification, the Rural-Urban Commuting Area (RUCA) codes. On 
 441 

February 28, 2013, OMB issued OMB Bulletin No. 13-01, which established revised 

delineations for Metropolitan Statistical Areas, Micropolitan Statistical Areas, and 

Combined Statistical Areas, and provided guidance on the use of the delineations of these 

statistical areas. These delineations are based on 2010 decennial Census data. Several 

modifications of RUCA codes were necessary to take into account updated commuting 

data and revised OMB delineations. We refer readers to the U.S. Department of 

Agriculture’s Economic Research Service Web site for a detailed listing of updated 

RUCA codes found at: http://www.ers.usda.gov/data-products/rural-urban-commutingarea-codes.aspx. The updated RUCA code definitions were introduced in late 2013. 

As discussed at § 412.103(f), the duration of an approved rural reclassification remains in 

effect without need for reapproval unless there is a change in the circumstances under 

which the classification was approved. If a hospital located in an urban area was 

approved for a rural reclassification under § 412.103 (a)(1), that reclassification would no 

longer be valid if the hospital is no longer located within a rural census tract of an MSA 

defined as an RUCA. Therefore, we encourage all hospitals with active rural 

reclassifications under section 1886(d)(8)(E) of the Act to review their original 

reclassification application and determine whether the reclassification status would still 

apply. As discussed in section VI.C.2. of the preamble of this proposed rule, we are 

proposing a 2-year grace period allowing affected CAHs additional time to seek a new 

rural reclassification without the threat of losing its CAH status. As discussed in section 

VI.C.2. of the preamble of this proposed rule, we are not proposing a grace period for 

other types of hospitals to seek a new rural reclassification. We note that rural 
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reclassification status under § 412.103 is effective as of the filing date of the application. 

Therefore, if the change in RUCA codes invalidates any hospital’s rural reclassification 

status, we believe hospitals will have adequate time to apply for a new reclassification 

using an alternative qualification criterion specified at either § 412.103(a)(2) or 

§ 412.103(a)(3). A rural referral center (RRC) or a sole community hospital (SCH) that 

continues to meet the appropriate qualification criteria would, in itself, qualify for a rural 

reclassification. If a complete application is received before October 1, 2014, and is 

approved by the CMS Regional Office, the hospital would experience no interruption in 

its rural status. 

I. Proposed FY 2015 Wage Index Adjustment Based on Commuting Patterns of Hospital 

Employees 

 In accordance with section 1886(d)(13) of the Act, as added by section 505 of 

Pub. L. 108-173, beginning with FY 2005, we established a process to make adjustments 

to the hospital wage index based on commuting patterns of hospital employees (the 

“out-migration” adjustment). The process, outlined in the FY 2005 IPPS final rule 

(69 FR 49061), provides for an increase in the wage index for hospitals located in certain 

counties that have a relatively high percentage of hospital employees who reside in the 

county but work in a different county (or counties) with a higher wage index. 

 When this provision was implemented for the FY 2005 wage index, we analyzed 

commuting data compiled by the U.S. Census Bureau which was derived from a special 

tabulation of the 2000 Census journey-to-work data for all industries (CMS extracted data 

applicable to hospitals). These data were compiled from responses to the “long-form” 
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survey, which the Census Bureau used at the time, and it contained questions on where 

residents in each county worked (69 FR 49062). However, the 2010 Census was 

“short form” only; therefore, this information was not collected as part of the 2010 

Census. The Census Bureau is working with CMS to provide an alternative dataset based 

on the latest available data that is expected to meet our needs for developing a new 

out-migration adjustment. We believe we will have the necessary time to obtain, review 

and analyze the data in order to propose new out-migration adjustments based on new 

commuting patterns developed from the 2010 Census data beginning with FY 2016. 

Section 1886(d)(13)(B) of the Act requires the Secretary to use data the Secretary 

determines to be appropriate to establish the qualifying counties. The data used for the 

FY 2014 out-migration adjustment are the most recent data that have been analyzed, and 

we believe that these data are appropriate to establish the qualifying counties. Therefore, 

we are proposing that the FY 2015 out-migration adjustments continue to be based on the 

2000 Census data. We also are proposing that the FY 2015 out-migration adjustments 

continue to be based on the policies, procedures, and computation that were used for the 

FY 2014 out-migration adjustment. (We refer readers to a full discussion of the 

adjustment, including rules on deeming hospitals reclassified under section 1886(d)(8) or 

section 1886(d)(10) of the Act to have waived the out-migration adjustment, in the 

FY 2012 IPPS/LTCH PPS final rule (76 FR 51601 through 51602)). Table 4J, which is 

available via the Internet on the CMS Web site, lists the proposed out-migration 

adjustments for the proposed FY 2015 wage index. 
 444 

 Section 1886(d)(13)(F) of the Act states that “[a] wage index increase under this 

paragraph shall be effective for a period of 3 fiscal years, except that the Secretary shall 

establish procedures under which a subsection (d) hospital may elect to waive the 

application of such wage index increase.” Therefore, for FY 2015, because we are 

proposing to continue to use the out-migration adjustment data used for FY 2014, 

consistent with the statute, we also are proposing to allow hospitals that qualified in 

FY 2013 or FY 2014 to receive the out-migration adjustment based on the commuting 

data and the CBSA delineations used for FY 2014 to continue to receive the same outmigration adjustment for the remainder of their 3-year qualification period. Similarly, if 

a hospital qualifies for and opts to receive the out-migration adjustment for the first time 

in FY 2015, we also are proposing to allow that hospital to receive the out-migration 

adjustment based on the data used for FY 2014 for FYs 2015, 2016, and 2017. 

Accordingly, even if we propose to adopt new out-migration adjustment data for 

FY 2016, as we believe we will be able to do, hospitals that are already receiving an 

out-migration adjustment beginning with a fiscal year prior to FY 2016 would still 

receive their out-migration adjustment based on the data used for FY 2014 for the years 

that remain of their 3-year qualification period in FY 2016 and after. 

 We intend to address application of the FY 2016 out-migration adjustment in 

greater detail in the FY 2016 proposed rule. However, in this FY 2015 proposed rule, we 

are soliciting comments on how to implement the new out-migration adjustment data for 

FY 2016, given the statutory requirement at section 1886(d)(13)(F) of the Act that an 

out-migration adjustment be effective for 3 fiscal years. 
 445 

 As discussed in section III.B. of the preamble of this proposed rule, we are 

proposing to use OMB’s new labor market area delineations based on the 2010 Census 

data to identify counties qualifying as Lugar counties for FY 2015. In section III.H.3 of 

the preamble of this proposed rule, we discuss hospitals located in rural counties that are 

deemed to be urban under section 1886(d)(8)(B) of the Act. These rural counties are 

known as “Lugar” counties. Under the new OMB delineations, there would be counties 

newly qualifying as Lugar as well as counties that were previously Lugar counties that 

would no longer meet the criteria to be redesignated as Lugar. As discussed in section 

III.H.4. of the preamble of this proposed rule, if a Lugar hospital qualifies for and accepts 

the out-migration adjustment, it must waive its deemed urban status and can do so for the 

3-year period for which the out-migration adjustment is effective. Therefore, hospitals 

located in counties newly designated as Lugar due to the new OMB delineations would 

have the choice to either maintain their Lugar status or waive it in order to receive the 

out-migration adjustment in FY 2015 based on the out-migration adjustment data used for 

FY 2014. 

 On the other hand, there are hospitals in counties deemed to be Lugar under the 

previous CBSA delineations that waived their Lugar status for the out-migration 

adjustment, but are not Lugar under the new OMB delineations. These hospitals would 

continue to receive the out-migration adjustment for the 3-year eligibility period through 

FY 2015 or FY 2016. However, these hospitals that are located in urban counties under 

the new OMB delineations, and wish to continue to maintain their rural status effective 

October 1, 2014, must do so by reclassifying from urban to rural under § 412.103. 
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Section 1886(d)(13)(G) of the Act states that a hospital cannot simultaneously receive the 

out-migration adjustment and be subject to a reclassification under section 1886(d)(8) or 

1886(d)(10) of the Act. Therefore, if such hospital is not located in a geographically 

rural area under the new OMB delineations, and reclassifies under § 412.103 of the 

regulations in order to be treated as rural for IPPS purposes, the hospital would be 

ineligible to receive an out-migration adjustment, even if the 3-year eligibility period has 

not expired. 

 As discussed in section III.B.5. of the preamble of this proposed rule, we are 

proposing a 1-year blended wage index for any provider that experiences a decrease in 

wage index value due to the proposed implementation of the new OMB labor market area 

delineations. This proposal would create a wage index that is 50 percent of the wage 

index derived using the current FY 2014 OMB delineations, and 50 percent of the wage 

index based on the proposed new OMB delineations. As discussed in section III.B.2.e.(4) 

of the preamble of this proposed rule, we are proposing to apply this blended wage index 

value to any affected hospital in a budget neutral manner. However, we are proposing 

that hospitals receiving the out-migration adjustment would have it added to the result of 

the 50/50 blended wage index, after budget neutrality is applied. We are proposing the 

blended wage index transition adjustment specifically to address any negative impact that 

may be caused by the proposed adoption of the new OMB delineations in FY 2015. To 

specifically identify and address any such negative payment impact, we are proposing to 

apply the out-migration adjustment independent of the blended wage index and other 

wage index adjustments (for example, the rural floor) and related budget neutrality 
 447 

adjustments. This is consistent with our current policy to apply the out-migration 

adjustment after all other wage index adjustments and related budget neutrality 

adjustments have been applied. Therefore, we believe the out-migration adjustment 

would be properly applied as a supplemental addition to a hospital’s final wage index 

value, similar to our treatment of hospitals receiving the frontier State floor value of 1.00, 

as described under 42 CFR 412.64(m), that also qualify for an out-migration adjustment 

and would receive that adjustment. 

J. Process for Requests for Wage Index Data Corrections 

 The preliminary, unaudited Worksheet S-3 wage data and occupational mix 

survey data files for the proposed FY 2015 wage index were made available on 

September 13, 2013, through the Internet on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/Wage-Index-Files-Items/FY-2015-Wage-Index-HomePage.html. 

 In the interest of meeting the data needs of the public, beginning with the 

proposed FY 2009 wage index, we post an additional public use file on our Web site that 

reflects the actual data that are used in computing the proposed wage index. The release 

of this file does not alter the current wage index process or schedule. We notify the 

hospital community of the availability of these data as we do with the current public use 

wage data files through our Hospital Open Door forum. We encourage hospitals to sign 

up for automatic notifications of information about hospital issues and the scheduling of 
 448 

the Hospital Open Door forums at the CMS Web site at: http://www.cms.gov/Outreachand-Education/Outreach/OpenDoorForums/index.html. 

 In a memorandum dated September 16, 2013, we instructed all 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 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 

September 13, 2013 wage and occupational mix data files, the hospital was to submit 

corrections along with complete, detailed supporting documentation to its MAC by 

November 21, 2013. Hospitals were notified of this deadline and of all other deadlines 

and requirements, including the requirement to review and verify their data as posted in 

the preliminary wage index data files on the Internet, through the September 16, 2013 

memorandum referenced above. 

 In the September 16, 2013 memorandum, we also specified that a hospital 

requesting revisions to its occupational mix survey data was to copy its record(s) from the 

CY 2010 occupational mix preliminary files posted to the CMS Web site in September, 

highlight the revised cells on its spreadsheet, and submit its spreadsheet(s) and complete 

documentation to its MAC no later than November 21, 2013. 

 The MACs notified the hospitals by early-February 2014 of any changes to the 

wage index data as a result of the desk reviews and the resolution of the hospitals’ 

late-November revision requests. The MACs also submitted the revised data to CMS by 
 449 

late January 2014. CMS published the proposed wage index public use files that 

included hospitals’ revised wage index data on February 20, 2014. Hospitals had until 

March 3, 2014, to submit requests to the MACs for reconsideration of adjustments made 

by the MACs as a result of the desk review, and to correct errors due to CMS’ or 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, MACs were required 

to transmit to CMS any additional revisions resulting from the hospitals’ reconsideration 

requests by April 9, 2014. The deadline for a hospital to request CMS intervention in 

cases where the hospital disagreed with the MAC’s policy interpretations was 

April 16, 2014. We note that, beginning with the FY 2015 wage index, per the FY 2015 

wage index timeline posted on the CMS Web site at 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/Downloads/FY2015-WI-Timeline.pdf , the April appeals 

must be sent via mail and email. We refer readers to the wage index timeline for 

complete details. 

 Upon release of this proposed rule, hospitals should examine Table 2, which is 

listed in section VI. of the Addendum to this proposed rule and available via the Internet 

on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/Wage-Index-Files-Items/FY-2015-Wage-Index-HomePage.html. Table 2 contains each hospital’s proposed adjusted average hourly wage used 

to construct the wage index values for the past 3 years, including the FY 2011 data used 
 450 

to construct the proposed FY 2015 wage index. We note that the proposed hospital 

average hourly wages shown in Table 2 only reflect changes made to a hospital’s data 

that were transmitted to CMS by February 26, 2014. 

 The final wage index data public use files are posted on May 2, 2014 on the 

Internet at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/Wage-Index-Files-Items/FY-2015-Wage-Index-HomePage.html. The May 2014 public use files are made available solely for the limited 

purpose of identifying any potential errors made by CMS or the MAC in the entry of the 

final wage index data that resulted from the correction process described above (revisions 

submitted to CMS by the MACs by April 9, 2014). 

 After the release of the May 2014 wage index data files, changes to the wage and 

occupational mix data will only be made in those very limited situations involving an 

error by the MAC or CMS that the hospital could not have known about before its review 

of the final wage index data files. Specifically, neither the MAC nor CMS will approve 

the following types of requests: 

● Requests for wage index data corrections that were submitted too late to be 

included in the data transmitted to CMS by the MACs on or before April 9, 2014. 

● Requests for correction of errors that were not, but could have been, identified 

during the hospital’s review of the February 20, 2014 wage index public use files. 

● Requests to revisit factual determinations or policy interpretations made by the 

MAC or CMS during the wage index data correction process. 
 451 

 If, after reviewing the May 2014 final public use files, a hospital believes that its 

wage or occupational mix data are incorrect due to a MAC or CMS error in the entry or 

tabulation of the final data, the hospital should notify both its MAC and CMS regarding 

why the hospital believes an error exists and provide all supporting information, 

including relevant dates (for example, when it first became aware of the error). The 

hospital is required to send its request to CMS and to the MAC no later than 

June 2, 2014. Similar to the April appeals, beginning with the FY 2015 wage index, in 

accordance with the FY 2015 wage index timeline posted on the CMS Web site at 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/Downloads/FY2015-WI-Timeline.pdf, the June appeals 

must be sent via mail and email to CMS and the MACs. We refer readers to the wage 

index timeline for complete details. (We refer readers to section II.K. of the preamble to 

this proposed rule where we are proposing revisions to the wage index timetable.) 

 Verified corrections to the wage index data received timely by CMS and the 

MACs (that is, by June 2, 2014) will be incorporated into the final wage index in the 

FY 2015 IPPS/LTCH PPS final rule, which will be effective October 1, 2014. 

 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 2015 payment rates. Accordingly, hospitals that do not meet the procedural deadlines 

set forth above will not be afforded a later opportunity to submit wage index data 

corrections or to dispute the MAC’s decision with respect to requested changes. 

Specifically, our policy is that hospitals that do not meet the procedural deadlines set 
 452 

forth above will not be permitted to challenge later, before the PRRB, the failure of CMS 

to make a requested data revision. We refer readers also to the FY 2000 IPPS final rule 

(64 FR 41513) for a discussion of the parameters for appeals to the PRRB for wage index 

data corrections. 

 Again, we believe the wage index data correction process described above 

provides hospitals with sufficient opportunity to bring errors in their wage and 

occupational mix data to the MAC’s attention. Moreover, because hospitals have access 

to the final wage index data by early May 2014, they have the opportunity to detect any 

data entry or tabulation errors made by the MAC or CMS before the development and 

publication of the final FY 2015 wage index by August 2014, and the implementation of 

the FY 2015 wage index on October 1, 2014. If hospitals avail themselves of the 

opportunities afforded to provide and make corrections to the wage and occupational mix 

data, the wage index implemented on October 1 should be accurate. Nevertheless, in the 

event that errors are identified by hospitals and brought to our attention after 

June 2, 2014, 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 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 deadline for making corrections to the 
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wage data for the following fiscal year’s wage index (for example, June 2, 2014 for the 

FY 2015 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 MACs notify hospitals directly of any wage index data changes 

after completing their desk reviews, we do not expect that midyear corrections will be 

necessary. However, under our current policy, if the correction of a data error changes 

the wage index value for an area, the revised wage index value will be effective 

prospectively from the date the correction is made. 

 In the FY 2006 IPPS final rule (70 FR 47385 through 47387 and 47485), we 

revised 42 CFR 412.64(k)(2) to specify that, effective on October 1, 2005, that is, 

beginning with the FY 2006 wage index, a change to the wage index can be made 

retroactive to the beginning of the Federal fiscal year only when CMS determines all of 

the following: (1) the 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 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 2, 2014 deadline for the FY 2015 

wage index); and (3) CMS agreed before October 1 that the MAC or CMS made an error 

in tabulating the hospital’s wage index data and the wage index should be corrected. 
 454 

 In those circumstances where a hospital requested a correction to its wage index 

data before CMS calculated the final wage index (that is, by the June 2, 2014 deadline for 

the FY 2015 wage index), and CMS acknowledges that the error in the hospital’s wage 

index data was caused by CMS’ or the MAC’s mishandling of the data, we believe that 

the hospital should not be penalized by our delay in publishing or implementing the 

correction. As with our current policy, we indicated that the provision is not available to 

a hospital seeking to revise another hospital’s data. In addition, the provision cannot be 

used to correct prior years’ wage index data; and it can only be used for the current 

Federal fiscal year. In situations where our policies would allow midyear corrections 

other than those specified in 42 CFR 412.64(k)(2)(ii), we continue to believe that it is 

appropriate to make prospective-only corrections to the wage index. 

 We note that, as with prospective changes to the wage index, the final retroactive 

correction will be made irrespective of whether the change increases or decreases a 

hospital’s payment rate. In addition, we note that the policy of retroactive adjustment 

will still apply in those instances where a final judicial decision reverses a CMS denial of 

a hospital’s wage index data revision request. 

K. Notice of Change to Wage Index Development Timetable 

 As explained in section III.J. the preamble of this proposed rule, the preliminary, 

unaudited Worksheet S-3 wage data and occupational mix survey data files for the 

proposed FY 2015 wage index were made available on September 13, 2013, through the 

Internet on the CMS Web site. The posting of these preliminary files initiate what is 

virtually a year-long cycle for developing the wage index associated with the following 
 455 

IPPS fiscal year. This lengthy, almost year-long cycle is unique to the development of 

the IPPS wage index, and occurs independently from the development of the IPPS 

proposed and final rules, which typically are published in the spring and summer each 

year. In addition, the wage index, which is based on hospitals’ wage data reported on 

Worksheets S-3, Parts II and III of the Form CMS-2552-10 of the Medicare cost report 

and occupational mix data, is the only portion of the IPPS that historically has been 

subject to its own annual review process, first by the MACs, and then by CMS, followed 

by distinct opportunities for hospitals to appeal decisions made by the MACs or CMS. 

This process is separate and independent from the standard cost report settlement and 

appeals processes established under the regulations at 42 CFR 405.1800 through 

405.1889. 

 Although this unique wage index development timetable has been in place since 

the early days of the IPPS, the current timetable is rooted in changes adopted in the 

FY 1998 IPPS final rule with comment period (62 FR 45990 through 45993). However, 

with numerous legislative and regulatory changes made to the IPPS since FY 1998, the 

demands on hospitals, MACs, and CMS have increased substantially. As a result, it has 

become increasingly challenging for wage index stakeholders to manage the wage index 

timetable with competing priorities. For the FY 2015 wage index, CMS made slight 

changes to the wage index development timetable, by posting the preliminary public use 

file (PUF) in September 2013 rather than in October 2013, which, in turn, moved back 

the deadline for hospitals to request revisions to the data displayed in that preliminary 

PUF to November 2013, instead of December 2013. In addition, the date for the MACs 
 456 

to complete desk reviews on that data was similarly moved to a slightly earlier deadline 

in early CY 2014. The FY 2015 Wage Index Development Timetable, which is posted 

on the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/Downloads/FY2015-WI-Timeline.pdf, shows that hospitals 

have a little more than 2 months to request revisions to their data displayed in the 

September 13, 2013 preliminary PUF, until the commencement of the desk review 

process by the MACs on November 21, 2013. The MACs also have a little more than 

2 months to complete the desk reviews and submit revised cost report data to CMS by 

January 29, 2014. Less than a month later, on February 20, 2014, the revised FY 2015 

wage index and occupational mix PUFs were posted on the CMS Web site. Ensuring the 

accuracy of the February PUF is extremely important and beneficial to hospitals because, 

as the timetable shows, it is the basis for hospitals to appeal data that are incorrect, with 

March 3, 2014 being the last date that hospitals can request revisions to errors in the 

February 20, 2014 PUF. 

 Therefore, we have concluded that steps should be taken to improve the accuracy 

of the February PUF, most importantly by proposing changes to the wage index 

timetables for future IPPS fiscal years that are much more significant and fundamental 

than the slight revisions to the timetable implemented for FY 2015. We believe that the 

changes we are proposing below would not only improve the accuracy of the February 

PUF, but also would reduce the number of hospital appeals based on the February PUF. 

For example, as specified below, instead of the current timetable which only provides 

CMS with less than a month to review the MACs’ desk reviews and prepare the February 
 457 

PUF, we are proposing approximately 3 months between the date that the MACs’ desk 

reviews would end and the date that CMS would post the subsequent PUF. To allow 

hospitals and MACs adequate time to prepare for the changes to the wage index 

development timetable, we are proposing to make the following significant changes 

beginning with the FY 2017 wage index cycle. We are listing the proposed changes for 

FY 2017 below in a table side by side with the existing timetable, so that commenters 

may read the proposed changes in the context of the existing timetable. Under the 

proposed changes for FY 2017, although we are not providing exact dates for the 

FY 2017 wage index timetable, we note that, with every change listed below, we intend 

to provide hospitals and MACs with the same or somewhat more time than under the 

current timetable to complete reviews and request revisions. The proposed revisions 

would not reduce the amount of time that either hospitals or MACs have to review wage 

data. Therefore, these proposed changes would not result in additional work on the part 

of the hospitals or MACs; in fact, in shifting the various dates, we expect that more time 

would be provided to hospitals, MACs, and CMS to ensure an even more accurate wage 

index. 

Deadlines FY 2015 Timetable Proposed FY 2017 

Timetable 

Posting of Preliminary PUF on CMS 

Web site September 13, 2013 Mid May 2015

Deadline for Hospitals to Request 

Revisions to Preliminary PUF November 21, 2013 Early August 2015

Deadline for MACs to Complete Desk 

Reviews January 29, 2014 Mid-October 2015

Posting of February PUF on CMS Web 

site February 20, 2014 Late January 2016
 458 

Deadlines FY 2015 Timetable Proposed FY 2017 

Timetable 

Deadline Following Posting of February 

PUF for Hospitals to Request Revisions March 3, 2014 Mid-February 2016

Completion of Appeals by MACs and 

Transmission of Final Wage Data to 

CMS April 9, 2014

Mid- to Late 

March 2016

Deadline for Hospitals to Appeal in April April 16, 2014 Early April 2016

Posting of Final Rule PUF May 2, 2014 Late April 2016

Deadline for Hospitals to Appeal in June June 2, 2014 Late May 2016

Expected Issuance of IPPS final rule August 1, 2014 August 1, 2016

 With regard to the FY 2016 wage index cycle, we believe it can serve as a 

transition to the more significant changes we are proposing for the FY 2017 wage index 

cycle. We believe that there are steps we can take to improve the accuracy of the 

February 2016 PUF by building in more time to the FY 2016 wage index review process 

as well. Specifically, we are notifying hospitals of changes to the deadlines only in the 

beginning of the FY 2016 wage index timetable, as a transition to the more significant 

proposed changes for the entire FY 2017 wage index timetable. That is, for FY 2016, we 

are only changing the following four dates: the posting of the preliminary wage index 

PUF; the posting of the CY 2013 occupational mix survey data preliminary PUF; the 

deadline for hospitals to request revisions to the wage data and occupational mix data 

preliminary PUFs; and the deadline for MACs to complete the desk reviews. We are not 

changing the remainder of the FY 2016 timetable at this time. We expect that making 

these changes for the FY 2016 timetable would improve the accuracy of the February 

2016 PUF, and also mitigate the number of hospital appeals based on the February 2016 

PUF. In addition, we believe these changes would help hospitals, MACs, and CMS 

adjust to the more significant timeline changes proposed for FY 2017. We are listing 
 459 

only the changes for FY 2016 in the following table side by side with the existing 

FY 2015 timetable, so that commenters may read the FY 2016 changes in the context of 

the existing timetable. We are not listing dates that would remain unchanged for 

FY 2016. 

Deadlines FY 2015 Timetable 

Adjusted 

FY 2016 

Timetable 

Posting of Preliminary Wage Data PUF on 

CMS Web site September 13, 2013 Late May 2014

Posting of Preliminary CY 2013 

Occupational Mix Data PUF on CMS Web 

site September 13, 2013 

Early to MidJuly 2014

Deadline for Hospitals to Request Revisions 

to Preliminary PUF November 21, 2013 

Early October 

2014

Deadline for MACs to Complete Desk 

Reviews January 29, 2014 

Mid-December 

2014

 Typically, the preliminary PUF initiating the start of an IPPS wage index fiscal 

year contains one spreadsheet with the Worksheet S-3 wage data for the applicable fiscal 

year on one tab, and another tab with the preliminary occupational mix data for that fiscal 

year. For the FY 2016 wage index, new occupational mix survey data will be available 

for use, based on the CY 2013 occupational mix survey. Hospitals are required to submit 

their CY 2013 occupational mix surveys to their MACs no later than July 1, 2014. 

Therefore, we will not have the preliminary CY 2013 occupational mix survey data in 

time to post it simultaneously in late May 2014 with the preliminary FY 2016 wage data. 

Accordingly, as the table above indicates, we would post the preliminary FY 2016 wage 

data by itself first in late May 2014, to be followed by a separate posting of the 
 460 

preliminary CY 2013 occupational mix survey data when the data are available, in early 

to mid-July 2014. 

 We are inviting public comments on our proposals set forth above to make 

revisions to the wage index timetables for FY 2017. 

L. Labor-Related Share for the FY 2015 Wage Index 

 Section 1886(d)(3)(E) of the Act directs the Secretary to adjust the proportion of 

the national prospective payment system base payment rates that are attributable to wages 

and wage-related costs by a factor that reflects the relative differences in labor costs 

among geographic areas. It also directs the Secretary to estimate from time to time the 

proportion of hospital costs that are labor-related: “The Secretary shall adjust the 

proportion (as estimated by the Secretary from time to time) of hospitals’ costs which are 

attributable to wages and wage-related costs of the DRG prospective payment rates....” 

We refer to the portion of hospital costs attributable to wages and wage-related costs as 

the labor-related share. The labor-related share of the prospective payment rate is 

adjusted by an index of relative labor costs, which is referred to as the wage index. 

 Section 403 of Pub. L. 108-173 amended section 1886(d)(3)(E) of the Act to 

provide that the Secretary must employ 62 percent as the labor-related share unless this 

"would result in lower payments to a hospital than would otherwise be made." However, 

this provision of Pub. L. 108-173 did not change the legal requirement that the Secretary 

estimate “from time to time” the proportion of hospitals’ costs that are “attributable to 

wages and wage-related costs.” Thus, hospitals receive payment based on either a 
 461 

62-percent labor-related share, or the labor-related share estimated from time to time by 

the Secretary, depending on which labor-related share resulted in a higher payment. 

 In the FY 2014 IPPS/ LTCH PPS final rule (78 FR 50596 through 50607), we 

rebased and revised the hospital market basket. We established a FY 2010-based IPPS 

hospital market basket to replace the FY 2006-based IPPS hospital market basket, 

effective October 1, 2013. In that final rule, we presented our analysis and conclusions 

regarding the frequency and methodology for updating the labor-related share for 

FY 2014. Using the FY 2010-based IPPS market basket, we finalized a labor-related 

share for FY 2014 of 69.6 percent. In addition, we implemented this revised and rebased 

labor-related share in a budget neutral manner, but consistent with section 1886(d)(3)(E) 

of the Act, we did not take into account the additional payments that would be made as a 

result of hospitals with a wage index less than or equal to 1.0 being paid using a laborrelated share lower than the labor-related share of hospitals with a wage index greater 

than 1.0. 

 The labor-related share is used to determine the proportion of the national IPPS 

base payment rate to which the area wage index is applied. In this FY 2015 proposed 

rule, we are not proposing to make any further changes to the national average proportion 

of operating costs that are attributable to wages and salaries, employee benefits, contract 

labor, the labor-related portion of professional fees, administrative and facilities support 

services, and all other labor-related services. 

 Therefore, for FY 2015, we are proposing to continue to use a labor-related share 

of 69.6 percent for discharges occurring on or after October 1, 2014. Tables 1A and 1B, 
 462 

which are published in section VI. of the Addendum to this proposed rule and available 

via the Internet, reflect this proposed labor-related share. For FY 2015, for all IPPS 

hospitals whose wage indexes are less than or equal to 1.0000, we are proposing to apply 

the wage index to a labor-related share of 62 percent of the national standardized amount. 

For all IPPS hospitals whose wage indexes are greater than 1.0000, for FY 2015, we are 

proposing to apply the wage index to a proposed labor-related share of 69.6 percent of the 

national standardized amount. We note that, for Puerto Rico hospitals, the national 

labor-related share is 62 percent because the national wage index for all Puerto Rico 

hospitals is less than 1.0. 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50601 through 50603), we also 

rebased and revised the labor-related share for the Puerto Rico-specific standardized 

amounts using FY 2010 as a base year. We finalized a labor-related share for the Puerto 

Rico-specific standardized amounts for FY 2014 of 63.2 percent. In this FY 2015 

proposed rule, we are not proposing to make any further changes to the Puerto 

Rico specific average proportion of operating costs that are attributable to wages and 

salaries, employee benefits, contract labor, the labor-related portion of professional fees, 

administrative and facilities support services, and all other labor-related services. 

Therefore, for FY 2015, we are proposing to continue to use a labor-related share for the 

Puerto Rico-specific standardized amounts of 63.2 percent for discharges occurring on or 

after October 1, 2014. Puerto Rico hospitals are paid based on 75 percent of the national 

standardized amounts and 25 percent of the Puerto Rico-specific standardized amounts. 

For FY 2015, we are proposing to adopt that the labor-related share of a hospital’s 
 463 

Puerto Rico-specific rate would be either the Puerto Rico-specific labor-related share of 

63.2 percent or 62 percent, depending on which results in higher payments to the 

hospital. If the hospital has a Puerto Rico-specific wage index of greater than 1.0 for 

FY 2015, we are proposing to set the hospital’s rates using a labor-related share of 63.2 

percent for the 25 percent portion of the hospital’s payment determined by the Puerto 

Rico standardized amounts because this amount would result in higher payments. 

Conversely, a hospital with a Puerto Rico-specific wage index of less than or equal to 1.0 

for FY 2015 would be paid using the Puerto Rico-specific labor-related share of 62 

percent of the Puerto Rico-specific rates because the lower labor-related share would 

result in higher payments. The proposed Puerto Rico labor-related share of 63.2 percent 

for FY 2015 is reflected in Table 1C, which is published in section VI. of the Addendum 

to this proposed rule and available via the Internet.
 464 

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

Graduate Medical Education (GME) Costs 

A. Proposed Changes to MS-DRGs Subject to the Postacute Care Transfer Policy 

(§ 412.4) 

1. Background 

 Existing regulations at §412.4(a) define discharges under the IPPS as situations in 

which a patient is formally released from an acute care hospital or dies in the hospital. 

Section 412.4(b) defines acute care transfers, and §412.4(c) defines postacute care 

transfers. Our policy, set forth in §412(f), provides that when a patient is transferred and 

his or her length of stay is less than the geometric mean length of stay for the MS-DRG to 

which the case is assigned, the transferring hospital is generally paid based on a 

graduated per diem rate for each day of stay, not to exceed the full MS-DRG payment 

that would have been made if the patient had been discharged without being transferred. 

 The per diem rate paid to a transferring hospital is calculated by dividing the full 

DRG payment by the geometric mean length of stay for the MS-DRG. Based on an 

analysis that showed that the first day of hospitalization is the most expensive 

(60 FR 45804), our policy generally provides for payment that is twice the per diem 

amount for the first day, with each subsequent day paid at the per diem amount up to the 

full MS-DRG payment (§412.4(f)(1)). Transfer cases are also eligible for outlier 

payments. In general, the outlier threshold for transfer cases, as described in §412.80(b), 

is equal to the fixed-loss outlier threshold for nontransfer cases (adjusted for geographic 
 465 

variations in costs), divided by the geometric mean length of stay for the MS-DRG, and 

multiplied by the length of stay for the case, plus one day. 

 We established the criteria set forth in § 412.4(d) for determining which DRGs 

qualify for postacute care transfer payments in the FY 2006 IPPS final rule (70 FR 47419 

through 47420). The determination of whether a DRG is subject to the postacute care 

transfer policy was initially based on the Medicare Version 23.0 GROUPER (FY 2006) 

and data from the FY 2004 MedPAR file. However, if a DRG did not exist in Version 

23.0 or a DRG included in Version 23.0 is revised, we use the current version of the 

Medicare GROUPER and the most recent complete year of MedPAR data to determine if 

the DRG is subject to the postacute care transfer policy. Specifically, if the MS-DRG’s 

total number of discharges to postacute care equals or exceeds the 55th percentile for all 

MS-DRGs and the proportion of short-stay discharges to postacute care to total 

discharges in the MS-DRG exceeds the 55th percentile for all MS-DRGs, CMS will apply 

the postacute care transfer policy to that MS-DRG and to any other MS-DRG that shares 

the same base MS-DRG. In the preamble to the FY 2006 IPPS final rule (70 FR 47419), 

we stated that “we will not revise the list of DRGs subject to the postacute care transfer 

policy annually unless we are making a change to a specific DRG.” 

 To account for MS-DRGs subject to the postacute care transfer policy that exhibit 

exceptionally higher shares of costs very early in the hospital stay, § 412.4(f) also 

includes a special payment methodology. For these MS-DRGs, hospitals receive 

50 percent of the full MS-DRG payment, plus the single per diem payment, for the first 

day of the stay, as well as a per diem payment for subsequent days (up to the full 
 466 

MS-DRG payment (§ 412.4(f)(6)). For an MS-DRG to qualify for the special payment 

methodology, the geometric mean length of stay must be greater than 4 days, and the 

average charges of 1-day discharge cases in the MS-DRG must be at least 50 percent of 

the average charges for all cases within the MS-DRG. MS-DRGs that are part of an 

MS-DRG group will qualify under the DRG special payment policy if any one of the 

MS-DRGs that share that same base MS-DRG qualifies (§ 412.4(f)(6)). 

2. Proposed Changes to the Postacute Care Transfer MS-DRGs 

 Based on our annual review of MS-DRGs, we have identified a number of 

MS-DRGs that should be included on the list of MS-DRGs subject to the postacute care 

transfer policy. As we discuss in section II.G. of this proposed rule, in response to public 

comments and based on our analysis of FY 2013 MedPAR claims data, we are proposing 

to make several changes to MS-DRGs to better capture certain severity of illness levels, 

to be effective for FY 2015. Specifically, we are proposing to modify the assignment of 

endovascular cardiac valve replacements currently assigned to MS-DRGs 216 (Cardiac 

Valve & Other Major Cardiothoracic Procedures with Cardiac Catheterization with 

MCC), 217 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac 

Catheterization with CC), 218 (Cardiac Valve & Other Major Cardiothoracic Procedures 

with Cardiac Catheterization without CC/MCC), 219 (Cardiac Valve & Other Major 

Cardiothoracic Procedures without Cardiac Catheterization with MCC), 220 (Cardiac 

Valve & Other Major Cardiothoracic Procedures without Cardiac Catheterization with 

CC), and 221 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac 

Catheterization without CC/MCC) to MS-DRGs 266 and 267 (Endovascular Cardiac 
 467 

Valve Replacement with and without MCC, respectively) to better reflect the differences 

in patients receiving endovascular cardiac valve replacements from patients who undergo 

an open chest cardiac valve replacement. We also are proposing to further refine back 

and neck procedures currently assigned to MS-DRGs 490 and 491 (Back & Neck 

Procedure Except Spinal Fusion with CC/MCC or Disc Device/Neurostimulator and 

without CC/MCC or Disc Device/Neurostimulator, respectively) into additional severity 

levels, now identified as MS-DRGs 518, 519, and 520 (Back & Neck Procedure Except 

Spinal Fusion with MCC or Disc Device/Neurostimulator, with CC, and without 

MCC/CC, respectively). Finally, we are proposing to remove the severity levels for 

reverse shoulder replacements, merging MS-DRGs 483 and 484 (Major Joint & Limb 

Reattachment Procedure of Upper Extremity with CC/MCC and without CC/MCC, 

respectively) into MS-DRG 483 (Major Joint/Limb Reattachment Procedure of Upper 

Extremities). A discussion of these proposed changes can be found in section II.G.4.c., 

II.G.5.c. and II.G.5.a., respectively, of the preamble of this proposed rule. 

 In light of these proposed changes to the MS-DRGs ̧ according to the regulations 

under § 412.4(c), we evaluated these proposed FY 2015 MS-DRGs against the general 

postacute care transfer policy criteria using the FY 2013 MedPAR data. If an MS-DRG 

qualified for the postacute care transfer policy, we also evaluated that MS-DRG under the 

special payment methodology criteria according to regulations at § 412.4(f)(6). We 

continue believe it is appropriate to reassess MS-DRGs when proposing reassignment of 

diagnostic codes that would result in material changes to an MS-DRG. As a result of our 

review, we found that MS-DRGs 216 through 221 would require no revisions in 
 468 

postacute care transfer or special payment policy status. However, we are proposing to 

update the list of MS-DRGs that are subject to the postacute care transfer policy to 

include the proposed new MS-DRGs 266, 267, 518, 519, and 520. (These MS-DRGs are 

reflected in Table 5, which is listed in section VI. of the Addendum to this proposed rule 

and available via the Internet on the CMS Web site, and also are listed in the charts at the 

end of this section.) 

 In addition, based on our evaluation of the proposed FY 2015 MS-DRGs using 

the FY 2013 Med PAR data, we have determined that proposed revised MS-DRG 483 

would no longer meet the postacute care transfer criteria. Therefore, we are proposing 

that it be removed from the list of MS-DRGs subject to the postacute care transfer policy, 

effective FY 2015. We refer readers to the asterisk (*) bolded text in the following table 

for which criterion was not met in our analysis for each MS-DRG removed from the 

postacute care transfer policy list. 

LIST OF MS-DRGs THAT WOULD CHANGE POSTACUTE CARE TRANSFER 

POLICY STATUS IN FY 2015 

MS-DRG MS-DRG Title 

Total 

cases 

Postacute 

care 

transfers 

(55th

percentile

: 1,471) 

Shortstay 

postacute 

care 

transfers 

Percent of 

short-stay 

postacute 

care 

transfers 

to all cases 

(55th

percentile: 

7.9060%) 

Postacute 

transfer 

policy 

status 

266 

Endovascular Cardiac Valve 

Replacement with MCC 4,086 2,851 1,030 25.21% YES 

267 

Endovascular Cardiac Valve 

Replacement w/o MCC 4,476 2,800 835 18.66% YES 

483 

Major Joint/Limb Reattachment 

Procedure of Upper Extremities 

41,372 17,289 2,271 5.49%* NO 
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LIST OF MS-DRGs THAT WOULD CHANGE POSTACUTE CARE TRANSFER 

POLICY STATUS IN FY 2015 

MS-DRG MS-DRG Title 

Total 

cases 

Postacute 

care 

transfers 

(55th

percentile

: 1,471) 

Shortstay 

postacute 

care 

transfers 

Percent of 

short-stay 

postacute 

care 

transfers 

to all cases 

(55th

percentile: 

7.9060%) 

Postacute 

transfer 

policy 

status 

518 

Back & Neck Procedure Except 

Spinal Fusion with MCC or Disc 

Device/Neurostimulator 3,844 2,136 412 10.72% YES 

519 

Back & Neck Procedure Except 

Spinal Fusion with CC 

15,238 7,405 1,126 7.39%* YES** 

520 

Back & Neck Procedure Except 

Spinal Fusion without 

CC/MCC) 31,792 7,859 0 0.00%* YES** 

* Indicates a current postacute care transfer policy criterion that the MS-DRG did not meet. 

** As described in the policy at 42 CFR 412.4(d)(3)(ii)(D), MS-DRGs that share the same base MS-DRG 

will all qualify under the postacute care transfer policy if any one of the MS-DRGs that share that same 

base MS-DRG qualifies.

Finally, we have determined that MS-DRGs 266, 267, 518, 519, and 520 also would meet 

the criteria for the special payment methodology. Therefore, we are proposing that they 

would be subject to the MS-DRG special payment methodology, effective FY 2015. 

 
 470 

LIST OF MS-DRGs THAT WOULD CHANGE DRG SPECIAL PAYMENT POLICY 

STATUS IN FY 2015

MS-DRG MS-DRG Title 

Geometric 

mean 

length of 

stay 

Average 

charges of 

1-day 

discharges 

50% of 

average 

charges 

for all 

cases 

within 

MS-DRG 

Special pay 

policy status 

266 

Endovascular Cardiac Valve Replacement 

with MCC 8.3643 $42,081 $126,326 YES* 

267 Endovascular Cardiac Valve Replacement 

without MCC 5.0271 $128,013 $95,141 YES 

518 

Back & Neck Procedure Except Spinal 

Fusion with MCC or Disc 

Device/Neurostimulator 4.2882 $68,515 $43,514 YES 

519 Back & Neck Procedure Except Spinal 

Fusion with CC 3.0507 $0 $0 YES* 

520 Back & Neck Procedure Except Spinal 

Fusion without CC/MCC) 1.7315 $0 $0 YES* 

*As described in the policy at 42 CFR 412.4(d)(6)(iv), MS-DRGs that share the same base MS-DRG will 

all qualify under the DRG special payment policy if any one of the MS-DRGs that share that same base 

MS-DRG qualifies. 

B. Proposed Changes in the Inpatient Hospital Update for FY 2015 (§ 412.64(d)) 

1. Proposed FY 2015 Inpatient Hospital Update 

 In accordance with section 1886(b)(3)(B)(i) of the Act, each year we update the 

national standardized amount for inpatient operating costs by a factor called the 

“applicable percentage increase.” In FY 2014, consistent with section 1886(b)(3)(B) of 

the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act, we set 

the applicable percentage increase under the IPPS by applying the following adjustments 

in the following sequence. Specifically, the applicable percentage increase under the 

IPPS is equal to the rate-of-increase in the hospital market basket for IPPS hospitals in all 

areas, subject to a reduction of 2.0 percentage points if the hospital fails to submit quality 

information under rules established by the Secretary in accordance with section 
 471 

1886(b)(3)(B)(viii) of the Act, and then subject to an adjustment based on changes in 

economy-wide productivity (the multifactor productivity (MFP) adjustment), and an 

additional reduction of 0.3 percentage point as required by section 1886(b)(3)(B)(xii) of 

the Act. Sections 1886(b)(3)(B)(xi) and (b)(3)(B)(xii) of the Act, as added by section 

3401(a) of the Affordable Care Act, state that application of the MFP adjustment and the 

additional FY 2014 adjustment of 0.3 percentage point may result in the applicable 

percentage increase being less than zero. 

 For FY 2015, there are three statutory changes to the applicable percentage 

increase compared to FY 2014. First, under section 1886(b)(3)(B)(viii) of the Act, 

beginning with FY 2015, the reduction in the applicable percentage increase for hospitals 

that fail to submit quality information under rules established by the Secretary is 

one-quarter of the applicable percentage increase (prior to the application of statutory 

adjustments under sections 1886(b)(3)(B)(ix), 1886(b)(3)(B)(xi), and 1886(b)(3)(B)(xii) 

of the Act) or one-quarter of the applicable market basket update. For FY 2014, the 

reduction to the applicable percentage increase for hospitals that failed to submit quality 

information under rules established by the Secretary was 2.0 percentage points. Second, 

beginning with FY 2015, section 1886(b)(3)(B)(ix) requires that any hospital that is not a 

meaningful electronic health record (EHR) user (as defined in section1886(n)(3) of the 

Act and not subject to an exception under section1886(b)(3)(B)(ix) of the Act)) will have 

“three-quarters” of the applicable percentage increase (prior to the application of 

statutory adjustments under sections 1886(b)(3)(B)(viii), 1886(b)(3)(B)(xi), and 

1886(b)(3)(B)(xii) of the Act), or three-quarters of the applicable market basket update, 
 472 

reduced by 33 1/3 percent. The reduction to three-quarters of the applicable percentage 

increase for those hospitals that are not meaningful EHR users increases to 66 2/3 percent 

for FY 2016, and, for FY 2017 and subsequent fiscal years, to 100 percent. Third, for 

FY 2015, section 1886(b)(3)(B)(xii) of the Act applies an additional reduction of 

0.2 percentage point compared to 0.3 percentage point for FY 2014. 

 To summarize, for FY 2015, consistent with section 1886(b)(3)(B) of the Act, as 

amended by sections 3401(a) and 10319(a) of the Affordable Care Act, we are setting the 

applicable percentage increase by applying the following adjustments in the following 

sequence. Specifically, the applicable percentage increase under the IPPS is equal to the 

rate-of-increase in the hospital market basket for IPPS hospitals in all areas, subject to a 

reduction of one-quarter of the applicable percentage increase (prior to the application of 

other statutory adjustments; also referred to as the market basket update or 

rate-of-increase (with no adjustments)) for hospitals that fail to submit quality 

information under rules established by the Secretary in accordance with section 

1886(b)(3)(B)(viii) of the Act and a 33 1/3 percent reduction to three-fourths of the 

applicable percentage increase (prior to the application of other statutory adjustments; 

also referred to as the market basket update or rate-of-increase (with no adjustments)) for 

hospitals not considered to be meaningful EHR users in accordance with section 

1886(b)(3)(B)(ix) of the Act, and then subject to an adjustment based on changes in 

economy-wide productivity (the multifactor productivity (MFP) adjustment), and an 

additional reduction of 0.2 percentage point as required by section 1886(b)(3)(B)(xii) of 

the Act. As noted previously, sections 1886(b)(3)(B)(xi) and (b)(3)(B)(xii) of the Act, as 
 473 

added by section 3401(a) of the Affordable Care Act, state that application of the MFP 

adjustment and the additional FY 2015 adjustment of 0.2 percentage point may result in 

the applicable percentage increase being less than zero. 

 We note that, in compliance with section 404 of the MMA, in the FY 2014 

IPPS/LTCH PPS final rule, we replaced the FY 2006-based IPPS operating and capital 

market baskets with the revised and rebased FY 2010-based IPPS operating and capital 

market baskets for FY 2014. We are proposing to continue to use the FY 2010-based 

IPPS operating and capital market baskets for FY 2015. We also are proposing to 

continue to use a labor-related share that is reflective of the FY 2010 base year. For 

FY 2015, we are proposing to continue using the labor-related share of 69.6 percent, 

which is based on the FY 2010-based IPPS market basket. 

 Based on the most recent data available for this FY 2015 proposed rule, in 

accordance with section 1886(b)(3)(B) of the Act, we are proposing to base the proposed 

FY 2015 market basket update used to determine the applicable percentage increase for 

the IPPS on IHS Global Insight, Inc.’s (IGI’s) first quarter 2014 forecast of the FY 2010-

based IPPS market basket rate-of-increase with historical data through fourth quarter 

2013, which is estimated to be 2.7 percent. 

 In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51689 through 51692), we 

finalized our methodology for calculating and applying the MFP adjustment. For 

FY 2015, we are not proposing to make any change in our methodology for calculating 

and applying the MFP adjustment. For FY 2015, we are proposing a MFP adjustment of 
 474 

-0.4 percentage point. Similar to the market basket adjustment, for this proposed rule, we 

used the most recent data available to compute the MFP adjustment. 

 For FY 2015, depending on whether a hospital submits quality data under the 

rules established in accordance with section 1886(b)(3)(B)(viii) of the Act (hereafter 

referred to as a hospital that submits quality data) and is a meaningful EHR user under 

section 1886(b)(3)(B)(ix) of the Act (hereafter referred to as a hospital that is a 

meaningful EHR user), there are four possible applicable percentage increases that can be 

applied to the standardized amount. Below we discuss these four options. 

● For a hospital that submits quality data and is a meaningful EHR user, we are 

proposing an applicable percentage increase to the FY 2015 operating standardized 

amount of 2.1 percent (that is, the FY 2015 estimate of the market basket rate-of-increase 

of 2.7 percent less an adjustment of 0.4 percentage point for economy-wide productivity 

(that is, the MFP adjustment) and less 0.2 percentage point). 

● For a hospitals that submits quality data and is not a meaningful EHR user, we 

are proposing an applicable percentage increase to the operating standardized amount of 

1.425 percent (that is, the FY 2015 estimate of the market basket rate-of-increase of 

2.7 percent, less an adjustment of 0.675 percentage point (the market basket 

rate-of-increase of 2.7 percent x 0.75) / 3) for failure to be a meaningful EHR user, less 

an adjustment of 0.4 percentage point for the MFP adjustment, and less an additional 

adjustment of 0.2 percentage point). 

● For a hospital that does not submit quality data and is a meaningful EHR user, 

we are proposing an applicable percentage increase to the operating standardized amount 
 475 

of 1.425 percent (that is, the FY 2015 estimate of the market basket rate-of-increase of 

2.7 percent, less an adjustment of 0.675 percentage point (the market basket 

rate-of-increase of 2.7 percent / 4) for failure to submit quality data, less an adjustment of 

0.4 percentage point for the MFP adjustment, and less an additional adjustment of 0.2 

percentage point). 

● For a hospital that does not submit quality data and is not a meaningful EHR 

user, we are proposing an applicable percentage increase to the operating standardized 

amount of 0.75 percent (that is, the FY 2015 estimate of the market basket 

rate-of-increase of 2.7 percent, less an adjustment of 0.675 percentage point (the market 

basket rate-of-increase of 2.7 percent / 4) for failure to submit quality data, less an 

adjustment of 0.675 percentage point (the market basket rate-of-increase of 2.7 

percent x 0.75) / 3) for failure to be a meaningful EHR user, less an adjustment of 0.4 

percentage point for the MFP adjustment, and less an additional adjustment of 0.2 

percentage point). 

 If more recent data become subsequently available (for example, a more recent 

estimate of the market basket and the MFP adjustment), we are proposing to use such 

data, if appropriate, to determine the FY 2015 market basket update and MFP adjustment 

in the final rule. Below we provide a table summarizing the four proposed applicable 

percentage increases. 

 
 476 

FY 2015 

Hospital 

Submitted 

Quality 

Data and is 

a 

Meaningful 

EHR User 

Hospital 

Submitted 

Quality Data 

and is NOT 

a 

Meaningful 

EHR User 

Hospital Did 

NOT Submit 

Quality Data 

and is a 

Meaningful 

EHR User 

Hospital Did 

NOT Submit 

Quality Data 

and is NOT a 

Meaningful 

EHR User 

Market Basket 

Rate-of-Increase 2.7 2.7 2.7 2.7

Adjustment for Failure to 

Submit Quality Data 

under Section 

1886(b)(3)(B)(viii) of the 

Act 0.0 0.0 -0.675 -0.675

Adjustment for Failure to 

be a Meaningful EHR 

User under Section 

1886(b)(3)(B)(ix) of the 

Act 0.0 -0.675 0.0 -0.675

MFP Adjustment under 

Section 1886(b)(3)(B)(xi) 

of the Act -0.4 -0.4 -0.4 -0.4

Statutory Adjustment 

under Section 

1886(b)(3)(B)(xii) of the 

Act -0.2 -0.2 -0.2 -0.2

Proposed Applicable 

Percentage Increase 

Applied to Standardized 

Amount 2.1 1.425 1.425 0.75

 We are proposing to revise the existing regulations at 42 CFR 412.64(d) to reflect 

the current law for the FY 2015 update. Specifically, in accordance with section 

1886(b)(3)(B) of the Act, we are proposing to add a new paragraph (vi) to § 412.64(d)(1) 

to reflect the applicable percentage increase to the FY 2015 operating standardized 

amount as the percentage increase in the market basket index, subject to a reduction of 

one-fourth of the applicable percentage increase (prior to the application of other 
 477 

statutory adjustments) if the hospital fails to submit quality information (under rules 

established by the Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act) 

and a 33 1/3 percent reduction to three-fourths of the applicable percentage increase 

(prior to the application of other statutory adjustments) for a hospital that is not a 

meaningful EHR user in accordance with section 1886(b)(3)(B)(ix) of the Act, less an 

MFP adjustment and less an additional reduction of 0.2 percentage point. 

 In addition, we are proposing to make technical changes to §§ 412.64(d)(1), 

(d)(1)(i) through (d)(1)(v), (d)(2)(i), (d)(2)(ii), and (d)(3) introductory text to reflect the 

order in which CMS applies the statutory adjustments to the applicable percentage 

increase under section 1886(b)(3)(B) of the Act. As mentioned above, consistent with 

section 1886(b)(3)(B) of the Act, CMS sets the applicable percentage increase under the 

IPPS by applying the following adjustments in the following sequence. Specifically, we 

set the applicable percentage increase under the IPPS equal to the rate-of-increase in the 

hospital market basket for IPPS hospitals in all areas subject to a reduction for hospitals 

that fail to submit quality information under rules established by the Secretary in 

accordance with section 1886(b)(3)(B)(viii) of the Act and, beginning in FY 2015, a 

reduction for hospitals not considered to be meaningful EHR users in accordance with 

section 1886(b)(3)(B)(ix) of the Act; and then subject to an adjustment based on changes 

in economy-wide productivity (the MFP adjustment), and an additional reduction as 

required by section 1886(b)(3)(B)(xii) of the Act. 

 The existing regulation text at § 412.64(d)(2) and (d)(3) describes the reductions 

for hospitals that fail to submit quality information under rules established by the 
 478 

Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act and hospitals not 

considered to be meaningful EHR users in accordance with section 1886(b)(3)(B)(ix) of 

the Act as reductions to “the applicable percentage change specified in paragraph (d)(1) 

of this section.” Section 412.64(d)(1) describes the applicable percentage change for the 

applicable fiscal year as the percentage increase in the market basket index less the MFP 

adjustment and less the additional reduction required by section 1886(b)(3)(B)(xii) of the 

Act. This text suggests that CMS applies the reduction for hospitals that fail to submit 

quality information and, beginning in FY 2015, the reduction for hospitals not considered 

to be meaningful EHR users, after it applies the MFP adjustment and the additional 

reduction under section 1886(b)(3)(B)(xii) of the Act. Therefore, we are proposing to 

revise the regulations in § 412.64(d) to reflect the order in which CMS applies the 

adjustments to the applicable percentage increase under section 1886(b)(3)(B) of the Act. 

We note that we also are proposing clarifying amendments to the regulatory text for prior 

fiscal years under §§ 412.64(d)(1)(i) through (d)(1)(v) to reflect the determination of the 

applicable percentage change for those prior years as well as other technical changes for 

readability. 

 Section 1886(b)(3)(B)(iv) of the Act provides that the applicable percentage 

increase to the hospital-specific rates for SCHs and MDHs equals the applicable 

percentage increase set forth in section 1886(b)(3)(B)(i) of the Act (that is, the same 

update factor as for all other hospitals subject to the IPPS). Therefore, the update to the 

hospital-specific rates for SCHs and MDHs is also subject to section 1886(b)(3)(B)(i) of 

the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act. 
 479 

Accordingly, for FY 2015, we are proposing the following updates to the hospitalspecific rates applicable to SCHs and MDHs: an update of 2.1 percent for a hospital that 

submits quality data and is a meaningful EHR user; an update of 1.425 percent for a 

hospital that fails to submit quality data and is a meaningful EHR user; an update of 

1.425 percent for a hospital that submits quality data and is not a meaningful EHR user; 

an update of 0.75 percent for a hospital that fails to submit quality data and is not a 

meaningful EHR user. (As noted below, under current law, the MDH program is 

effective for discharges occurring on or before March 31, 2015.) For FY 2015, the 

existing regulations in §§ 412.73(c)(16), 412.75(d), 412.77(e), 412.78(e), and 412.79(d) 

contain provisions that set the update factor for SCHs and MDHs equal to the update 

factor applied to the national standardized amount for all IPPS hospitals. Therefore, we 

are not proposing to make any further changes to these five regulatory provisions to 

reflect the FY 2015 update factor for the hospital-specific rates of SCHs and MDHs. As 

mentioned above, for this proposed rule, we used IGI’s first quarter 2014 forecast of the 

FY 2010-based IPPS market basket update with historical data through fourth quarter 

2013. Similarly, we used IGI’s first quarter 2014 forecast of the MFP adjustment. For 

the final rule, we are proposing to use the most recent data available. 

 We note that, as discussed in section IV.G. of the preamble of this proposed rule, 

section 1106 of the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67), enacted on 

December 26, 2013, extended the MDH program from the end of FY 2013 through the 

first half of FY 2014 (that is, for discharges occurring before April 1, 2014). 

Subsequently, section 106 of the Protecting Access to Medicare Act of 2014, Pub. L. 
 480 

113-93, enacted on April 1, 2014, further extended the MDH program through the first 

half of FY 2015 (that is, for discharges occurring before April l, 2015). Prior to the 

enactment of Pub. L. 113-67, the MDH program was to be in effect through the end of 

FY 2013 only. The MDH program expires for discharges beginning on April 1, 2015 

under current law. Accordingly, the proposed update of the hospital-specific rates for 

FY 2015 for MDHs will apply in determining payments for FY 2015 discharges 

occurring before April 1, 2015. 

2. FY 2015 Puerto Rico Hospital Update 

 Puerto Rico hospitals are paid a blended rate for their inpatient operating costs 

based on 75 percent of the national standardized amount and 25 percent of the Puerto 

Rico-specific standardized amount. Section 1886(d)(9)(C)(i) of the Act is the basis for 

determining the applicable percentage increase applied to the Puerto Rico-specific 

standardized amount. Section 401(c) of Pub. L. 108-173 amended section 

1886(d)(9)(C)(i) of the Act, which states that, for discharges occurring in a fiscal year 

(beginning with FY 2004), the Secretary shall compute an average standardized amount 

for hospitals located in any area of Puerto Rico that is equal to the average standardized 

amount computed under subclause (I) for fiscal year 2003 for hospitals in a large urban 

area (or, beginning with FY 2005, for all hospitals in the previous fiscal year) increased 

by the applicable percentage increase under subsection (b)(3)(B) for the fiscal year 

involved. Therefore, the update to the Puerto Rico-specific operating standardized 

amount equals the applicable percentage increase set forth in section 1886(b)(3)(B)(i) of 

the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act (that 
 481 

is, the same update factor as for all other hospitals subject to the IPPS). Accordingly, we 

are proposing an applicable percentage increase to the Puerto Rico-specific operating 

standardized amount of 2.1 percent for FY 2015. We note that the provisions of section 

1886(b)(3)(B)(viii) of the Act, which specify the adjustments to the applicable percentage 

increase for “subsection (d)” hospitals that do not submit quality data under the rules 

established by the Secretary, and the provisions of section 1886(b)(3)(B)(ix) of the Act, 

which specify the adjustments to the applicable percentage increase for “subsection (d)” 

hospitals that are not meaningful EHR users, are not applicable to hospitals located in 

Puerto Rico. 

 For FY 2015, the existing regulations in § 412.211(c) set the update factor for 

Puerto Rico-specific standardized amount equal to the update factor applied to the 

national standardized amount for all IPPS hospitals. Therefore, we are not proposing to 

make any further changes to this regulatory provision to reflect the FY 2015 update factor 

for the Puerto Rico-specific standardized amount. 

 As mentioned previously, for this proposed rule, we used IGI’s first quarter 2014 

forecast of the FY 2010-based IPPS market basket update with historical data through 

fourth quarter 2013. For the final rule, we are proposing to use the most recent data 

available. Similarly, we used IGI’s first quarter 2014 forecast of the MFP adjustment. 

For the final rule, we are proposing to use the most recent data available. 
 482 

C. Rural Referral Centers (RRCs): Proposed Annual Updates to Case-Mix Index and 

Discharge Criteria (§ 412.96) 

 Under the authority of section 1886(d)(5)(C)(i) of the Act, the regulations at 

§ 412.96 set forth the criteria that a hospital must meet in order to qualify under the IPPS 

as a rural referral center (RRC). RRCs receive some special treatment under both the 

DSH payment adjustment and the criteria for geographic reclassification. 

 Section 402 of Pub. L. 108-173 raised the DSH payment adjustment for RRCs 

such that they are not subject to the 12-percent cap on DSH payments that is applicable to 

other rural hospitals. RRCs are also not subject to the proximity criteria when applying 

for geographic reclassification. In addition, they do not have to meet the requirement that 

a hospital's average hourly wage must exceed, by a certain percentage, the average hourly 

wage of the labor market area where the hospital is located. 

 Section 4202(b) of Pub. L. 105-33 states, in part, "[a]ny hospital classified as an 

RRC by the Secretary . . . for fiscal year 1991 shall be classified as such an RRC for 

fiscal year 1998 and each subsequent year." In the August 29, 1997 IPPS final rule with 

comment period (62 FR 45999), CMS reinstated RRC status for all hospitals that lost the 

status due to triennial review or MGCRB reclassification. However, CMS did not 

reinstate the status of hospitals that lost RRC status because they were now urban for all 

purposes because of the OMB designation of their geographic area as urban. 

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 
 483 

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 
 484 

regional CMI values is set forth in the regulations at § 412.96(c)(1)(ii). The proposed 

national median CMI value for FY 2015 includes data from all urban hospitals 

nationwide, and the proposed regional values for FY 2015 are the median CMI values of 

urban hospitals within each census region, excluding those hospitals with approved 

teaching programs (that is, those hospitals that train residents in an approved GME 

program as provided in § 413.75). These proposed values are based on discharges 

occurring during FY 2013 (October 1, 2012 through September 30, 2013), and include 

bills posted to CMS’ records through December 2013. 

 We are proposing that, in addition to meeting other criteria, if rural hospitals with 

fewer than 275 beds are to qualify for initial RRC status for cost reporting periods 

beginning on or after October 1, 2014, they must have a CMI value for FY 2013 that is at 

least-- 

● 1.5730; or 

● The median CMI value (not transfer-adjusted) for urban hospitals (excluding 

hospitals with approved teaching programs as identified in § 413.75) calculated by CMS 

for the census region in which the hospital is located. 

 The proposed CMI values by region are set forth in the following table: 

 
 485 

Region 

Proposed 

Case-Mix 

Index Value 

1. New England (CT, ME, MA, NH, RI, VT) 1.3602

2. Middle Atlantic (PA, NJ, NY) 1.4334

3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) 1.4815

4. East North Central (IL, IN, MI, OH, WI) 1.4915

5. East South Central (AL, KY, MS, TN) 1.4099

6. West North Central (IA, KS, MN, MO, NE, ND, SD) 1.5498

7. West South Central (AR, LA, OK, TX) 1.6041

8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY) 1.6583

9. Pacific (AK, CA, HI, OR, WA) 1.5680

 We intend to update the preceding numbers in the FY 2015 final rule to reflect the 

updated FY 2013 MedPAR file, which would contain data from additional bills received 

through March 2014. 

 A hospital seeking to qualify as an RRC should obtain its hospital-specific CMI 

value (not transfer-adjusted) from its fiscal intermediary or MAC. Data are available on 

the Provider Statistical and Reimbursement (PS&R) System. In keeping with our policy 

on discharges, the CMI values are computed based on all Medicare patient discharges 

subject to the IPPS MS-DRG-based payment. 

2. Discharges 

 Section 412.96(c)(2)(i) provides that CMS set forth the national and regional 

numbers of discharges in each year’s annual notice of prospective payment rates for 

purposes of determining RRC status. As specified in section 1886(d)(5)(C)(ii) of the Act, 

the national standard is set at 5,000 discharges. We are proposing to update the regional 
 486 

standards based on discharges for urban hospitals’ cost reporting periods that began 

during FY 2012 (that is October 1, 2011 through September 30, 2012), which are the 

latest cost report data available at the time this proposed rule was developed. 

 We are proposing that, in addition to meeting other criteria, a hospital, if it is to 

qualify for initial RRC status for cost reporting periods beginning on or after 

October 1, 2014, must have, as the number of discharges for its cost reporting period that 

began during FY 2012, at least- 

● 5,000 (3,000 for an osteopathic hospital); or 

● The median number of discharges for urban hospitals in the census region in 

which the hospital is located, as indicated in the following table. 

Region 

Number of 

Discharges 

1. New England (CT, ME, MA, NH, RI, VT) 7,679

2. Middle Atlantic (PA, NJ, NY) 10,661

3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) 10,591

4. East North Central (IL, IN, MI, OH, WI) 8,130

5. East South Central (AL, KY, MS, TN) 7,065

6. West North Central (IA, KS, MN, MO, NE, ND, SD) 7,925

7. West South Central (AR, LA, OK, TX) 4,524

8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY) 8,830

9. Pacific (AK, CA, HI, OR, WA) 8,261

 We intend to update these numbers in the FY 2015 final rule based on the latest 

available cost report data. 
 487 

 We reiterate that, if an osteopathic hospital is to qualify for RRC status for cost 

reporting periods beginning on or after October 1, 2014, the hospital would be required to 

have at least 3,000 discharges for its cost reporting period that began during FY 2012. 

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

1. Background 

 Section 1886(d)(12) of the Act provides for an additional payment to each 

qualifying low-volume hospital that is paid under IPPS beginning in FY 2005. Sections 

3125 and 10314 of the Affordable Care Act provided for a temporary change in the 

low-volume hospital payment policy for FYs 2011 and 2012. Section 605 of the 

American Taxpayer Relief Act of 2012 (ATRA) extended, for FY 2013, the temporary 

changes in the low-volume hospital payment policy provided for in FYs 2011 and 2012 

by the Affordable Care Act. Prior to the enactment of the Pathway for SGR Reform Act 

of 2013 (Pub. L. 113-67) on December 26, 2013 and section 106 of the Protecting Access 

to Medicare Act of 2014 (Pub. L. 113-93) on April l, 2014, beginning with FY 2014, the 

low-volume hospital qualifying criteria and payment adjustment returned to the statutory 

requirements under section 1886(d)(12) of the Act that were in effect prior to the 

amendments made by the Affordable Care Act and the ATRA. (For additional 

information on the expiration of the temporary changes in the low-volume hospital 

payment policy for FYs 2011 through 2013 provided for by the Affordable Care Act and 

the ATRA, we refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50610 

through 50613).) 
 488 

 Section 1105 of the Pathway for SGR Reform Act extended, for the first 6 months 

of FY 2014 (that is, through March 31, 2014), the temporary changes in the low-volume 

hospital payment policy provided for in FYs 2011 and 2012 by the Affordable Care Act 

and extended through FY 2013 by the ATRA. We addressed the extension of the 

temporary changes to the low-volume hospital payment policy through March 31, 2014 

under the Pathway for SGR Reform Act in an interim final rule with comment period that 

appeared in the Federal Register on March 18, 2014 (79 FR 15022 through 15025). In 

that March 18, 2014 interim final rule with comment period, we also amended the 

regulations at 42 CFR 412.101 to reflect the extension of the temporary changes to the 

qualifying criteria and the payment adjustment for low-volume hospitals through 

March 31, 2014. 

2. Provisions of the Protecting Access to Medicare Act of 2014 

 Section 105 of the Protecting Access to Medicare Act of 2014 (Pub. L. 113-93) 

extends, for an additional year (that is, through March 31, 2015), the temporary changes 

in the low-volume hospital payment policy provided for in FYs 2011 and 2012 by the 

Affordable Care Act and extended through FY 2013 by the ATRA and the first half of 

FY 2014 by the Pathway for SGR Reform Act. We intend to address the extension of the 

temporary changes to the low-volume hospital payment policy for the second half of 

FY 2014 (that is, from April 1, 2014 through September 30, 2014) under Pub. L. 113-93 

in a forthcoming Federal Register notice. However, in this proposed rule, we are 

proposing to make conforming changes to the existing regulations text at § 412.101 to 

reflect the extension of the changes to the qualifying criteria and the payment adjustment 
 489 

methodology for low-volume hospitals through the first half of FY 2015 (that is, through 

March 31, 2015) in accordance with section 105 of Pub. L. 113-93. Specifically, we are 

proposing to revise paragraphs (b)(2)(i), (b)(2)(ii), (c)(1), (c)(2), and (d) of § 412.101. 

Under these proposed changes to § 412.101, beginning with FY 2015 discharges 

occurring on or after April 1, 2015, consistent with section 1886(d)(12) of the Act, as 

amended, the low-volume hospital qualifying criteria and payment adjustment 

methodology would revert to that which was in effect prior to the amendments made by 

the Affordable Care Act and subsequent legislation (that is, the low-volume hospital 

payment adjustment policy in effect for FYs 2005 through 2010). 

3. Low-Volume Hospital Definition and Payment Adjustment for FY 2015 

 As discussed above, under section 1886(d)(12) of the Act, as amended, the 

temporary changes in the low-volume hospital payment policy originally provided by the 

Affordable Care Act and extended through subsequent legislation, are effective for 

FY 2015 discharges occurring before April 1, 2015. To implement the extension of the 

temporary change in the low-volume hospital payment policy through the first half of 

FY 2015 (that is, for discharges occurring through March 31, 2015) provided for by 

Pub. L. 113-93, in accordance with proposed § 412.101(b)(2)(ii) and consistent with our 

historical approach, we are proposing to update the discharge data source used to identify 

qualifying low-volume hospitals and calculate the payment adjustment (percentage 

increase) for FY 2015 discharges occurring before April 1, 2015. Under existing 

§ 412.101(b)(2)(ii), for the applicable fiscal years, a hospital’s Medicare discharges from 

the most recently available MedPAR data, as determined by CMS, are used to determine 
 490 

if the hospital meets the discharge criteria to receive the low-volume payment adjustment 

in the current year. The applicable low-volume percentage increase, as originally 

provided for by the Affordable Care Act, is determined using a continuous linear sliding 

scale equation that results in a low-volume hospital payment adjustment ranging from an 

additional 25 percent for hospitals with 200 or fewer Medicare discharges to a zero 

percent additional payment adjustment for hospitals with 1,600 or more Medicare 

discharges. For FY 2015 discharges occurring before April 1, 2015, consistent with our 

historical policy, we are proposing that qualifying low-volume hospitals and their 

payment adjustment would be determined using the most recently available Medicare 

discharge data from the FY 2013 MedPAR file, as these data are the most recent data 

available. Table 14 listed in the Addendum of this proposed rule (which is available only 

through the Internet on the CMS Web site at 

http://www.cms.hhs.gov/AcuteInpatientPPS/01_overview.asp) lists the “subsection (d)”’ 

hospitals with fewer than 1,600 Medicare discharges based on the December 2013 update 

of the FY 2013 MedPAR file and their proposed low-volume payment adjustment for 

FY 2015 discharges occurring before April 1, 2015 (if eligible). Eligibility for the 

low-volume hospital payment adjustment for the first 6 months of FY 2015 would also be 

dependent upon meeting (in the case of a hospital that did not qualify for the low-volume 

hospital payment adjustment in FY 2014) or continuing to meet (in the case of a hospital 

that did qualify for the low-volume hospital payment adjustment in FY 2014) the mileage 

criterion specified at proposed § 412.101(b)(2)(ii). A hospital also must be located more 

than 15 road miles from any other IPPS hospital in order to qualify for a low-volume 
 491 

hospital payment adjustment for FY 2015 discharges occurring before April 1, 2015. We 

note that the list of hospitals with fewer than 1,600 Medicare discharges in Table 14 does 

not reflect whether or not the hospital meets the mileage criterion. If more recent 

Medicare discharge data become available, we intend to use updated data to determine 

the list of “subsection (d)” hospitals with fewer than 1,600 Medicare discharges based on 

the March 2014 update of the FY 2013 MedPAR file and their potential low-volume 

payment adjustment for FY 2015 discharges occurring before April 1, 2015 (if eligible) 

in Table 14 of the final rule. 

 Furthermore, in accordance with section 1886(d)(12) of the Act, as amended, 

beginning with FY 2015 discharges occurring on or after April 1, 2015, the low-volume 

hospital definition and payment adjustment methodology will revert back to the statutory 

requirements that were in effect prior to the amendments made by the Affordable Care 

Act and subsequent legislation (including the Protecting Access to Medicare Act). 

Therefore, consistent with section 1886(d)(12) of the Act, as amended, under the 

proposed conforming changes to § 412.101(b)(2), effective for FY 2015 discharges 

occurring on or after April 1, 2015 and subsequent years, in order to qualify as a 

low-volume hospital, a subsection (d) hospital must be more than 25 road miles from 

another subsection (d) hospital and have less than 200 discharges (that is, less than 200 

discharges total, including both Medicare and non-Medicare discharges) during the fiscal 

year. Under our existing policy, effective for FY 2015 discharges occurring on or after 

April 1, 2015 and subsequent years, qualifying hospitals would receive the low-volume 

hospital payment adjustment of an additional 25 percent for discharges occurring during 
 492 

the fiscal year (or portion of the fiscal year). Consistent with our existing policy for 

FYs 2005 through 2010, for FY 2015 discharges occurring on or after April 1, 2015 (and 

subsequent years), the discharge determination for the low-volume hospital payment 

adjustment would be made based on the hospital’s number of total discharges, that is, 

Medicare and non-Medicare discharges, as specified at proposed § 412.101(b)(2)(i). The 

hospital’s most recently submitted cost report is used to determine if the hospital meets 

the discharge criterion to receive the low-volume hospital payment adjustment in the 

current fiscal year. We use cost report data to determine if a hospital meets the discharge 

criterion because these data are the best available data source that includes information 

on both Medicare and non-Medicare discharges. In addition to a discharge criterion, 

eligibility for the low-volume hospital payment adjustment also depends on the hospital 

meeting a mileage criterion. As specified at proposed § 412.101(b)(2)(i), to meet the 

mileage criterion to qualify for the low-volume hospital payment adjustment for FY 2015 

discharges occurring on or after April 1, 2015 (and subsequent years), a hospital must be 

located more than 25 road miles from the nearest subsection (d) hospital. 

 Consistent with our previously established procedure, for FY 2015, we are 

proposing the following process for requesting and obtaining the low-volume hospital 

payment adjustment. That is, in order to receive a low-volume hospital payment 

adjustment under § 412.101, a hospital must notify and provide documentation to its 

MAC that it meets the discharge and distance requirements under proposed 

§ 412.101(b)(2)(ii) for FY 2015 discharges occurring before April 1, 2015, and under 

proposed § 412.101(b)(2)(i) for FY 2015 discharges occurring on or after April 1, 2015, 
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if also applicable. The MAC will determine, based on the most recent data available, if 

the hospital qualifies as a low-volume hospital, so that the hospital would know in 

advance whether or not it will receive a payment adjustment. The MAC and CMS may 

review available data, in addition to the data the hospital submits with its request for 

low-volume hospital status, in order to determine whether or not the hospital meets the 

qualifying criteria. Consistent with our previously established procedure, for FY 2015, 

we are proposing that a hospital must make a written request for low-volume hospital 

status that is received by its MAC no later than September 1, 2014, in order for the 

applicable low-volume hospital payment adjustment to be applied to payments for its 

discharges occurring on or after October 1, 2014, and through March 31, 2015, under 

proposed § 412.101(b)(2)(ii) or through September 30, 2015, for hospitals that also 

qualify under proposed § 412.101(b)(2)(i)). A hospital that qualified for the low-volume 

payment adjustment in FY 2014 may continue to receive a low-volume payment 

adjustment for FY 2015 discharges occurring before April l, 2015, without reapplying if 

it continues to meet the Medicare discharge criterion established for FY 2015 (shown in 

Table 14, which is available via the Internet on the CMS Web site) and the distance 

criterion. However, the hospital must send written verification that is received by its 

MAC no later than September 1, 2014, that it continues to be more than 15 miles from 

any other “subsection (d)” hospital. 

 If a hospital’s written request for low-volume hospital status for FY 2015 is 

received after September 1, 2014, and if the MAC determines that the hospital meets the 

criteria to qualify as a low-volume hospital under proposed § 412.101(b)(2)(ii), the MAC 
 494 

would apply the applicable low-volume hospital payment adjustment to determine the 

payment for the hospital’s FY 2015 discharges, effective prospectively within 30 days of 

the date of its low-volume hospital status determination through discharges occurring on 

or before March 31, 2015. If the hospital also qualifies under proposed 

§ 412.101(b)(2)(i), the MAC would apply the 25-percent low-volume hospital payment 

adjustment to determine the payment for the hospital’s FY 2015 discharges occurring on 

or after April 1, 2015. If a hospital’s written request for low-volume hospital status for 

FY 2015 is received on a later date such that the prospective effective date would be on 

or after April 1, 2015, and the hospital qualifies under proposed § 412.101(b)(2)(i), the 

MAC would apply the 25-percent low-volume hospital payment adjustment to determine 

the payment for the hospital’s FY 2015 discharges occurring from the prospective 

effective date through September 30, 2015. (For additional details on our established 

process for the low-volume hospital payment adjustment, we refer readers to the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53408).) 

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

1. IME Adjustment Factor for FY 2015 

 Under the IPPS, an additional payment amount is made to hospitals with residents 

in an approved graduate medical education (GME) program in order to reflect the higher 

indirect patient care costs of teaching hospitals relative to nonteaching hospitals. The 

payment amount is determined by use of a statutorily specified adjustment factor. The 

regulations regarding the calculation of this additional payment, known as the IME 

adjustment, are located at § 412.105. We refer readers to the FY 2012 IPPS/LTCH PPS 
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final rule (76 FR 51680) for a full discussion of the IME adjustment and IME adjustment 

factor. Section 1886(d)(5)(B) of the Act states that, for discharges occurring during 

FY 2008 and fiscal years thereafter, the IME formula multiplier is 1.35. Accordingly, for 

discharges occurring during FY 2015, the formula multiplier is 1.35. We estimate that 

application of this formula multiplier for the FY 2015 IME adjustment will result in an 

increase in IPPS payment of 5.5 percent for every approximately 10 percent increase in 

the hospital’s resident to bed ratio. 

2. Proposed IME Medicare Part C Add-On Payments to Sole Community Hospitals 

(SCHs) That Are Paid According to Their Hospital-Specific Rates and Proposed Change 

in Methodology in Determining Payment to SCHs 

 Section 1886(d)(11) of the Act provides for an additional payment amount to a 

subsection (d) teaching hospital that has an approved medical residency training program 

for each applicable discharge of any individual who is enrolled under Medicare Managed 

Care under Part C. The amount of such payment is specified in section 1886(d)(11)(C) of 

the Act and “shall be equal to the applicable percentage (as defined in subsection 

(h)(3)(D)(ii)) of the estimated average per discharge amount that would otherwise have 

been paid under paragraph (5)(B) if the individuals had not been enrolled as described in 

subparagraph (B).” 

 Under section 1886(d)(5)(D) of the Act, sole community hospitals (SCHs) are 

paid based on their hospital-specific rate from specified base years or the IPPS Federal 

rate, whichever yields the greatest aggregate payment for the hospital’s cost reporting 

period. Payments based on the Federal rate are based on the IPPS standardized amount 
 496 

and include all applicable IPPS add-on payments, such as outliers, DSH, and IME, while 

payments based on the hospital-specific rate include no add-on payments. Under CMS’ 

current payment system, both the IME add-on payment for Medicare Part A patient 

discharges under section 1886(d)(5)(B) of the Act and the IME add-on payment for 

Medicare Part C patient discharges under section 1886(d)(11) of the Act are included as 

part of the Federal rate payment, whereas neither of these add-on payments are included 

as part of the hospital-specific rate payment. We note that SCHs that are paid based on 

their hospital-specific rate do not receive an IME add-on payment for Medicare Part A 

patient discharges because, generally, the hospital-specific rate already reflects the 

additional costs that a teaching hospital incurs for its Medicare Part A patients, but they 

also do not receive the IME add-on payment for Medicare Part C patient discharges under 

section 1886(d)(11) of the Act. Therefore, in the case of Medicare Part C patients, there 

is no component of the hospital-specific rate that already accounts for the additional costs 

that SCHs incur for their Medicare Part C patients, and there is currently no payment 

mechanism for SCHs paid based on their hospital-specific rate to receive the IME add-on 

payment for Medicare Part C patients. 

 For the reasons specified below, effective for discharges occurring in cost 

reporting periods beginning on or after October 1, 2014, we are proposing: (1) to provide 

all SCHs that are subsection (d) teaching hospitals IME add-on payments for applicable 

discharges of Medicare Part C patients in accordance with section 1886(d)(11) of the Act, 

regardless of whether the SCH is paid based on the Federal rate or its hospital-specific 

rate; and (2) that, for purposes of the comparison of payments based on the Federal rate 
 497 

and payments based on the hospital-specific rate under section 1886(d)(5)(D) of the Act, 

IME payments under section 1886(d)(11) of the Act for Medicare Part C patients will no 

longer be included as part of the Federal rate payment. After the higher of the Federal 

rate payment amount or the hospital-specific rate payment amount is determined, any 

IME add-on payments under section 1886(d)(11) of the Act would be added to that 

payment for purposes of determining the hospital’s total payment amount. 

 As noted above, under section 1886(d)(5)(D) of the Act, SCHs are paid based on 

their hospital-specific rate or the IPPS Federal rate, whichever yields the higher payment 

for the hospital’s cost reporting period. For each cost reporting period, the MAC 

determines which of the payment options will yield the higher aggregate payment. 

Interim payments are automatically made on a claim-by-claim basis at the higher rate 

using the best data available at the time the MAC makes the payment determination for 

each discharge. However, it may not be possible for the MAC to determine in advance 

precisely which of the rates will yield the higher aggregate payment by year’s end. In 

many cases, it is not possible to forecast outlier payments or the final amount of the DSH 

payment adjustment or the IME adjustment until cost report settlement. As noted above, 

these adjustment amounts are applicable only to payments based on the Federal rate and 

not to payments based on the hospital-specific rate. The MAC makes a final adjustment 

at cost report settlement after it determines precisely which of the two payment rates 

would yield the higher aggregate payment to the hospital for its cost reporting period. 

This payment methodology makes SCHs unique because SCH payments can change on a 
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yearly basis from payments based on the hospital-specific rate to payments based on the 

Federal rate, or vice versa. 

 As we stated earlier, section 1886(d)(11) of the Act provides for an additional 

payment for each applicable discharge of any subsection (d) teaching hospital for treating 

Medicare Part C patients. Section 1886(d)(11)(C) of the Act specifies that the amount of 

the payment “shall be equal to the applicable percentage (as defined in subsection 

(h)(3)(D)(ii)) of the estimated average per discharge amount that would otherwise have 

been paid under paragraph (5)(B) if the individuals had not been enrolled as described in 

subparagraph (B)” (emphasis added). Because an SCH that is paid based on its 

hospital-specific rate does not receive any IME add-on payment for Medicare Part A 

patients as provided under section 1886(d)(5)(B) of the Act because, generally, the 

hospital-specific rate already reflects the additional costs that a teaching hospital incurs 

for its Medicare Part A patients, CMS has interpreted section 1886(d)(11)(C) of the Act 

to mean that an SCH that is paid based on its hospital-specific rate also is not entitled to 

receive an additional payment for discharges of Medicare Part C patients under section 

1886(d)(11) of the Act. 

 After further consideration of the language at section 1886(d)(11) of the Act, we 

believe that the statute would allow an SCH that is paid based on its hospital-specific rate 

to receive IME add-on payments for its Medicare Part C patient discharges. Section 

1886(d)(11)(A) of the Act provides for an additional payment amount for each applicable 

discharge of a Medicare Part C patient of a subsection (d) hospital that has an approved 

medical residency training program. Section 1886(d)(11)(C) of the Act sets forth the 
 499 

amount of this additional payment, by reference to the amount that would otherwise have 

been paid under section 1886(d)(5)(B) of the Act. Although an SCH that is paid based on 

its hospital-specific rate does not receive any amount under section 1886(d)(5)(B) of the 

Act for discharges of Medicare Part A patients, we believe that section 1886(d)(11)(C) of 

the Act can be interpreted as simply establishing the methodology for calculating the 

amount of the add-on payment, without limiting the applicability of the add-on payment 

to those SCHs that are paid based on the Federal rate. 

 As noted earlier, in making the comparison of SCH payments under the Federal 

rate and the hospital-specific rate under section 1886(d)(5)(D) of the Act, the aggregate 

Federal rate payments are based on the IPPS standardized amount and include IME 

add-on payments for both Medicare Part A and Medicare Part C patient discharges. 

Payments based on the hospital-specific rate do not include the Medicare Part A IME 

add-on payment under section 1886(d)(5)(B) of the Act, under the rationale that, 

generally, the hospital-specific rate already reflects the additional costs that a teaching 

hospital incurs for its Medicare Part A patients. Payments based on the hospital-specific 

rate also do not include the IME add-on payment for Medicare Part C patient discharges 

under section 1886(d)(11) of the Act. As a result, under the current methodology, if an 

SCH that is a teaching hospital is paid based on its hospital-specific rate, it receives no 

IPPS payment that accounts for the additional costs that a teaching hospital incurs for its 

Medicare Part C patients. 

 In conjunction with our proposal to provide IME add-on payments under section 

1886(d)(11) of the Act to SCHs, regardless of whether the SCH is paid based on the 
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Federal rate or its hospital-specific rate, we also believe that, for purposes of the 

comparison of payments under the Federal rate and the hospital-specific rate for SCHs 

under section 1886(d)(5)(D) of the Act, it is no longer appropriate for IME add-on 

payments under section 1886(d)(11) of the Act to be included as part of the Federal rate 

payment. Therefore, we are proposing to no longer include these payments in the 

comparison in order to more accurately reflect comparable payments for Medicare Part A 

patient discharges. In addition, because the IME add-on payment for Medicare Part C 

patient discharges for a given SCH would be the same, regardless of whether it is paid 

based on the Federal rate or its hospital-specific rate, there would be no need to include 

the IME add-on payment for Medicare Part C patient discharges in the comparison. This 

is because the Part C IME adjustment is always multiplied by the Federal rate that is used 

under section 1886(d)(5)(B) of the Act, regardless of whether the hospital-specific rate is 

higher, in accordance with section 1886(d)(11) of the Act, which states that the IME Part 

C add-on amount “shall be equal to the applicable percentage . . . of the estimated 

average per discharge amount that would otherwise have been paid under 

paragraph (5)(B).” 

 In summary, effective with discharges occurring in cost reporting periods 

beginning on or after October 1, 2014, we are proposing: (1) to provide all SCHs that are 

subsection (d) teaching hospitals IME add-on payments for Medicare Part C patient 

discharges in accordance with section 1886(d)(11) of the Act; and (2) that, for purposes 

of the comparison of payments based on the Federal rate and the hospital-specific rate for 

SCHs under section 1886(d)(5)(D) of the Act, IME add-on payments under section 
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1886(d)(11) of the Act for Medicare Part C patient discharges will no longer be included 

in the aggregate payment under the Federal rate. That is, for purposes of determining 

payment to an SCH under section 1886(d)(5)(D) of the Act, we are proposing to compare 

aggregate payments based on the Federal rate, including the IME add-on payment for 

Medicare Part A patients (where applicable), but not the IME add-on payment for 

Medicare Part C patients, to aggregate payments based on the hospital-specific rate, 

which as explained earlier, do not include any IME add-on payments for either Medicare 

Part A or Part C patients. After the higher of the Federal rate payment amount or the 

hospital-specific rate payment amount under section 1886(d)(5)(D) of the Act is 

determined, the Part C IME adjustment factor would be multiplied by the Federal rate 

payment amount to determine the add-on payment amount under section 1886(d)(11) of 

the Act, and then any IME add-on payments under section 1886(d)(11) of the Act would 

be added to the payment amount under section 1886(d)(5)(D) of the Act for purposes of 

determining the hospital’s total payment amount. We are inviting public comments on 

both of these proposals and any alternatives that we should consider. 

3. Other Proposed Policy Changes Affecting IME 

 In section IV.K. of the preamble of this proposed rule, we present other proposed 

policy changes relating to GME payments, which may also apply to IME payments. We 

refer readers to that section of the preamble of this proposed rule where we present the 

proposed policies. 
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F. Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) 

(§ 412.106) 

1. Background 

 Section 1886(d)(5)(F) of the Act provides for additional Medicare payments to 

subsection (d) hospitals that serve a significantly disproportionate number of low-income 

patients. The Act specifies two methods by which a hospital may qualify for the 

Medicare disproportionate share hospital (DSH) adjustment. Under the first method, 

hospitals that are located in an urban area and have 100 or more beds may receive a 

Medicare DSH payment adjustment if the hospital can demonstrate that, during its cost 

reporting period, more than 30 percent of its net inpatient care revenues are derived from 

State and local government payments for care furnished to needy patients with low 

incomes. This method is commonly referred to as the “Pickle method.” The second 

method for qualifying for the DSH payment adjustment, which is the most common, is 

based on a complex statutory formula under which the DSH payment adjustment is based 

on the hospital’s geographic designation, the number of beds in the hospital, and the level 

of the hospital's disproportionate patient percentage (DPP). A hospital’s DPP is the sum 

of two fractions: the “Medicare fraction” and the “Medicaid fraction.” The Medicare 

fraction (also known as the “SSI fraction” or “SSI ratio”) is computed by dividing the 

number of the hospital’s inpatient days that are furnished to patients who were entitled to 

both Medicare Part A and Supplemental Security Income (SSI) benefits by the hospital’s 

total number of patient days furnished to patients entitled to benefits under Medicare 

Part A. The Medicaid fraction is computed by dividing the hospital’s number of inpatient 
 503 

days furnished to patients who, for such days, were eligible for Medicaid, but were not 

entitled to benefits under Medicare Part A, by the hospital’s total number of inpatient 

days in the same period. 

 Because the DSH payment adjustment is part of the IPPS, the DSH statutory 

references (under section 1886(d)(5)(F) of the Act) to “days” apply only to hospital acute 

care inpatient days. Regulations located at § 412.106 govern the Medicare DSH payment 

adjustment and specify how the DPP is calculated as well as how beds and patient days 

are counted in determining the Medicare DSH payment adjustment. Under 

§ 412.106(a)(1)(i), the number of beds for the Medicare DSH payment adjustment is 

determined in accordance with bed counting rules for the IME adjustment under 

§ 412.105(b). 

2. Impact on Medicare DSH Payment Adjustment of Proposed Implementation of New 

OMB Labor Market Delineations 

 As discussed in section III.B. of the preamble of this proposed rule, we are 

proposing to implement the new OMB labor market area delineations (which are based 

on 2010 Decennial Census data) for the FY 2015 wage index. This proposal also would 

have an impact on the calculation of Medicare DSH payments to certain hospitals. 

Hospitals that are designated as rural with less than 500 beds and that are not rural 

referral centers (RRCs) are subject to a maximum DSH payment adjustment of 12 

percent. Accordingly, hospitals with less than 500 beds that are currently in urban 

counties that would become rural if we adopt the new OMB delineations, and that do not 

become RRCs, would be subject to a maximum DSH payment adjustment of 12 percent. 
 504 

(We note that urban hospitals are only subject to a maximum DSH payment adjustment 

of 12 percent if they have less than 100 beds.) 

 Under existing regulations at 42 CFR 412.102, a hospital located in an area that is 

reclassified from urban to rural, as defined in the regulations, may receive an adjustment 

to its rural Federal payment amount for operating costs for two successive fiscal years. 

Specifically, the regulations state that, in the first year after a hospital loses urban status, 

the hospital will receive an additional payment that equals two-thirds of the difference 

between the urban standardized amount and disproportionate share payments as 

applicable to the hospital before its redesignation from urban to rural and the rural 

standardized amount and disproportionate share payments otherwise applicable to the 

hospital subsequent to its redesignation from urban to rural. In the second year after a 

hospital loses urban status, the hospital will receive an additional payment that equals 

one-third of the difference between the urban standardized amount and disproportionate 

share payments applicable to the hospital before its redesignation from urban to rural and 

the rural standardized amount and disproportionate share payments otherwise applicable 

to the hospital subsequent to its redesignation from urban to rural. 

 We note that we no longer make a distinction between the urban standardized 

amount and the rural standardized amount. Rather, hospitals receive the same 

standardized amount regardless of their geographic designation. Accordingly, we are 

proposing to revise the regulation at § 412.102 to remove references to the urban and 

rural standardized amounts. 
 505 

 The provisions of § 412.102 would continue to apply with respect to the 

calculation of the DSH payments to hospitals that are currently located in urban counties 

that would become rural if we adopt the new OMB delineations. Specifically, the 

regulations would state that in the first year after a hospital loses urban status, the hospital 

will receive an additional payment that equals two-thirds of the difference between 

disproportionate share payments as applicable to the hospital before its redesignation 

from urban to rural and the disproportionate share payments otherwise applicable to the 

hospital subsequent to its redesignation from urban to rural. In the second year after a 

hospital loses urban status, the hospital will receive an additional payment that equals 

one-third of the difference between the disproportionate share payments applicable to the 

hospital before its redesignation from urban to rural and the disproportionate share 

payments otherwise applicable to the hospital subsequent to its redesignation from urban 

to rural. 

 For the purposes of ratesetting, calculating budget neutrality, and modeling 

payment impacts for this proposed rule, any hospital that was previously urban but would 

be changed to rural status in FY 2015 as a result of the proposed adoption of the new 

OMB labor market area delineations would have its DSH payments modeled such that 

the payment equals the amount of the rural disproportionate share payments plus 

two-thirds of the difference between the urban disproportionate share payments and the 

rural disproportionate share payments. 
 506 

3. Payment Adjustment Methodology for Medicare Disproportionate Share Hospitals 

(DSHs) under Section 3133 of the Affordable Care Act (§ 412.106) 

a. General Discussion 

 Section 3133 of the Patient Protection and Affordable Care Act, as amended by 

section 10316 of the same act and section 1104 of the Health Care and Education 

Reconciliation Act (Pub. L. 111-152), added a new section 1886(r) to the Act that 

modifies the methodology for computing the Medicare DSH payment adjustment 

beginning in FY 2014. For purposes of this proposed rule, we refer to these provisions 

collectively as section 3133 of the Affordable Care Act. 

 Medicare DSH adjustment payments are calculated under a statutory formula that 

considers the hospital’s Medicare utilization attributable to beneficiaries who also receive 

Supplemental Security Income (SSI) benefits and the hospital’s Medicaid utilization. 

Beginning with discharges in FY 2014, hospitals that qualify for Medicare DSH 

payments under section 1886(d)(5)(F) of the Act receive 25 percent of the amount they 

previously would have received under the statutory formula for Medicare DSH payments. 

This provision applies equally to hospitals that qualify for DSH payments under section 

1886(d)(5)(F)(i)(I) of the Act and those hospitals that qualify under the Pickle method 

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

 The remaining amount, equal to an estimate of 75 percent of what otherwise 

would have been paid as Medicare DSH payments, reduced to reflect changes in the 

percentage of individuals under age 65 who are uninsured, is available to make additional 

payments to each hospital that qualifies for Medicare DSH payments and that has 
 507 

uncompensated care. The payments to each hospital for a fiscal year are based on the 

hospital’s amount of uncompensated care for a given time period relative to the total 

amount of uncompensated care for that same time period reported by all hospitals that 

receive Medicare DSH payments for that fiscal year. 

 As provided by section 3133 of the Affordable Care Act, section 1886(r) of the 

Act requires that, for FY 2014 and each subsequent fiscal year, a “subsection (d) 

hospital” that would otherwise receive a “disproportionate share hospital payment... 

made under subsection (d)(5)(F)” receives two separately calculated payments. 

Specifically, section 1886(r)(1) of the Act provides that the Secretary shall pay to such a 

subsection (d) hospital (including a Pickle hospital) 25 percent of the amount the hospital 

would have received under section 1886(d)(5)(F) of the Act for disproportionate share 

hospital payments, which represents “the empirically justified amount for such payment, 

as determined by the Medicare Payment Advisory Commission in its March 2007 Report 

to the Congress.” We refer to this payment as the “empirically justified Medicare DSH 

payment.” 

 In addition to this payment, section 1886(r)(2) of the Act provides that, for 

FY 2014 and each subsequent fiscal year, the Secretary shall pay to “such subsection (d) 

hospital an additional amount equal to the product of” three factors. The first factor is the 

difference between “the aggregate amount of payments that would be made to subsection 

(d) hospitals under subsection (d)(5)(F) if this subsection did not apply” and “the 

aggregate amount of payments that are made to subsection (d) hospitals under paragraph 
 508 

(1)” for each fiscal year. Therefore, this factor amounts to 75 percent of the payments 

that would otherwise be made under section 1886(d)(5)(F) of the Act. 

 The second factor is, for FYs 2014 through 2017, 1 minus the percent change in 

the percent of individuals under the age of 65 who are uninsured, determined by 

comparing the percent of such individuals who are uninsured in 2013, the last year before 

coverage expansion under the Affordable Care Act (as calculated by the Secretary based 

on the most recent estimates available from the Director of the Congressional Budget 

Office before a vote in either House on the Health Care and Education Reconciliation Act 

of 2010 that, if determined in the affirmative, would clear such Act for enrollment), 

minus 0.1 percentage points for FY 2014, and minus 0.2 percentage points for FYs 2015 

through 2017. For FYs 2014 through 2017, the baseline for the estimate of the change in 

uninsurance is fixed by the most recent estimate of the Congressional Budget Office 

before the final vote on the Health Care and Education Reconciliation Act of 2010, which 

is contained in a March 20, 2010 letter from the Director of the Congressional Budget 

Office to the Speaker of the House. (A link to this letter is included in section 

IV.F.3.d.(2) of the preamble of this proposed rule). 

 For FY 2018 and subsequent years, the second factor is 1 minus the percent 

change in the percent of individuals who are uninsured, as determined by comparing the 

percent of individuals “who are uninsured in 2013 (as estimated by the Secretary, based 

on data from the Census Bureau or other sources the Secretary determines appropriate, 

and certified by the Chief Actuary” of CMS, and the percent of individuals “who are 

uninsured in the most recent period for which data is available (as so estimated and 
 509 

certified), minus 0.2 percentage points for FYs 2018 and 2019.” Therefore, for FY 2018 

and subsequent years, the statute provides some greater flexibility in the choice of the 

data sources to be used for the estimate of the change in the percent of uninsured 

individuals. 

 The third factor is a percent that, for each subsection (d) hospital, “represents the 

quotient of... the amount of uncompensated care for such hospital for a period selected 

by the Secretary (as estimated by the Secretary, based on appropriate data...),” including 

the use of alternative data “where the Secretary determines that alternative data is 

available which is a better proxy for the costs of subsection (d) hospitals for... treating 

the uninsured,” and “the aggregate amount of uncompensated care for all subsection (d) 

hospitals that receive a payment under this subsection.” Therefore, this third factor 

represents a hospital’s uncompensated care amount for a given time period relative to the 

uncompensated care amount for that same time period for all hospitals that receive 

Medicare DSH payments in that fiscal year, expressed as a percent. For each hospital, 

the product of these three factors represents its additional payment for uncompensated 

care for the applicable fiscal year. We refer to the additional payment determined by 

these factors as the “uncompensated care payment.” 

 Section 1886(r) of the Act applies to FY 2014 and each subsequent fiscal year. In 

the FY 2014 IPPS/LTCH PPS final rule (78 FR 50620 through 50647) and the FY 2014 

IPPS interim final rule with comment period (78 FR 61191 through 61197), we set forth 

our policies for implementing the required changes to the DSH payment methodology 

made by section 3133 of the Affordable Care Act for FY 2014. In those rules, we noted 
 510 

that, because section 1886(r) of the Act modifies the payment required under section 

1886(d)(5)(F) of the Act, it affects only the DSH payment under the operating IPPS. It 

does not revise or replace the capital IPPS DSH payment provided under the regulations 

at 42 CFR Part 412, Subpart M, which were established through the exercise of the 

Secretary’s discretion in implementing the capital IPPS under section 1886(g)(1)(A) of 

the Act. 

 Finally, section 1886(r)(3) of the Act provides that there shall be “no 

administrative or judicial review under section 1869, section 1878, or otherwise” of “any 

estimate of the Secretary for purposes of determining the factors described in paragraph 

(2),” or of “any period selected by the Secretary” for the purpose of determining those 

factors. Therefore, there is no administrative or judicial review of the estimates 

developed for purposes of applying the three factors used to determine uncompensated 

care payments, or the periods selected in order to develop such estimates. 

b. Eligibility for Empirically Justified Medicare DSH Payments and Uncompensated 

Care Payments 

 As indicated earlier, the payment methodology under section 3133 of the 

Affordable Care Act applies to “subsection (d) hospitals” that would otherwise receive a 

“disproportionate share payment... made under subsection (d)(5)(F).” Therefore, 

eligibility for empirically justified Medicare DSH payments is unchanged under section 

3133 of the Affordable Care Act. Consistent with the law, hospitals must receive 

empirically justified Medicare DSH payments in a fiscal year to receive an additional 

Medicare uncompensated care payment for that year. Specifically, section 1886(r)(2) of 
 511 

the Act states that “[i]n addition to the payment made to a subsection (d) hospital under 

paragraph (1)...the Secretary shall pay to such subsection (d) hospital an additional 

amount...” (emphasis supplied). Because paragraph (1) refers to empirically justified 

Medicare DSH payments, the additional payment under section 1886(r)(2) of the Act 

therefore, is limited to hospitals that receive empirically justified Medicare DSH 

payments in accordance with section 1886(r)(1) of the Act for the applicable fiscal year. 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622) and the FY 2014 IPPS 

interim final rule with comment period (78 FR 61193), we provided that hospitals that are 

not eligible to receive empirically justified Medicare DSH payments in a fiscal year will 

not receive uncompensated care payments for that year. We also specified that we would 

make a determination concerning eligibility for interim uncompensated care payments 

based on each hospital’s estimated DSH status for the applicable fiscal year (using the 

most recent data that are available). We indicated that our final determination on the 

hospital’s eligibility for uncompensated care payments would be based on the hospital’s 

actual DSH status on the cost report for that payment year. 

 In the FY 2014 IPPS/LTCH PPS final rule, we also considered whether several 

specific classes of hospitals are included within the scope of section 1886(r) of the Act. 

As we specified in that final rule (78 FR 50623), subsection (d) Puerto Rico hospitals that 

are eligible for DSH payments also are eligible to receive empirically justified Medicare 

DSH payments and uncompensated care payments under the new payment methodology. 

 In addition, in the FY 2014 IPPS/LTCH PPS final rule, we considered whether 

Maryland hospitals that were paid under section 1814(b)(3) of the Act, would be eligible 
 512 

to receive uncompensated care payments. We explained that, under section 1814(b) of 

the Act, hospitals in the State of Maryland were subject to a waiver from the Medicare 

payment methodologies under which they would otherwise be paid. Because Maryland 

waiver hospitals were not paid under the IPPS (section 1886(d) of the Act), in the 

FY 2014 IPPS/LTCH PPS final rule, we determined that Maryland hospitals that 

operated under a waiver under section 1814(b)(3) of the Act were not eligible to receive 

empirically justified Medicare DSH payments and uncompensated care payments under 

the payment methodology of section 1886(r) of the Act (78 FR 50623). As stated in 

section IV.H. of the preamble of this proposed rule, effective January 1, 2014, the State 

of Maryland elected to no longer have Medicare pay Maryland hospitals in accordance 

with section 1814(b)(3) of the Act and entered into an agreement with CMS that 

Maryland hospitals would be paid under the Maryland All-Payor Model. However, under 

the Maryland All-Payor Model, Maryland hospitals still are not paid under the IPPS. 

Therefore, they remain ineligible to receive empirically justified Medicare DSH 

payments or the uncompensated care payments under section 1886(r) of the Act. 

 SCHs are paid based on their hospital-specific rate from certain specified base 

years or the IPPS Federal rate, whichever yields the greater aggregate payment for the 

hospital’s cost reporting period. If an SCH is paid under its hospital-specific rate, it is not 

eligible for Medicare DSH payments. In order to implement the provisions of section 

1886(r) of the Act, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50624), we 

specified that we will continue to determine interim payments for SCHs based on what 

we estimate and project their DSH status to be prior to the beginning of the Federal fiscal 
 513 

year (based on the best available data at that time), subject to settlement through the cost 

report. We also specified that SCHs that receive interim empirically justified Medicare 

DSH payments in a fiscal year would receive interim uncompensated care payments for 

that fiscal year on a per discharge basis, subject as well to settlement through the cost 

report. Final eligibility determinations will be made at the end of the cost reporting 

period at settlement, and both interim empirically justified Medicare DSH payments and 

uncompensated care payments will be adjusted accordingly. Therefore, we follow the 

same processes of interim and final payments for SCHs that we follow for eligible IPPS 

DSH hospitals generally. 

 MDHs are paid based on the IPPS Federal rate or, if higher, the IPPS Federal rate 

plus 75 percent of the amount by which the Federal rate is exceeded by the updated 

hospital-specific rate from certain specified base years (76 FR 51684). The IPPS Federal 

rate used in the MDH payment methodology is the same IPPS Federal rate that is used in 

the SCH payment methodology. Uncompensated care payments to MDHs were not 

explicitly addressed in the FY 2014 IPPS/LTCH PPS final rule because, at the time of the 

publication of the final rule, the MDH program was set to expire at the end of FY 2013. 

Since the publication of the FY 2014 IPPS/LTCH PPS final rule, the MDH program was 

extended from October 1, 2013, to March 31, 2014, under the Pathway for SGR Reform 

Act (Pub. L. 113-67) and was further extended an additional year from April 1, 2014, to 

March 31, 2015, by the Protecting Access to Medicare Act of 2014 (Pub. L. 113-93). 

Because MDHs are paid under the IPPS Federal rate and, therefore, are eligible to receive 

Medicare DSH payments if their disproportionate patient percentage is at least 15 
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percent, we apply the same process to determine eligibility for Medicare DSH and the 

uncompensated care payment as we do for all other IPPS hospitals. That is, we make a 

determination concerning eligibility for interim uncompensated care payments based on 

each hospital’s estimated DSH status for the applicable fiscal year (using the most recent 

data that are available) and our final determination on the hospital’s eligibility for 

uncompensated care payments would be based on the hospital’s actual DSH status on the 

cost report for that payment year. In addition, as we do for all IPPS hospitals, we would 

calculate a numerator for Factor 3 for all MDHs, regardless of whether they are projected 

to be eligible for DSH during the fiscal year, but the denominator for Factor 3 would be 

based on the uncompensated care data from the hospitals that we have projected to be 

eligible for DSH during the fiscal year. 

 Furthermore, in the FY 2014 IPPS interim final rule with comment period 

(79 FR 15027), which addressed MDH payments for the first 6 months of FY 2014, we 

established a policy of including a pro rata share of the uncompensated care payment 

amount for that period as part of the Federal rate payment in the comparison of payments 

under the hospital-specific rate and the Federal rate. Consistent with that policy, for 

MDH payments for the first 6 months of FY 2015, a pro rata share of the uncompensated 

care payment amount for that period will be included as part of the Federal rate payment 

in the comparison of payments under the hospital-specific rate and the Federal rate. That 

is, in making this comparison at cost report settlement, we will include the pro rata share 

of the uncompensated care payment amount that reflects the period of time the hospital 

was paid under the MDH program for its discharges occurring on or after 
 515 

October 1, 2014, and before April 1, 2015. Consistent with the policy for hospitals with 

Medicare cost reporting periods that span more than 1 Federal fiscal year, this pro rata 

share will be determined based on the proportion of the applicable Federal fiscal year that 

is included in that cost reporting period (78 FR 61192 through 61194). As noted 

previously, section 106 of Pub. L. 113-93 provides for an extension of the MDH program 

through March 31, 2015, only. Therefore, beginning April 1, 2015, all hospitals that 

previously qualified for MDH status will no longer have MDH status under current law. 

 IPPS hospitals that have elected to participate in the Bundled Payments for Care 

Improvement initiative receive a payment that links multiple services furnished to a 

patient during an episode of care. We have stated in previous rulemaking that those 

hospitals continue to be paid under the IPPS (77 FR 53342). Hospitals that elect to 

participate in the initiative can still receive DSH payments while participating in the 

initiative, if they otherwise meet the requirements for receiving such payments. In the 

FY 2014 IPPS/LTCH PPS final rule (78 FR 50625), we specified that we will apply the 

new DSH payment methodology to the hospitals participating in this initiative, so that 

eligible hospitals will receive empirically justified Medicare DSH payments and 

uncompensated care payments. 

 Section 410A of the Medicare Modernization Act established the Rural 

Community Hospital Demonstration Program. After the initial 5-year period, the 

demonstration was extended for an additional 5-year period by sections 3123 and 10313 

of the Affordable Care Act. There are 23 hospitals currently participating in the 

demonstration. Under the payment methodology provided in section 410A, participating 
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hospitals receive payment for Medicare inpatient services on the basis of a cost 

methodology. Specifically, for discharges occurring in the hospitals’ first cost reporting 

period of the initial 5-year demonstration or the first cost reporting period of the 5-year 

extension, the hospitals participating in the demonstration receive payments for the 

reasonable cost of providing such services. For discharges occurring in subsequent cost 

reporting periods during the applicable 5-year period, hospitals receive the lesser of the 

current year’s reasonable cost-based amount, or the previous year’s amount updated by 

the percentage increase in the IPPS market basket (the target amount). The instructions 

(Change Request 5020 (April 14, 2006) and Change Request 7505 (July 22, 2011) for the 

demonstration require that the MAC not pay Medicare DSH payments in addition to the 

amount received under the reasonable cost-based payment methodology. Because 

hospitals participating in the demonstration do not receive DSH payments, we determined 

in the FY 2014 IPPS/LTCH PPS final rule that these hospitals also are excluded from 

receiving empirically justified Medicare DSH payments and uncompensated care 

payments under the new payment methodology (78 FR 50625). 

c. Empirically Justified Medicare DSH Payments 

 As we have discussed earlier, section 1886(r)(1) of the Act requires the Secretary 

to pay 25 percent of the amount of the DSH payment that would otherwise be made under 

subsection (d)(5)(F) to a subsection (d) hospital. Because section 1886(r)(1) of the Act 

merely requires the program to pay a designated percentage of these payments, without 

revising the criteria governing eligibility for DSH payments or the underlying payment 

methodology, we stated in the FY 2014 IPPS/LTCH PPS final rule that we did not 
 517 

believe that it is necessary to develop any new operational mechanisms for making such 

payments. Therefore, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50626), we 

implemented this provision simply by revising the claims payment methodologies to 

adjust the interim claim payments to the requisite 25 percent of what would have 

otherwise been paid. We also made corresponding changes to the hospital cost report so 

that these empirically justified Medicare DSH payments can be settled at the appropriate 

level at the time of cost report settlement. We provided more detailed operational 

instructions and cost report instructions following issuance of the final rule that can be 

found on the CMS Web site at: http://www.cms.gov/Regulations-andGuidance/Guidance/Transmittals/2014-Transmittals-Items/R5P240.html. 

d. Uncompensated Care Payments 

 As we have discussed earlier, section 1886(r)(2) of the Act provides that, for each 

eligible hospital in FY 2014 and subsequent years, the new uncompensated care payment 

is the product of three factors. These three factors represent our estimate of 75 percent of 

the amount of Medicare DSH payments that would otherwise have been paid, an 

adjustment to this amount for the percent change in the national rate of uninsurance 

compared to the rate of uninsurance in 2013, and each eligible hospital’s estimated 

uncompensated care amount relative to the estimated uncompensated care amount for all 

eligible hospitals. Below we review the data sources and methodologies for computing 

each of these factors, our final policies for FY 2014, and our proposed policies for 

FY 2015. 
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(1) Proposed Calculation of Factor 1 for FY 2015 

 Section 1886(r)(2)(A) of the Act establishes Factor 1 in the calculation of the 

uncompensated care payment. Section 1886(r)(2)(A) of the Act states that it is a factor 

“equal to the difference between (i) the aggregate amount of payments that would be 

made to subsection (d) hospitals under subsection (d)(5)(F) if this subsection did not 

apply for such fiscal year (as estimated by the Secretary); and (ii) the aggregate amount 

of payments that are made to subsection (d) hospitals under paragraph (1) for such a 

fiscal year (as so estimated).” Therefore, section 1886(r)(2)(A)(i) of the Act represents 

the estimated Medicare DSH payment that would have been made under section 

1886(d)(5)(F) if section 1886(r) of the Act did not apply for such fiscal year. Under a 

prospective payment system, we would not know the precise aggregate Medicare DSH 

payment amount that would be paid for a Federal fiscal year until cost report settlement 

for all IPPS hospitals is completed, which occurs several years after the end of the 

Federal fiscal year. Therefore, section 1886(r)(2)(A)(i) of the Act provides authority to 

estimate this amount, by specifying that, for each fiscal year to which the provision 

applies, such amount is to be “estimated by the Secretary.” Similarly, 

section 1886(r)(2)(A)(ii) of the Act represents the estimated empirically justified 

Medicare DSH payments to be made in a fiscal year, as prescribed under section 

1886(r)(1) of the Act. Again, section 1886(r)(2)(A)(ii) of the Act provides authority to 

estimate this amount. 

 Therefore, Factor 1 is the difference between our estimates of: (1) the amount 

that would have been paid in Medicare DSH payments for the fiscal year, in the absence 
 519 

of the new payment provision; and (2) the amount of empirically justified Medicare DSH 

payments that are made for the fiscal year, which takes into account the requirement to 

pay 25 percent of what would have otherwise been paid under section 1886(d)(5)(F) of 

the Act. In other words, this factor represents our estimate of 75 percent (100 percent 

minus 25 percent) of our estimate of Medicare DSH payments that would otherwise be 

made, in the absence of section 1886(r) of the Act, for the fiscal year. 

 In order to determine Factor 1 in the uncompensated care payment formula, in the 

FY 2014 IPPS/LTCH PPS final rule (78 FR 50628 through 50630) and in the FY 2014 

IPPS interim final rule with comment period (78 FR 61194), we adopted a policy under 

which we develop final estimates of both the aggregate amount of Medicare DSH 

payments that would be made in the absence of section 1886(r)(1) of the Act and the 

aggregate amount of empirically justified Medicare DSH payments to hospitals under 

section 1886(r)(1) of the Act prior to each fiscal year to which the new provision applies. 

These estimates are not revised or updated after we know the final Medicare DSH 

payments for the fiscal year. Specifically, in order to determine the two elements of 

Factor 1 (Medicare DSH payments prior to the application of section 1886(r)(1) of the 

Act, and empirically justified Medicare DSH payments after application of section 

1886(r)(1) of the Act), we use the most recently available projections of Medicare DSH 

payments for the fiscal year, as calculated by CMS’ Office of the Actuary. The Office of 

the Actuary projects Medicare DSH payments on a biannual basis, typically in February 

of each year (based on data from December of the previous year) as part of the 

President’s Budget, and in July (based on data from June) as part of the Midsession 
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Review. The estimates are based on the most recently filed Medicare hospital cost report 

with Medicare DSH payment information, supplemental cost report data provided by 

Indian Health Service (IHS) hospitals to CMS, and the most recent Medicare DSH patient 

percentages and Medicare DSH payment adjustments provided in the IPPS Impact File.

 Therefore, for the Office of the Actuary’s February 2014 estimate, the data are 

based on the December 2013 update of the Medicare Hospital Cost Report Information 

System (HCRIS), supplemental cost report data provided by IHS hospitals to CMS as of 

December 2013 and the FY 2014 IPPS/LTCH PPS final rule IPPS Impact file, published 

in conjunction with the publication of the FY 2014 IPPS/LTCH PPS final rule. For the 

July 2014 estimate, we anticipate that the data will be based on the March 2014 update of 

the HCRIS data, supplemental cost report data provided by IHS hospitals to CMS as of 

March 2014, and the FY 2015 proposed rule’s IPPS Impact file, published in conjunction 

with this proposed rule (and which is available via the Internet on the CMS Web site). 

For purposes of this proposed rule, we are using the February 2014 Medicare DSH 

estimates to calculate Factor 1 and to model the proposed impact of this provision. For 

the final rule, we intend to use the July 2014 Medicare DSH estimates to determine 

Factor 1 and to model the impact of this provision. In addition, because SCHs paid under 

their hospital-specific payment rate are excluded from the application of section 1886(r) 

of the Act, we also exclude SCHs that are projected to be paid under their 

hospital-specific rate from our Medicare DSH estimates. Similarly, because Maryland 

hospitals participating in the Maryland All-Payer Model and hospitals participating in the 
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Rural Community Hospital Demonstration do not receive DSH payments, we also 

exclude these hospitals from our Medicare DSH estimates. 

 Using the data sources discussed above, the Office of the Actuary uses the most 

recently submitted Medicare cost report data to identify current Medicare DSH payments, 

supplemental cost report data provided by IHS hospitals to CMS, and the most recent 

DSH payment adjustments provided in the IPPS Impact File, and applies inflation 

updates and assumptions for future changes in utilization and case-mix to estimate 

Medicare DSH payments for the upcoming fiscal year. The February 2014 Office of the 

Actuary estimate for Medicare DSH payments for FY 2015, without regard to the 

application of section 1886(r)(1) of the Act, is $14.205 billion. This estimate excludes 

Maryland hospitals participating in the Maryland All-Payer Model, SCHs paid under 

their hospital-specific payment rate, and hospitals participating in the Rural Community 

Hospital Demonstration as discussed above. Therefore, based on this estimate, the 

estimate for empirically justified Medicare DSH payments for FY 2015, with the 

application of section 1886(r)(1) of the Act, is $3.551 billion (25 percent of the total 

amount estimated). Under § 412.l06(g)(1)(i) of the regulations, Factor 1 is the difference 

between these two estimates of the Office of the Actuary. Therefore, for the purpose of 

modeling Factor 1, we are proposing that Factor 1 for FY 2015 would be $10.654 billion 

($14.205 billion minus $3.551 billion). We are inviting public comment on our proposed 

calculation of Factor 1 for FY 2015. 

(2) Proposed Calculation of Factor 2 for FY 2015 
 522 

 Section 1886(r)(2)(B) of the Act establishes Factor 2 in the calculation of the 

uncompensated care payment. Specifically, section 1886(r)(2)(B)(i) of the Act provides: 

“For each of fiscal years 2014, 2015, 2016, and 2017, a factor equal to 1 minus the 

percent change in the percent of individuals under the age of 65 who are uninsured, as 

determined by comparing the percent of such individuals (I) who are uninsured in 2013, 

the last year before coverage expansion under the Patient Protection and Affordable Care 

Act (as calculated by the Secretary based on the most recent estimates available from the 

Director of the Congressional Budget Office before a vote in either House on the Health 

Care and Education Reconciliation Act of 2010 that, if determined in the affirmative, 

would clear such Act for enrollment); and (II) who are uninsured in the most recent 

period for which data is available (as so calculated), minus 0.1 percentage points for 

fiscal year 2014 and minus 0.2 percentage points for each of fiscal years 2015, 2016, and 

2017.” 

 Section 1886(r)(2)(B)(i)(I) of the Act further indicates that the percent of 

individuals under 65 without insurance in 2013 must be the percent of such individuals 

“who are uninsured in 2013, the last year before coverage expansion under the Patient 

Protection and Affordable Care Act (as calculated by the Secretary based on the most 

recent estimates available from the Director of the Congressional Budget Office before a 

vote in either House on the Health Care and Education Reconciliation Act of 2010 that, if 

determined in the affirmative, would clear such Act for enrollment).” The Health Care 

and Education Reconciliation Act (Pub. L. 111-152) was enacted on March 30, 2010. It 

was passed in the House of Representatives on March 21, 2010, and by the Senate on 
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March 25, 2010. Because the House of Representatives was the first House to vote on 

the Health Care and Education Reconciliation Act of 2010 on March 21, 2010, we have 

determined that the most recent estimate available from the Director of the Congressional 

Budget Office “before a vote in either House on the Health Care and Education 

Reconciliation Act of 2010...” (emphasis added) appeared in a March 20, 2010 letter 

from the director of the CBO to the Speaker of the House. Therefore, we believe that 

only the estimates in this March 20, 2010 letter meet the statutory requirement under 

section 1886(r)(2)(B)(i)(I) of the Act. (To view the March 20, 2010 letter, we refer 

readers to the Web site at: 

http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/113xx/doc11379/amendreconprop.pdf.) 

 In its March 20, 2010 letter to the Speaker of the House of Representatives, the 

CBO provided two estimates of the “post-policy uninsured population.” The first 

estimate is of the “Insured Share of the Nonelderly Population Including All Residents” 

(82 percent) and the second estimate is of the “Insured Share of the Nonelderly 

Population Excluding Unauthorized Immigrants” (83 percent). In the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50631), we used the first estimate that includes all 

residents, including unauthorized immigrants. We stated that we believe this estimate is 

most consistent with the statute which requires us to measure “the percent of individuals 

under the age of 65 who are uninsured,” and provides no exclusions except for 

individuals over the age of 65. In addition, we stated that we believe that this estimate 

more fully reflects the levels of uninsurance in the United States that influence 

uncompensated care for hospitals than the estimate that reflects only legal residents. The 
 524 

March 20, 2010 CBO letter reports these figures as the estimated percentage of 

individuals with insurance. However, because section 1886(r)(2)(B)(i) of the Act 

requires that we compare the percent of individuals who are uninsured in the applicable 

year with the percent of individuals who were uninsured in 2013, in the FY 2014 

IPPS/LTCH PPS final rule, we used the CBO insurance rate figure and subtracted that 

amount from 100 percent (that is the total population without regard to insurance status) 

to estimate the 2013 baseline percent of individuals without insurance. Therefore, for 

FYs 2014 through 2017, our estimate of the uninsurance percentage for 2013 is 18 

percent. 

 Section 1886(r)(2)(B)(i) of the Act requires that we compare the baseline 

uninsurance rate to the percent of such individuals “who are uninsured in the most recent 

period for which data is available (as so calculated).” In the FY 2014 IPPS/LTCH PPS 

final rule (78 FR 50634), we used the same data source, CBO estimates, to calculate this 

percent of individuals without insurance. In response to public comments, we also 

agreed that we should normalize the CBO estimates, which are based on the calendar 

year, for the Federal fiscal years for which each calculation of Factor 2 is made 

(78 FR 50633). Therefore, in the FY 2014 IPPS/LTCH PPS final rule, we employed the 

most recently available estimate, specifically CBO’s May 2013 estimates of the effects of 

the Affordable Care Act on health insurance coverage (which are available at: 

http://www.cbo.gov/sites/default/files/cbofiles/attachments/44190_EffectsAffordableCare

ActHealthInsuranceCoverage_2.pdf) as amended by CBO’s July 2013 estimates of 

changes in estimates of the effects of insurance coverage provisions in the Affordable 
 525 

Care Act issued in conjunction with a memo regarding “Analysis of the Administration’s 

Announced Delay of Certain Requirements Under the Affordable Care Act,” which are 

available at: http://www.cbo.gov/sites/default/files/cbofiles/attachments/44465-

ACA.pdf. The CBO’s May 2013 estimate of the rate of insurance for CY 2013 was 80 

percent, and for CY 2014 was 84 percent. Therefore, the calculation of Factor 2 for 

FY 2014, employing a weighted average of the CBO projections for CY 2013 and 

CY 2014, was as follows: 

● CY 2013 rate of insurance coverage (May 2013 CBO estimate): 80 percent. 

● CY 2014 rate of insurance coverage (May 2013 CBO estimate, updated with 

July 2013 CBO estimate): 84 percent. 

● FY 2014 rate of insurance coverage: (80 percent * .25) + (84 percent * .75) = 

83 percent. 

● Percent of individuals without insurance for 2013 (March 2010 CBO estimate): 

18 percent. 

● Percent of individuals without insurance for FY 2014 (weighted average): 17 

percent. 

 1 – |[(0.17 - 0.18)/0.18]| = 1 - 0.056 = 0.944 (94.4 percent). 

 0.944 (94.4 percent) - 0.001 (0.1 percentage points) = 0.943 (94.3 percent). 

 0.943 = Factor 2 

 Therefore, in the FY 2014 IPPS/LTCH PPS final rule, we adopted 0.943 as the 

final determination of Factor 2 for FY 2014. In conjunction with this determination, we 

also determined in the FY 2014 IPPS/LTCH PPS final rule and later revised in the 
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FY 2014 IPPS interim final rule with comment period (78 FR 61195) that the amount 

available for uncompensated care payments for FY 2014 would be approximately $9.046 

billion (0.943 times our Factor 1 estimate of $9.593 billion). 

 For this FY 2015 proposed rule, we have used CBO’s February 2014 estimates of 

the effects of the Affordable Care Act on health insurance coverage (which are available 

at

http://www.cbo.gov/publication/43900?utm_source=feedblitz&utm_medium=FeedBlitzE

mail&utm_content=812526&utm_campaign=0). The CBO’s February 2014 estimate of 

individuals under the age of 65 with insurance in CY 2014 is 84 percent. Therefore, the 

CBO’s most recent estimate of the rate of uninsurance in CY 2014 is 16 percent (that is, 

100 percent minus 84 percent.) Similarly, the CBO’s February 2014 estimate of 

individuals under the age of 65 with insurance in CY 2015 is 86 percent. Therefore, the 

CBO’s most recent estimate of the rate of uninsurance in CY 2015 available during the 

development of this proposed rule is 14 percent (that is, 100 percent minus 86 percent.) 

 The calculation of the proposed Factor 2 for FY 2015, employing a weighted 

average of the CBO projections for CY 2014 and CY 2015, is as follows: 

● CY 2014 rate of insurance coverage (February 2014 CBO estimate): 

84 percent. 

● CY 2015 rate of insurance coverage (February 2014 CBO estimate): 

86 percent. 

● FY 2015 rate of insurance coverage: (84 percent * .25) + (86 percent * .75) = 

85.5 percent. 
 527 

● Percent of individuals without insurance for 2013 (March 2010 CBO estimate): 

18 percent 

● Percent of individuals without insurance for FY 2015 (weighted average): 14.5 

percent 

 1 – |[(0.145 - 0.18)/0.18]| = 1 - 0.19444 = 0.80556 (80.556 percent) 

 0.80556 (80.556 percent) - 0.002 (0.2 percentage points for FY 2015 under 

section 1886(r)(2)(B)(i) of the Act) = 0.8036 (80.36 percent) 

 0.8036 = Factor 2 

 Therefore, we are proposing that Factor 2 for FY 2015 would be 0.8036. Our 

proposal for Factor 2 is subject to change if more recent CBO estimates of the insurance 

rate become available at the time of the preparation of the final rule. We are inviting 

public comments on our proposed calculation of Factor 2 for FY 2015. 

(3) Proposed Calculation of Factor 3 for FY 2015 

 Section 1886(r)(2)(C) of the Act defines Factor 3 in the calculation of the 

uncompensated care payment. As we have discussed earlier, section 1886(r)(2)(C) of the 

Act states that Factor 3 is “equal to the percent, for each subsection (d) hospital, that 

represents the quotient of (i) the amount of uncompensated care for such hospital for a 

period selected by the Secretary (as estimated by the Secretary, based on appropriate data 

(including, in the case where the Secretary determines alternative data is available which 

is a better proxy for the costs of subsection (d) hospitals for treating the uninsured, the 

use of such alternative data)); and (ii) the aggregate amount of uncompensated care for all 
 528 

subsection (d) hospitals that receive a payment under this subsection for such period (as 

so estimated, based on such data).” 

 Therefore, Factor 3 is a hospital-specific value that expresses the proportion of the 

estimated uncompensated care amount for each subsection (d) hospital and each 

subsection (d) Puerto Rico hospital with the potential to receive DSH payments relative 

to the estimated uncompensated care amount for all hospitals estimated to receive DSH 

payments in the fiscal year for which the uncompensated care payment is to be made. 

Factor 3 is applied to the product of Factor 1 and Factor 2 to determine the amount of the 

uncompensated care payment that each eligible hospital will receive for FY 2014 and 

subsequent fiscal years. In order to implement the statutory requirements for this factor 

of the uncompensated care payment formula, it was necessary to determine: (1) the 

definition of uncompensated care or, in other words, the specific items that are to be 

included in the numerator (that is, the estimated uncompensated care amount for an 

individual hospital) and denominator (that is, the estimated uncompensated care amount 

for all hospitals estimated to receive DSH payments in the applicable fiscal year); (2) the 

data source(s) for the estimated uncompensated care amount; and (3) the timing and 

manner of computing the quotient for each hospital estimated to receive DSH payments. 

The statute instructs the Secretary to estimate the amounts of uncompensated care for a 

period “based on appropriate data.” In addition, we note that the statute permits the 

Secretary to use alternative data “in the case where the Secretary determines that 

alternative data is available,” which is a better proxy for the costs of subsection (d) 

hospitals for treating uninsured individuals. 
 529 

 In the course of considering how to determine Factor 3 during the rulemaking 

process for FY 2014, we considered defining the amount uncompensated care for a 

hospital as the uncompensated care costs of each hospital and considered potential data 

sources for those costs. For purposes of selecting an appropriate data source for this 

possible definition of uncompensated care costs, we reviewed the literature and available 

data sources and determined that Worksheet S-10 of the Medicare cost report could 

potentially provide the most complete data for Medicare hospitals. (We refer readers to 

the report “Improvements to Medicare Disproportionate Share (DSH) Payments” for a 

full discussion and evaluation of the available data sources. The report is available on the 

CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/dsh.html.) However, we noted that Worksheet S-10 is a 

relatively new data source that has been used for specific payment purposes only in 

relatively restricted ways (for example, to provide a source of charity care charges in the 

computation of EHR incentive payments (75 FR 44456)). We also noted that some 

stakeholders have expressed concern that hospitals have not had enough time to learn 

how to submit accurate and consistent data through this reporting mechanism. Other 

stakeholders have maintained that some instructions for Worksheet S-10 still require 

clarification in order to ensure standardized and consistent reporting by hospitals. At the 

same time, we noted that Worksheet S-10 is the only national data source that includes 

data for all Medicare hospitals and is designed to elicit data on uncompensated care costs. 

We discussed the possible use of data reported on Worksheet S-10 to determine 
 530 

uncompensated care costs in more detail in the FY 2014 IPPS/LTCH PPS proposed rule 

(78 FR 27586). 

 Because of concerns regarding variations in the data reported on Worksheet S-10 

of the Medicare cost report and the completeness of these data, we did not propose to use 

data from the Worksheet S-10 to determine the amount of uncompensated care. 

However, we stated our belief that Worksheet S-10 of the Medicare cost report would 

otherwise be an appropriate data source to determine uncompensated care costs. In 

particular, we noted that Worksheet S-10 was developed specifically to collect 

information on uncompensated care costs in response to interest by MedPAC and other 

stakeholders regarding the topic (for example, MedPAC’s March 2007 Report to 

Congress) and that it is not unreasonable to expect information on the cost report to be 

used for payment purposes. Furthermore, hospitals attest to the accuracy and 

completeness of the information reported in the cost report at the time of submission. We 

indicated that we expect reporting on Worksheet S-10 to improve over time, particularly 

in the area of charity care which is already being used and audited for payment 

determinations related to the EHR Incentive Program, and that we will continue to 

monitor these data. Accordingly, we stated that we may proceed with a proposal to use 

data on the Worksheet S-10 to determine uncompensated care costs in the future, once 

hospitals are submitting accurate and consistent data through this reporting mechanism. 

 As a result of our concerns regarding the data reported on Worksheet S-10 of the 

Medicare cost report, we believed it was appropriate to consider the use of alternative 

data, at least in FY 2014, the first year that this provision is in effect, and possibly for 
 531 

additional years until hospitals have adequate experience reporting all of the data 

elements on Worksheet S-10. We noted that this approach is consistent with input we 

received from some stakeholders in response to the CMS National Provider Call in 

January 2013, who stated their belief that existing FY 2010 and FY 2011 data from the 

Worksheet S-10 should not be used for implementation of section 1886(r) of the Act and 

who requested the opportunity to resubmit the data once more specific instructions were 

issued by CMS. Accordingly, we examined alternative data sources that could be used to 

allow time for hospitals to gain experience with and to improve the accuracy of their 

reporting on Worksheet S-10 of the Medicare cost report. We stated in the FY 2014 

IPPS/LTCH PPS final rule that we believe that data on utilization for insured low-income 

patients can be a reasonable proxy for the treatment costs of uninsured patients. 

Moreover, due to the concerns regarding the accuracy and consistency of the data 

reported on the Worksheet S-10, we also determined that these alternative data, which are 

currently reported on the Medicare cost report, would be a better proxy for the amount of 

uncompensated care provided by hospitals. Accordingly, in the FY 2014 IPPS/LTCH 

PPS final rule (78 FR 50639), we adopted the policy of employing the utilization of 

insured low-income patients defined as inpatient days of Medicaid patients plus inpatient 

days of Medicare SSI patients as defined in 42 CFR 412.106(b)(4) and 412.106(b)(2)(i), 

respectively, to determine Factor 3. We also indicated that we remained convinced that 

the Worksheet S-10 could ultimately serve as an appropriate source of more direct data 

regarding uncompensated care costs for purposes of determining Factor 3 once hospitals 

are submitting more accurate and consistent data through this reporting mechanism. In 
 532 

the interim, we indicated that we would take steps such as revising and clarifying cost 

report instructions, as appropriate. We stated that it is our intention to propose 

introducing the use of the Worksheet S-10 data for purposes of determining Factor 3 

within a reasonable amount of time. 

 Since the publication of the FY 2014 IPPS/LTCH PPS final rule, we have 

continued to evaluate and assess the comments we have received from stakeholders about 

Worksheet S-10 as well as evaluate what changes might need to be made to the 

instructions to make the data hospitals submit more accurate and consistent across 

hospitals. Although we have not yet developed revisions to the Worksheet S-10 

instructions at this time, we remain committed to making improvements to Worksheet 

S-10. For that reason, we believe it would be premature to propose the use of Worksheet 

S-10 data for purposes of determining Factor 3 for FY 2015. Therefore, we are 

proposing to continue to employ the utilization of insured low-income patients defined as 

inpatient days of Medicaid patients plus inpatient days of Medicare SSI patients, as 

defined in § 412.106(b)(4) and § 412.106(b)(2)(i), respectively, to determine Factor 3 for 

FY 2015. Accordingly, we are proposing to revise the regulations at 42 CFR 

412.106(g)(1)(iii)(C) to state that, for FY 2015, CMS will base its estimates of the 

amount of hospital uncompensated care on the most recent available data on utilization 

for Medicaid and Medicare SSI patients, as determined by CMS in accordance with 

paragraphs (b)(2)(i) and (b)(4) of that section of the regulations. We are inviting public 

comments on this proposal, and we will continue to work with the hospital community 

and others to develop the appropriate clarifications and revisions to Worksheet S-10 of 
 533 

the Medicare cost report for reporting uncompensated care data. In particular, we are 

inviting public comments on what would be a reasonable timeline for adopting 

Worksheet S-10 of the Medicare cost report as the data source for determining Factor 3. 

 As we did for the FY 2014 IPPS/LTCH PPS proposed rule, we are publishing on 

the CMS Web site a table listing Factor 3 for all hospitals that we estimate would receive 

empirically justified Medicare DSH payments in a fiscal year (that is, hospitals that we 

project would receive interim uncompensated care payments during the fiscal year), and 

for the remaining subsection (d) and subsection (d) Puerto Rico hospitals that have the 

potential of receiving a DSH payment in the event that they receive an empirically 

justified Medicare DSH payment for the fiscal year as determined at cost report 

settlement. Hospitals have 60 days from the date of public display of the IPPS/LTCH 

PPS proposed rule to review these tables and notify CMS in writing of a change in a 

hospital’s subsection (d) hospital status, such as if a hospital has closed or converted to a 

CAH. 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50639), we considered public 

comments which recommended that we use the wage index to adjust insured low-income 

days in determining Factor 3 in order to account for the differences in “purchasing 

power” in different regions of the country. With respect to these public comments, we 

agreed that there may be regional variation in uncompensated care costs due to regional 

variations in the costs of care generally. However, we stated that we did not believe that 

there was sufficient basis for believing that the wage index reflects the variations in 

uncompensated care costs well enough to adopt it as the basis for adjusting Factor 3. The 
 534 

wage index reflects the relative hospital wage level in the geographic area of the hospital 

compared to the national average hospital wage level. In computing the wage index, we 

derive an average hourly wage for each labor market area (total wage costs divided by 

total hours for all hospitals in the geographic area) and a national average hourly wage 

(total wage costs divided by total hours for all hospitals surveyed in the nation). A labor 

market area’s wage index value is the ratio of the area’s average hourly wage to the 

national average hourly wage. We note that, for FY 2014, 69.6 percent of the 

standardized amount is considered to be the labor-related share and, therefore, adjusted 

by the wage index. However, in addition to the labor-related share of the standardized 

amount being adjusted by the wage index, the entire standardized amount is also adjusted 

for the relative weight of the MS-DRG for each individual patient. In other words, the 

wage index only adjusts for a portion of the variation in costs, and does not address 

variations in resource use and patient severity. Therefore, we stated that we did not 

believe that there was sufficient basis for believing that adjusting low-income patient 

days by the wage index would better reflect variations in uncompensated care costs. 

 Since the publication of the FY 2014 IPPS/LTCH PPS final rule, we have 

continued to consider whether to propose employing the wage index to adjust insured 

low-income days in determining Factor 3. After this consideration, we continue to 

believe that a wage index adjustment to insured low-income days is not an appropriate 

measure to account for variations in the costs of uncompensated care among hospitals. 

The intensity of such care, and therefore the costs, may vary by hospital, but we still lack 

convincing evidence that the wage index data are an accurate measure of that intensity. 
 535 

Therefore, we are not proposing to adopt such an adjustment to low-income days for 

purposes of calculating Factor 3 in FY 2015. 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50639), we also considered 

public comments that requested that we include insured low-income days from exempt 

units (specifically, inpatient rehabilitation units paid under the IRF PPS and inpatient 

psychiatric units paid under the IPF PPS) of the hospital in the computation of Factor 3, 

in order to better capture the treatment costs of the uninsured by the hospital. In response 

to those public comments, we stated our belief that there may be some merit to including 

insured low-income days from exempt units of the hospital in order to better capture the 

full costs of the treatment of the uninsured by the hospital insofar as those data may be 

publicly available, subject to audit, and used for payment purposes. We also indicated 

that we believed it would be prudent to consider the degree to which these data meet 

these conditions before adopting this recommendation. Therefore, we stated that we 

would consider including this recommendation among our proposals in future 

rulemaking. 

 Since the publication of the FY 2014 IPPS/LTCH PPS final rule, we have 

conducted an analysis of the impact of adopting this recommendation. That analysis has 

indicated that the inclusion of Medicaid and Medicare-SSI days for exempt inpatient 

units does not significantly change the distribution of uncompensated care payments to 

hospitals, with the exception of a few hospitals with high utilization associated with those 

exempt units that would see increases in their uncompensated care payments. 

Furthermore, Medicaid and SSI days for inpatient rehabilitation units have been audited 
 536 

and are used for payment purposes under the IRF PPS; specifically, these data are used to 

calculate the low-income payment (LIP) adjustment under the IRF PPS. However, the 

data for inpatient psychiatric units are not generally audited and have not been used 

previously for payment purposes. Therefore, we are not proposing at this time to include 

those days in the calculation of a hospital’s share of uncompensated care payments. As 

we indicated earlier, we believe it would be appropriate to include such data in the 

calculation of uncompensated care payments only insofar as those data may be publicly 

available, subject to audit, and used for payment purposes. The use of data for inpatient 

psychiatric units would fail the second and third conditions. At the same time, we do not 

believe that including only inpatient rehabilitation unit days without inpatient psychiatric 

unit days would improve the accuracy of the uncompensated care payment calculation. 

We also observe, as we have previously noted, that the statutory references under section 

1886(d)(5)(F) of the Act to “days” apply only to hospital acute care inpatient days. 

Section 412.106(a)(1)(ii) of the regulations therefore provides that, for purposes of DSH 

payments, “the number of patient days in the hospital includes only those days 

attributable to units or wards of the hospital providing acute care services generally 

payable under the prospective payment system and excludes” other days. In the absence 

of compelling reasons to do otherwise, we believe it is preferable to maintain consistency 

with this longstanding precedent in the context of this temporary method for determining 

uncompensated care payments. However, we are inviting public comments on this issue. 

 The statute also allows the Secretary the discretion to determine the time periods 

from which we will derive the data to estimate the numerator and the denominator of the 
 537 

Factor 3 quotient. Specifically, section 1886(r)(2)(C)(i) of the Act defines the numerator 

of the quotient as “the amount of uncompensated care for such hospital for a period 

selected by the Secretary....” (emphasis added). Section 1886(r)(2)(C)(ii) of the Act 

defines the denominator as “the aggregate amount of uncompensated care for all 

subsection (d) hospitals that receive a payment under this subsection for such period” 

(emphasis added). In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50638), we 

adopted a process of making interim payments with final cost report settlement for both 

the empirically justified Medicare DSH payments and the uncompensated care payments 

required by section 3133 of the Affordable Care Act. Consistent with that process, we 

also determined the time period from which to calculate the numerator and denominator 

of the Factor 3 quotient in a way that would be consistent with making interim and final 

payments. Specifically, we must have Factor 3 values available for hospitals that we 

estimate will qualify for Medicare DSH payments using the most recently available 

historical data and for those hospitals that we do not estimate will qualify for Medicare 

DSH payments but that may ultimately qualify for Medicare DSH payments at the time 

of cost report settlement. 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50638), therefore, we adopted 

the policy to calculate the numerator and the denominator of Factor 3 for hospitals based 

on the most recently available full year of Medicare cost report data (including the most 

recently available data that may be used to update the SSI ratios) with respect to a Federal 

fiscal year. In other words, we use data from the most recently available full year cost 

report for the Medicaid days and the most recently available SSI ratios (that is, latest 
 538 

available SSI ratios before the beginning of the Federal fiscal year) for the Medicare SSI 

days. We noted that these data are publicly available, subject to audit, and used for 

payment purposes. While we recognized that older data also meet these criteria, we often 

use the most recently available data for payment determinations. Furthermore, in the 

FY 2014 IPPS interim final rule with comment period (78 FR 61195), we revised our 

policy to also include supplemental cost report data submitted to CMS only by IHS 

hospitals in order allow their Medicaid days to be used to calculate Factor 3. 

 Therefore, for FY 2014, we used data from the most recently available full year 

cost report for the Medicaid days and the most recently available SSI ratios, which meant 

data from the 2010/2011 cost reports for the Medicaid days, supplemental 2011 cost 

report data submitted to CMS by IHS hospitals, and the FY 2011 SSI ratios for the 

Medicare SSI days to estimate Factor 3 for FY 2014. For FY 2015, we are again 

proposing to use data from the most recently available full year cost report for the 

Medicaid days (that is, we are proposing to use the 2012 cost report, unless that cost 

report is unavailable or reflects less than a full 12-month year; in the event the 2012 cost 

report is for less than 12 months, we are proposing to use the cost report from 2012 or 

2011 that is closest to being a full 12-month cost report), supplemental cost report data 

submitted to CMS only by IHS hospitals and the most recently available SSI ratios. For 

purposes of this proposed rule, we are using data from the December 2013 update of the 

2011/2012 Medicare cost reports for the Medicaid days and the FY 2011 SSI ratios for 

the Medicare SSI days. Consistent with our FY 2014 IPPS interim final rule with 

comment period (78 FR 61195), for FY 2015, we also are using supplemental cost report 
 539 

data provided by IHS hospitals to CMS as of December 2013 in order to calculate the 

proposed Factor 3. For the FY 2015 IPPS final rule, we intend to use the March 2014 

update of the 2011/2012 Medicare cost reports, supplemental cost report data submitted 

to CMS by IHS hospitals as of March 2014, and the most recently available SSI ratios 

(FY 2012 SSI ratios and, if not available, the FY 2011 SSI ratios) to calculate Factor 3. 

We believe the March update to the Medicare cost reports will be the most recently 

available data to calculate Factor 3 at the time of publication of the FY 2015 IPPS final 

rule. We believe this is consistent with CMS’ historical policy to use the best available 

data when setting the payment rates and factors in both the proposed and final rules. 

Furthermore, this is consistent with our approach in other areas of IPPS, where we 

historically use the March update of cost report data and MedPAR claims data to 

calculate IPPS relative weights, budget neutrality factors, the outlier threshold, and the 

standardized amount for the IPPS final rule. If we were to wait for a later update of the 

cost report data to become available, this could cause delay of the publication of the IPPS 

final rule. 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50642), we discussed several 

specific issues concerning the use of cost report data to determine Factor 3. One issue 

concerned the process and data to be employed in determining Factor 3 in the case of 

hospital mergers. Specifically, two hospitals that merged in 2011 with one surviving 

provider number requested that we account for the merger by including data from both 

hospitals’ cost reports immediately prior to the merger in the calculation of the Factor 3 

amount. In that final rule, we had calculated Factor 3 using only the surviving hospital’s 
 540 

cost report data and SSI ratio data. In the final rule (78 FR 50602), we responded to the 

public comment that Factor 3 would be calculated based on the low-income insured 

patient days (that is, Medicaid days and SSI days) under the surviving CCN, based on the 

most recent available data for that CCN (for FY 2014, from the cost report for 2011 or 

2010). We noted that this was consistent with the treatment of other IPPS payment 

factors, where data used to calculate a hospital’s Medicare DSH payment adjustment, 

CCRs for outlier payments, and wage index values are tied to a hospital’s CCN. Data 

associated with a CCN that is no longer in use are not used to determine those IPPS 

hospital payments under the surviving CCN. 

 Since the publication of the FY 2014 IPPS/LTCH PPS final rule, we have 

received additional input from hospitals that have undergone mergers that suggest using 

only the surviving CCN produces an estimate of the surviving hospital’s uncompensated 

care burden that is lower than warranted. For FY 2015, for example, Factor 3 of the 

uncompensated care payment calculation would be determined using 2011/2012 cost 

reports. As a result, for any mergers occurring between FY 2011 and FY 2015, Factor 3 

of the uncompensated care payment for FY 2015 would reflect only the data of the 

hospital with the surviving CCN, not the combination of the data from the two hospitals 

that merged. We believe that revising our methodology to incorporate data from both of 

the hospitals that merged could improve our estimate of the uncompensated care burden 

of the merged hospital. Accordingly, we are proposing to revise our methodology for 

determining Factor 3 to incorporate data from both merged hospitals until data for the 

merged hospitals become available under the surviving CCN. 
 541 

 In addition, because the data systems used to calculate Factor 3 do not identify 

hospitals that have merged, we also are proposing to establish a process to identify 

hospitals that have merged after the period of the historical data that are being used to 

calculate Factor 3, up to a point in time during ratesetting for that Federal fiscal year. 

Under this approach, we would combine the data for the merged hospitals to calculate 

Factor 3 of the uncompensated care payment. Specifically, we are proposing that we 

would identify the hospitals that merged after the period from which data are being used 

to calculate Factor 3 (for FY 2015, 2012 and 2011) but before the publication of each 

year’s final rule. For purposes of this proposal, we are defining a merger to be an 

acquisition where the Medicare provider agreement of one hospital is subsumed into the 

provider agreement of the surviving provider. We would not consider an acquisition 

where the new owner voluntarily terminates the Medicare provider agreement of the 

hospital it purchased by rejecting assignment of the previous owner’s provider agreement 

to be a merger. We believe it is appropriate to combine data to calculate Factor 3 for a 

merged hospital where the Medicare provider agreement of one hospital is subsumed into 

the provider agreement of the surviving provider because, in this type of acquisition as 

described in the September 6, 2013 Survey & Certification Memorandum S&C: 

13-60-ALL (http://www.cms.gov/Medicare/Provider-Enrollment-andCertification/SurveyCertificationGenInfo/Downloads/Survey-and-Cert-Letter-13-60.pdf), the 

buyer is subject to all applicable statutes and regulations and to the terms and conditions 

under which the assigned agreement was originally issued. These include, but are not 

limited to, Medicare requirements to adjust payments to account for prior overpayments 
 542 

and underpayments, even if they relate to a pre-acquisition period (successor liability), 

and to adjust payments to collect civil monetary penalties. Therefore, we believe it is 

appropriate to also retain the data of the subsumed hospital to calculate the 

uncompensated care payment for the merged hospital. Conversely, by rejecting 

assignment of the Medicare provider agreement of the subsumed hospital, the surviving 

provider has voluntarily terminated the Medicare provider agreement and is precluded 

from having successor liability for Medicare overpayments or underpayments that would 

have otherwise been made to the subsumed provider. Furthermore, when the surviving 

hospital rejects automatic assignment of the existing provider agreement, but wishes to 

participate in the Medicare program, the merged hospital is considered an initial applicant 

to the Medicare program. In an instance in which the surviving provider has rejected 

assignment of the Medicare provider agreement of the subsumed provider, it would not 

seem appropriate to use data from the subsumed provider for purposes of Medicare 

payment, including for the calculation of a hospital’s uncompensated care payment. 

 For FY 2015, we are proposing to identify mergers by querying the Medicare 

contractors. We believe it is appropriate to obtain merger information from the Medicare 

contractors, as a copy of each final sales agreement/transaction indicating the effective 

date of the acquisition is generally submitted to the Medicare contractors once an 

acquisition is finalized. For the purpose of this proposed rule, we requested that the 

Medicare contractors provide us with a list of mergers that occurred between 

October 1, 2010 (the first day of FY 2011, which is the earliest date that would be 

included in any 2011 cost report data that are used to calculate a hospital’s Factor 3) 
 543 

through January 2014 (when we started preparing for the FY 2015 IPPS proposed rule). 

On the basis of this information, we would then combine the data elements of any 

hospitals that had merged to calculate the uncompensated care payment for the merged 

hospital. Specifically, we would combine the Medicaid days from the most recently 

available full year cost reports and the SSI days from the most recently available SSI 

ratios tied to the two CCNs prior to the merger to calculate the merged hospital’s 

Factor 3. For FY 2015, we would combine the Medicaid days from either the 2011 or 

2012 cost reports and would use the most recently available SSI ratios available at the 

time the final rule is developed. 

 In order to confirm these mergers and the accuracy of the data used to determine 

each merged hospital’s uncompensated care payment, we are proposing to publish a table 

on the CMS Web site, in conjunction with the issuance of the proposed and final rules for 

a fiscal year, containing a list of the mergers that we are aware of and the computed 

uncompensated care payment for each merged hospital. A copy of this table is being 

published on the CMS Web site in conjunction with the issuance of this proposed rule. 

The affected hospitals would then have the opportunity to comment during the public 

comment period on the accuracy of this information. 

 We are proposing to treat hospitals that merge after the development of the final 

rule similar to new hospitals. For these newly merged hospitals, we would not have data 

currently available to calculate a Factor 3 amount that accounts for the merged hospital’s 

uncompensated care burden. In addition, we would not have data to determine if the 

newly merged hospital is eligible for Medicare DSH payment and, therefore, eligible for 
 544 

uncompensated care payments for the applicable fiscal year because the only data we 

would have to make this determination are those for the surviving CCN. Accordingly, 

we are proposing to treat newly merged hospitals in a similar manner as new hospitals, 

such that the newly merged hospital’s final uncompensated care payment would be 

determined at cost report settlement where the numerator of the newly merged hospital’s 

Factor 3 would be based on the Medicaid days and SSI days reported on the cost report 

used for the applicable fiscal year. We are proposing that the interim uncompensated 

care payments for the newly merged hospitals would be based on only the data of the 

surviving hospital’s CCN at the time of the preparation of the final rule for the applicable 

fiscal year. In other words, for newly merged hospitals, eligibility to receive interim 

uncompensated care payments and the amount of any interim uncompensated care 

payments would be based on the Medicaid days from either the 2011 or 2012 cost reports 

and the most recently available SSI ratios available at the time the final rule is developed 

for only the surviving CCN. However, at cost report settlement, we would determine the 

newly merged hospital’s final uncompensated care payments based on the Medicaid days 

and SSI days reported on the cost report used for the applicable fiscal year. That is, we 

would revise the numerator of Factor 3 for the newly merged hospital to reflect the 

Medicaid and SSI days reported on the cost report for the applicable fiscal year. We are 

inviting public comment on our proposed change to the treatment of hospital mergers in 

the calculation of a hospital’s uncompensated care payment. 

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

1. Background 
 545 

 Section 1885(d)(5)(G) of the Act provides special payment protections, under the 

IPPS, to a Medicare-dependent, small rural hospital (MDH). (For additional information 

on the MDH program and the payment methodology, we refer readers to the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51683 through 51684.) As we discussed in the 

FY 2011 IPPS/LTCH PPS final rule (75 FR 50287) and in the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51683 through 51684), section 3124 of the Affordable Care Act 

extended the expiration of the MDH program from the end of FY 2011 (that is, for 

discharges occurring before October 1, 2011) to the end of FY 2012 (that is, for 

discharges occurring before October 1, 2012). Under prior law, as specified in section 

5003(a) of Pub. L. 109–171 (DRA 2005), the MDH program was to be in effect through 

the end of FY 2011 only. 

 Since the extension of the MDH program through FY 2012 provided by section 

3124 of the Affordable Care Act, the MDH program has been further extended multiple 

times. First, section 606 of the ATRA of 2012 (Pub. L. 112-240) extended the MDH 

program through FY 2013 (that is, for discharges occurring before October 1, 2013.) 

Second, section 1106 of the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67) 

extended the MDH program through the first half of FY 2014 (that is, for discharges 

occurring before April 1, 2014.) In the FY 2014 interim final rule with comment period 

that appeared in the Federal Register on March 18, 2013 (79 FR 15025 through 15027), 

we discussed the expiration of the MDH program on March 31, 2014, and explained how 

providers may be affected by the 6-month extension of the MDH program under Pub. L. 

113-67 and described the steps to reapply for MDH status for FY 2014, as applicable. 
 546 

Generally, a provider that was classified as an MDH as of September 30, 2013, was 

reinstated as an MDH effective October 1, 2013, with no need to reapply for MDH 

classification. However, if the MDH had classified as an SCH or cancelled its rural 

classification under § 412.103(g) effective on or after October 1, 2013, the effective date 

of MDH status may not be retroactive to October 1, 2013. In the FY 2014 IPPS/LTCH 

PPS final rule (78 FR 50647 through 50649) and the FY 2014 interim final rule with 

comment period (79 FR 15025 through 15027), we made conforming changes to the 

regulations at § 412.108(a)(1) and (c)(2)(iii) to reflect the extensions of the MDH 

program provided for by the ATRA and Pathway for SGR Reform Act, respectively. 

Lastly, under current law, section 106 of the Protecting Access to Medicare Act of 2014 

(Pub. L. 113-93) provides for a 1-year extension of the MDH program effective from 

April 1, 2014 through March 31, 2015. Specifically, section 106 of Pub. L. 113-93 

amended sections 1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act by striking 

“April 1, 2014” and inserting “April 1, 2015”. Section 106 of Pub. L. 113-93 also made 

conforming amendments to sections 1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) of the Act. 

 We intend to address the extension of the MDH program for the second half of 

FY 2014 (that is, from April 1, 2014 through September 30, 2014) under Pub. L. 113-93 

in a separate Federal Register notice. For additional information on the extensions of 

the MDH program after FY 2012, we refer readers to the following rules: the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53404 through 53405 and 53413 through 53414); the 

FY 2013 IPPS notice that appeared in the Federal Register on March 7, 2013 
 547 

(78 FR 14689); the FY 2014 IPPS/LTCH PPS final rule (78 FR 50647 through 50649); 

and the FY 2014 interim final rule with comment period (79 FR 15025 through 15027). 

2. Provisions of Pub. L. 113-93 for FY 2015 

 Prior to the enactment of Pub. L. 113-93, under section 1106 of Pub. L. 113-67, 

the MDH program authorized by section 1886(d)(5)(G) of the Act was set to expire 

midway through FY 2014. Section 106 of Pub. L. 113-93 amended sections 

1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act to provide for an additional 1-year 

extension of the MDH program, effective from April 1, 2014 through March 31, 2015. 

Section 106 of Pub. L. 113-93 also made conforming amendments to sections 

1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) of the Act. 

 In this proposed rule, we are proposing to make conforming changes to the 

regulations at §§ 412.108(a)(1) and (c)(2)(iii) to reflect the statutory extension of the 

MDH program for the first 6 months of FY 2015 made by section 106 of Pub. L. 113-93. 

3. Expiration of the MDH Program 

 Because section 106 of Pub. L. 113-93 extends the MDH program through the 

first half of FY 2015 only, effective April 1, 2015, the MDH program will no longer be in 

effect. Because the MDH program is not authorized by statute beyond March 31, 2015, 

beginning April 1, 2015, all hospitals that previously qualified for MDH status will no 

longer have MDH status and will be paid based on the Federal rate. As noted earlier, in 

the FY 2013 IPPS/ LTCH PPS final rule (77 FR 53404 through 53405), we revised our 

SCH policies to allow MDHs to apply for SCH status and be paid as such under certain 

conditions, following expiration of the MDH program at the end of FY 2012. We 
 548 

codified these changes in the regulations at § 412.92(b)(2)(i) and § 412.92(b)(2)(v). For 

additional information, we refer readers to the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53404 through 53405 and 53674). We note that those same conditions apply to 

MDHs that intend to apply for SCH status with the expiration of the MDH program on 

March 31, 2015. Specifically, the existing regulations at § 412.92(b)(2)(i) and (b)(2)(v) 

allow for an effective date of approval of SCH status that is the day following the 

expiration date of the MDH program. In accordance with these regulations, in order for 

an MDH to receive SCH status effective April 1, 2015, it must apply for SCH status at 

least 30 days before the end of the MDH program; that is, the MDH must apply for SCH 

status by March 1, 2015. The MDH also must request that, if approved as an SCH, the 

SCH status be effective with the expiration of the MDH program provision; that is, the 

MDH must request that the SCH status, if approved, be effective April 1, 2015, 

immediately after its MDH status expires with the expiration of the MDH program on 

March 31, 2015. We note that an MDH that applies for SCH status in anticipation of the 

expiration of the MDH program would not qualify for the April 1, 2015 effective date 

upon approval if it does not apply by the March 1, 2015 deadline. The provider would 

instead be subject to the usual effective date for SCH classification, that is, 30 days after 

the date of CMS’ written notification of approval as specified at § 412.92(b)(2)(i).
 549 

H. Hospital Readmissions Reduction Program: Proposed Changes for FY 2015 through 

FY 2017 (§§ 412.150 through 412.154) 

1. Statutory Basis for the Hospital Readmissions Reduction Program 

 Section 3025 of the Affordable Care Act, as amended by section 10309 of the 

Affordable Care Act, added a new section 1886(q) to the Act. Section 1886(q) of the Act 

establishes the “Hospital Readmissions Reduction Program,” effective for discharges 

from an “applicable hospital” beginning on or after October 1, 2012, under which 

payments to those applicable hospitals may be reduced to account for certain excess 

readmissions. 

 Section 1886(q)(1) of the Act sets forth the methodology by which payments to 

“applicable hospitals” will be adjusted to account for excess readmissions. In accordance 

with section 1886(q)(1) of the Act, payments for discharges from an “applicable hospital” 

will be an amount equal to the product of the “base operating DRG payment amount” and 

the adjustment factor for the hospital for the fiscal year. That is, “base operating DRG 

payments” are reduced by a hospital-specific adjustment factor that accounts for the 

hospital’s excess readmissions. Section 1886(q)(2) of the Act defines the base operating 

DRG payment amount as “the payment amount that would otherwise be made under 

subsection (d) (determined without regard to subsection (o) [the Hospital VBP Program]) 

for a discharge if this subsection did not apply; reduced by . . . any portion of such 

payment amount that is attributable to payments under paragraphs (5)(A), (5)(B), (5)(F), 

and (12) of subsection (d).” Paragraphs (5)(A), (5)(B), (5)(F), and (12) of subsection (d) 
 550 

refer to outlier payments, IME payments, DSH adjustment payments, and add-on 

payments for low-volume hospitals, respectively. 

 Furthermore, section 1886(q)(2)(B) of the Act specifies special rules for defining 

“the payment amount that would otherwise be made under subsection (d)” for certain 

hospitals, including policies for SCHs and for MDHs for FY 2013. In the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53374), we finalized policies to implement the 

statutory provisions related to the definition of “base operating DRG payment amount” 

with respect to those hospitals. 

 Section 1886(q)(3)(A) of the Act defines the “adjustment factor” for an applicable 

hospital for a fiscal year as equal to the greater of “(i) the ratio described in subparagraph 

(B) for the hospital for the applicable period (as defined in paragraph (5)(D)) for such 

fiscal year; or (ii) the floor adjustment factor specified in subparagraph (C).” 

Section 1886(q)(3)(B) of the Act, in turn, describes the ratio used to calculate the 

adjustment factor. It states that the ratio is “equal to 1 minus the ratio of – (i) the 

aggregate payments for excess readmissions . . . and (ii) the aggregate payments for all 

discharges . . . .” Section 1886(q)(3)(C) of the Act establishes the floor adjustment 

factor, which is set at 0.99 for FY 2013, 0.98 for FY 2014, and 0.97 for FY 2015 and 

subsequent fiscal years. 

 Section 1886(q)(4) of the Act defines the terms “aggregate payments for excess 

readmissions” and “aggregate payments for all discharges” for an applicable hospital for 

the applicable period. The term “aggregate payments for excess readmissions” is defined 

in section 1886(q)(4)(A) of the Act as “the sum, for applicable conditions . . . of the 
 551 

product, for each applicable condition, of (i) the base operating DRG payment amount for 

such hospital for such applicable period for such condition; (ii) the number of admissions 

for such condition for such hospital for such applicable period; and (iii) the excess 

readmissions ratio... for such hospital for such applicable period minus 1.” The “excess 

readmissions ratio” is a hospital-specific ratio based on each applicable condition. 

Specifically, section 1886(q)(4)(C) of the Act defines the excess readmissions ratio as the 

ratio of actual-over-expected readmissions; specifically, the ratio of “risk-adjusted 

readmissions based on actual readmissions” for an applicable hospital for each applicable 

condition, to the “risk-adjusted expected readmissions” for the applicable hospital for the 

applicable condition. 

 Section 1886(q)(5) of the Act provides definitions of “applicable condition,” 

“expansion of applicable conditions,” “applicable hospital,” “applicable period,” and 

“readmission.” The term “applicable condition” (which is addressed in detail in 

section IV.C.3.a. of the FY 2012 IPPS/LTCH PPS final rule (76 FR 51665 through 

51666)) is defined as a “condition or procedure selected by the Secretary among 

conditions and procedures for which: (i) readmissions . . . represent conditions or 

procedures that are high volume or high expenditures . . . and (ii) measures of such 

readmissions . . . have been endorsed by the entity with a contract under section 1890(a) 

[of the Act] . . . and such endorsed measures have exclusions for readmissions that are 

unrelated to the prior discharge (such as a planned readmission or transfer to another 

applicable hospital).” Section 1886(q)(5)(B) of the Act also requires the Secretary, 

beginning in FY 2015, “to the extent practicable, [to] expand the applicable conditions 
 552 

beyond the 3 conditions for which measures have been endorsed . . . to the additional 4 

conditions that have been identified by the Medicare Payment Advisory Commission in 

its report to Congress in June 2007 and to other conditions and procedures as determined 

appropriate by the Secretary.” 

 Section 1886(q)(5)(C) of the Act defines “applicable hospital,” that is, a hospital 

subject to the Hospital Readmissions Reduction Program, as a “subsection (d) hospital or 

a hospital that is paid under section 1814(b)(3) [of the Act], as the case may be.” The 

term “applicable period,” as defined under section 1886(q)(5)(D) of the Act, “means, 

with respect to a fiscal year, such period as the Secretary shall specify.” As explained in 

the FY 2012 IPPS/LTCH PPS final rule (76 FR 51671), the “applicable period” is the 

period during which data are collected in order to calculate various ratios and payment 

adjustments under the Hospital Readmissions Reduction Program. 

 Section 1886(q)(6) of the Act sets forth the public reporting requirements for 

hospital-specific readmission rates. Section 1886(q)(7) of the Act limits administrative 

and judicial review of certain determinations made pursuant to section 1886(q) of the 

Act. Finally, section 1886(q)(8) of the Act requires the Secretary to collect data on 

readmission rates for all hospital inpatients (not just Medicare patients) for a broad range 

of both subsection (d) and non-subsection(d) hospitals, in order to calculate the hospitalspecific readmission rates for all such hospital inpatients and to publicly report these 

“all-patient” readmission rates. 
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2. Regulatory Background 

 The payment adjustment factor set forth in section 1886(q) of the Act did not 

apply to discharges until FY 2013. In the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51660 through 51676), we addressed the issues of the selection of readmission 

measures and the calculation of the excess readmissions ratio, which will be used, in part, 

to calculate the readmissions adjustment factor. Specifically, in that final rule, we 

finalized policies that relate to the portions of section 1886(q) of the Act that address the 

selection of and measures for the applicable conditions, the definitions of “readmission” 

and “applicable period,” and the methodology for calculating the excess readmissions 

ratio. We also established policies with respect to measures for readmission for the 

applicable conditions and our methodology for calculating the excess readmissions ratio. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53374 through 53401), we 

finalized policies that relate to the portions of section 1886(q) of the Act that address the 

calculation of the hospital readmission payment adjustment factor and the process by 

which hospitals can review and correct their data. Specifically, in that final rule, we 

addressed the base operating DRG payment amount, aggregate payments for excess 

readmissions and aggregate payments for all discharges, the adjustment factor, applicable 

hospital, limitations on review, and reporting of hospital-specific information, including 

the process for hospitals to review readmission information and submit corrections. We 

also established a new Subpart I under 42 CFR Part 412 (§§ 412.150 through 412.154) to 

codify rules for implementing the Hospital Readmissions Reduction Program. 
 554 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50649 through 50676), we 

finalized our policies that relate to refinement of the readmissions measures and related 

methodology for the current applicable conditions, expansion of the “applicable 

conditions” beginning for FY 2015, and clarification of the process for reporting hospitalspecific information, including the opportunity to review and submit corrections. We 

also established policies related to the calculation of the adjustment factor for FY 2014. 

3. Overview of Proposals and Policies for the FY 2015 Hospital Readmissions Reduction 

Program 

 In this proposed rule, we are-- 

● Proposing to make refinements to the readmissions measures and related 

methodology for FY 2015 and subsequent years (section IV.H.4. of the preamble of this 

proposed rule); 

● Proposing to expand the scope of “applicable conditions” for FY 2017 to 

include coronary artery bypass graft (CABG) (section IV.H.6. of the preamble of this 

proposed rule); 

● Discussing the maintenance of technical specifications for quality measures 

(section IV.H.7. of the preamble of this proposed rule); 

● Describing a waiver from the Hospital Readmissions Reduction Program for 

hospitals formerly paid under section 1814(b)(3) of the Act (§ 412.154(d)) 

(section IV.H.8. of the preamble of this proposed rule); 

● Proposing to specify the adjustment factor floor for FY 2015 (section IV.H.9. 

of the preamble of this proposed rule); 
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● Proposing to specify the applicable period for FY 2015 (section IV.H.10. of the 

preamble of this proposed rule); 

● Proposing to make changes to the calculation of the aggregate payments for 

excess readmissions to include two additional readmissions measures (chronic 

obstructive pulmonary disease (COPD) and THA/TKA)) (section IV.H.11. of the 

preamble of this proposed rule); and 

● Discussing whether to establish an exceptions process to address hospitals with 

extraordinary circumstances (section IV.H.12. of the preamble of this proposed rule). 

4. Proposed Refinement of the Readmission Measures and Related Methodology for 

FY 2015 and Subsequent Years Payment Determinations 

a. Proposed Refinement of Planned Readmission Algorithm for Acute Myocardial 

Infarction (AMI), Heart Failure (HF), Pneumonia (PN), Chronic Obstructive Pulmonary 

Disease (COPD), and Total Hip Arthroplasty and Total Knee Arthroplasty (THA/TKA) 

30-Day Readmission Measures 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50651 through 50655), we 

finalized for 2014 and subsequent years’ payment determinations the use of the CMS 

Planned Readmission Algorithm Version 2.1 in the AMI, HF, PN, COPD and THA/TKA 

readmission measures. The algorithm identifies readmissions that are planned and occur 

within 30 days of discharge from the hospital. A complete description of the CMS 

Planned Readmission Algorithm Version 2.1, which includes lists of planned diagnoses 

and procedures, can be found on our Web site (available at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-
 556 

Instruments/HospitalQualityInits/Measure-Methodology.html). NQF has endorsed the 

use of the algorithm for these measures. 

 Last year’s stakeholder comments supported the incorporation of the CMS 

Planned Readmission Algorithm Version 2.1 and suggested that we update it on a regular 

basis. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50652), we agreed to 

continually review the CMS Planned Readmission Algorithm and make updates as 

needed. Subsequently we have identified and made improvements to the algorithm. We 

are proposing to use the revised version, the CMS Planned Readmission Algorithm 

Version 3.0, for the AMI, HF, PN, COPD, and THA/TKA readmission measures for 

FY 2015 and subsequent payment determinations. We are also proposing to use this 

algorithm for the CABG readmission measure proposed for inclusion in the Hospital 

Readmissions Reduction Program starting in FY 2017. 

 Version 3.0 incorporates improvements that were made based on a validation 

study of the algorithm. Researchers reviewed 634 patients’ charts at 7 hospitals, 

classified readmission as planned or unplanned based on the chart review, and compared 

the results to the claims-based algorithm’s classification of the readmissions. The 

findings suggested the algorithm was working well but could be improved. 

 Specifically, the study suggested the need to make small changes to the tables of 

procedures and conditions used in the algorithm to classify readmission as planned or 

unplanned. The algorithm uses the Agency for Healthcare Research and Quality’s 

(AHRQ’s) Clinical Classification Software (CCS) to group thousands of procedure and 

diagnosis codes into fewer categories of related procedures or diagnoses. The algorithm 
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then uses four tables of procedures and diagnoses categories and a flow diagram to 

classify tables as planned or unplanned. For all measures, the first table identifies 

procedures that, if present in a readmission, classify the readmission as planned. The 

second table identifies primary discharge diagnoses that always classify readmissions as 

planned. Because almost all planned admissions are for procedures or surgeries, a third 

table identifies procedures for which patients are typically admitted; if any of these 

procedures are coded in the readmission, we classify a readmission as planned as long as 

that readmission does not have an acute (unplanned) primary discharge diagnosis. The 

fourth table lists the acute (unplanned) primary discharge diagnoses that disqualify 

readmissions that include one or more of the potentially planned procedure in the third 

table as planned. These tables are structured the same across all measures but the specific 

procedure and conditions they contain vary slightly for certain measures based on clinical 

considerations for each cohort. The final proposed tables for each measure can be found on 

our Web site under the Measure Methodology reports (available at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html). 

 Version 3.0 modifies two of these tables by removing or adding procedures or 

conditions to improve the accuracy of the algorithm. First, validation study revealed that 

the algorithm could be improved by removing two procedure CCS categories from the 

third table, the potentially planned procedure table: CCS 211 – Therapeutic Radiation and 

CCS 224 – Cancer Chemotherapy. Typically, patients do not require admission for 

scheduled Therapeutic Radiation treatments (CCS 211). The study found that 
 558 

readmissions that were classified as planned because they included Therapeutic Radiation 

were largely unplanned. 

 The algorithm was also more accurate when CCS 224 – Cancer Chemotherapy 

was removed from the potentially planned procedure table. The second table of the 

algorithm classifies all readmissions with a principal diagnosis of Maintenance 

Chemotherapy as planned. Most patients who receive cancer chemotherapy have both a 

code for Cancer Chemotherapy (CCS 224) and a principal discharge diagnosis of 

Maintenance Chemotherapy (CCS 45). In the validation study, the readmissions for 

patients who received Cancer Chemotherapy (CCS 224) but who did not have a principal 

diagnosis of Maintenance Chemotherapy were largely unplanned, so removing CCS 224 

from the potentially planned procedure table improved the algorithm’s accuracy. 

Therefore, Version 3.0 removes CCS 211 and CCS 224 from the list of potentially 

planned procedures to improve the accuracy of the algorithm. 

 As noted above, the algorithm uses a table of acute principal discharge diagnoses 

to help identify unplanned readmissions. Readmissions that have a principal diagnosis 

listed in the table are classified as unplanned, regardless of whether they include a 

procedure in the potentially planned procedure table. The validation study identified one 

diagnosis CCS that should be added to the table of acute diagnoses to more accurately 

identify truly unplanned admissions as unplanned: Hypertension with Complications 

(CCS 99). Hypertension with complications is a diagnosis that is rarely associated with 

planned readmissions. 
 559 

 In addition, the validation study identified a subset of ICD-9-CM diagnosis codes 

within two CCS diagnosis categories that should be added to the acute diagnosis table to 

improve the algorithm. CCS 149, Pancreatic Disorders, includes the code for acute 

pancreatitis; clinically there is no situation in which a patient with this acute condition 

would be admitted for a planned procedure. Therefore, Version 3.0 adds the ICD-9 code 

for acute pancreatitis, 577.0, to the acute primary diagnosis table to better identify 

unplanned readmissions. Finally, CCS 149, Biliary Tract Disease, is a mix of acute and 

nonacute diagnoses. Adding the subset of ICD-9-CM codes within this CCS group that 

are for acute diagnoses to the list of acute conditions improves the accuracy of the 

algorithm for these acute conditions while still ensuring that readmissions for planned 

procedures, like cholecystectomies, are counted accurately as planned. For more detailed 

information on how the algorithm is structured and the use of tables to identify planned 

procedures and diagnoses, we refer readers to discussion of the CMS Planned 

Readmission Algorithm Version 2.1 in our reports (available at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html). As noted above, readers 

can find the specific Version 3.0 tables for each measure in the measure updates and 

specifications reports at the above link. 

 We invite public comment on these proposals. 
 560 

b. Proposed Refinement of Total Hip Arthroplasty and Total Knee Arthroplasty 

(THA/TKA) 30-Day Readmission Measure Cohort 

 In this proposed rule, for FY 2015 and subsequent years, we are proposing to 

refine the measure cohort for the Elective Primary Total Hip Arthroplasty (THA) and/or 

Total Knee Arthroplasty (TKA) All-Cause Unplanned 30-Day Risk-Standardized 

Readmission Measure. 

 Currently, the THA/TKA Readmission Measure adopted for the Hospital 

Readmissions Reduction Program is intended to only include patients who have an 

elective THA or TKA. This measure therefore excludes patients who have a principal 

discharge diagnosis of femur, hip, or pelvic fracture on their index admission since hip 

replacement for hip fracture is not an elective procedure. However, after hospitals 

reviewed their hospital-specific THA/TKA Readmission Measure data during the 

national dry run conducted during September and October of 2012, we learned that 

hospitals code hip fractures that occur during the same admission as a THA as either a 

principal or secondary diagnosis. According to feedback received from hospitals 

participating in the dry run, the measure methodology failed to identify and therefore 

appropriately exclude a small number of patients (that is, 0.42 percent of patients in 

2009 - 2010 data) with hip fracture who had non-elective total hip arthroplasty. 

 To ensure that all such hip fracture patients are excluded from the measure, we 

are proposing to refine the measure to exclude patients with hip fracture coded as either 

principal or secondary diagnosis during the index admission. We believe this refinement 

is responsive to comments from hospitals and will allow us to accurately exclude patients 
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who were initially admitted for a hip fracture and then underwent total hip arthroplasty, 

making their procedure nonelective. 

 We invite public comments on this proposal. 

c. Anticipated Effect of Proposed Refinements on Measures 

 The proposed refinement of the CMS Planned Readmission Algorithm Version 

2.1 to Version 3.0 would have had the following effects on the measures based on our 

analyses of discharges between July 2009 and June 2012, if these changes had been 

applied for FY 2014. We note that these statistics are for illustrative purposes only, and 

we are not proposing to revise the measure calculations for the FY 2014 payment 

determination. Rather, we are proposing to apply these changes to the readmission 

measures for the FY 2015 payment determination and subsequent years. 

 Among hospitals that were subject to the Hospital Readmissions Reduction 

Program in FY 2014 (Table IV.H.1), the number of eligible discharges based on the 

July 2009 through June 2012 data were 494,121 discharges for AMI; 1,165,606 

discharges for HF; 954,033 discharges for PN; 926,433 discharges for COPD; and 

858,266 discharges for hip/knee. 

 The proposed 30-day readmission rate (excluding the planned readmissions) 

would remain constant for AMI and COPD; increase by 0.1 percentage points for HF and 

PN; and increase by 0.4 percentage points for hip/knee. 

 The new national readmission (unplanned) rate for each condition would have 

been 17.9 percent for AMI; 23.0 percent for HF; 17.7 percent for PN; 21.1 percent for 

COPD; and 5.27 percent for hip/knee. 
 562 

 The number of readmissions considered planned (and, therefore, not counted as a 

readmission) would decrease by 319 for AMI; 1,313 for HF; 866 for PN, 547 for COPD; 

and 298 for hip/knee. 

 The proposed modification of the hip/knee measure cohort would have had the 

following effects on the measure: the measure cohort would have been reduced by 0.37 

percent; the crude readmission rate would have been reduced by 0.02 absolute percentage 

points; and the mean RSRR would have been reduced by 0.03 absolute percentage points. 
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Table IV.H.1.: Comparison of Planned Readmission Algorithms V 2.1 and 3.0 

for AMI/HF/PN/COPD/HK Readmission Measures 

(Based on 2009 - 2012 Discharges from 3025 Hospitals) 

AMI HF PN COPD 

V 3.0 V 2.1 V 3.0 V 2.1 V 3.0 V 2.1 V 3.0 V 2.1 

Number of Discharges 494,121 494,121 1,165,606 1,165,606 954,033 954,033 926,433 926,433 Number of Unplanned Readmissions 88,567 88,248 268,072 266,759 169,213 168,347 195,595 195,048 Readmission Rate 17.9% 17.9% 23.0% 22.9% 17.7% 17.6% 21.1% 21.1% Number of Planned Readmissions 11,577 11,896 15,293 16,606 5,867 6,733 5,858 6,405 Planned Readmission Rate 2.3% 2.4% 1.3% 1.4% 0.6% 0.7% 0.6% 0.7% % of Readmissions that are Planned 11.6% 11.9% 5.4% 5.9% 3.4% 3.8% 2.9% 3.2% 
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5. No Proposed Expansion of the Applicable Conditions for FY 2016 

 In FY 2014 IPPS/LTCH PPS final rule we finalized for FY 2015 two new 

condition specific readmission measures: (1) Hospital-level 30-day all-cause 

risk-standardized readmission rate following elective total hip arthroplasty (THA) and 

total knee arthroplasty (TKA) (NQF #1551); (2) Hospital-level 30-day all-cause 

risk-standardized readmission rate following chronic obstructive pulmonary disease 

(COPD) (NQF #1891), bringing the total number of finalized applicable conditions to 

five over the past two years of implementation. We also noted in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50657) that commenters requested that we delay 

adding other condition-specific measures. In view of these requests and our belief that it 

is reasonable to allow more time for hospitals to become familiar with these 5 applicable 

conditions, before adding other applicable conditions we are not proposing any new 

applicable conditions for FY 2016. 

6. Proposed Expansion of the Applicable Conditions for FY 2017 to Include the Patients 

Readmitted Following Coronary Artery Bypass Graft (CABG) Surgery Measure 

a. Background 

 Under section 1886(q)(5)(B) of the Act, “[b]eginning with FY 2015, the Secretary 

shall, to the extent practicable, expand the applicable conditions beyond the 3 conditions 

for which measures have been endorsed as described in subparagraph (A)(ii)(I) . . .to the 

additional 4 conditions that have been identified by the Medicare Payment Advisory 

Commission [MedPAC] in its report to Congress in June 2007, and to other conditions 

and procedures as determined appropriate by the Secretary.’’ The four conditions and 
 565 

procedures recommended by MedPAC are: (1) Coronary artery bypass graft (CABG) 

surgery; (2) chronic obstructive pulmonary disease (COPD); (3) percutaneous coronary 

intervention (PCI); and (4) other vascular conditions. Section 1886(q)(5)(A)(i) of the Act 

directs the Secretary, in selecting an ‘‘applicable condition,’’ to choose from among 

readmissions ‘‘that represent conditions or procedures that are high volume or high 

expenditures under this title (or other criteria specified by the Secretary).’’ 

 In accordance with section 1886(q)(5)(A) of the Act, effective for the calculation 

of the readmissions payment adjustment factors in FY 2017, we are proposing to expand 

the scope of applicable conditions and procedures to include patients readmitted 

following CABG surgery. This proposal is consistent with the prior FY 2014 

IPPS/LTCH PPS final rule (78 FR 50657) where we indicated our intent to explore 

quality measures that address CABG readmission rates. We describe this measure in 

detail below. 

 We are proposing the inclusion of the condition of CABG readmissions to the 

Hospital Readmissions Reduction Program based on MedPAC’s recommendations. For 

this condition, we developed a Hospital-Level 30-Day All-Cause Unplanned 

Readmission Following Coronary Artery Bypass Graft (CABG) Surgery measure. The 

National Quality Forum (NQF) Measure Applications Partnership (MAP) Hospital 

workgroup conditionally supported this measure for use in the Hospital Readmissions 

Reduction Program. The condition for support is based on attainment of NQF 

endorsement. On February 5, 2014, we submitted the Hospital-Level 30-Day All-Cause 
 566 

Unplanned Readmission Following Coronary Artery Bypass Graft (CABG) Surgery 

measure to NQF for endorsement. 

 The rationale for expanding the applicable conditions and the measures used to 

estimate the excess readmissions ratio is described in detail below. 

b. Overview of the Proposed CABG Readmissions Measure: Hospital-Level, 30-Day, 

All-Cause, Unplanned Readmission Following Coronary Artery Bypass Graft (CABG) 

Surgery 

 Among the seven conditions MedPAC identified in its 2007 Report to Congress 

as having the highest potentially preventable readmission rate, CABG had the highest 

rate of readmissions within 15 days following discharge (13.5 percent) and second 

highest average Medicare payment per readmission ($8,136).27 The annual cost to 

Medicare for potentially preventable CABG readmissions was estimated at $151 

million.28

 Evidence also shows variation in readmissions rates for patients with CABG 

surgery, supporting the finding that opportunities exist for improving care. The median, 

30-day, risk-standardized readmission rate among Medicare fee-for-service patients aged 

65 or older hospitalized for CABG in 2009 was 17.2 percent, and ranged from 13.9 

percent to 22.1 percent across 1,160 hospitals.29 Although data documenting readmission 

reductions in CABG are limited, there are data that support CABG readmission as an 

 

27 Medicare Payment Advisory Committee. Report to the Congress: Promoting Greater Efficiency in 

Medicare, 2007. 

28 Ibid. 29 Suter L.G., Wang, C., Vellanky S., Potteiger J., Curtis J., Lin Z., Geary L.L., Krumholz H.M., Drye E.D. 

Hospital-level 30-day All-Cause Unplanned Readmission Following Coronary Artery Bypass Graft 

Surgery: Report prepared for the Centers for Medicare & Medicaid Services. 2012. 
 567 

important quality metric.30 Studying readmission rates after CABG surgery in New 

York, Hannan, et al. found: (1) wide variation in readmission rates; (2) the most common 

cause of readmission after CABG is complication related to the surgery; and (3) that 

hospital-level variables such as use of cardiac rehabilitation and length of stay influenced 

readmission rates.31 The authors also noted that readmission rates were not closely 

correlated to mortality rates and thus measuring readmission rates likely offers a 

complementary metric intended to assess a different domain of quality. Mortality 

measures are more likely to encourage improvements in clinical quality, including rapid 

triage, effective safety practices, and early intervention and coordination in the hospital. 

Readmission measures place an increased emphasis on aspects of quality related to 

effective transitions to the outpatient setting, clear communication with patients and 

caregivers, and collaboration across communities and providers. Together, these data 

suggest that reducing readmission rates following CABG surgery is an important target 

for quality improvement. In addition, inclusion of this measure in the Hospital 

Readmissions Reduction Program aligns with CMS’ Quality Strategy objectives to 

promote successful transitions of care for patients from the acute care setting to the 

outpatient setting, and to reduce short-term readmission rates. In its final 

recommendations for rulemaking, the MAP conditionally supported the inclusion of the 

proposed CABG measure pending NQF endorsement and implementation. In order to 

 

30 Rumsfield J, Allen L. Reducing Readmission Rates: Does Coronary Artery Bypass Graft Surgery 

Provide Clarity? JACC Cardiovasc Interv. May 2011;4(5):2. 31 Hannan EL, Zhong Y, Lahey SJ, et al. 30-day readmissions after coronary artery bypass graft surgery in 

New York State. JACC Cardiovasc Interv. 2011;4(5):569-576. 
 568 

address this concern, we submitted the CABG readmission measure to NQF for 

endorsement on February 5, 2014. 

 We believe the proposed Hospital-Level, 30-Day, All-Cause, Unplanned 

Readmission Measure Following CABG Surgery warrants inclusion in the Hospital 

Readmissions Reduction Program for FY 2017, because it meets the criteria in 

section 1886(q)(5)(A) of the Act, as a high cost, high volume condition that was 

recognized by MedPAC Report to Congress in 2007 as a specific medical condition to 

focus on for improving readmission rates. As with other readmission measures, this 

measure also excludes such unrelated readmissions as planned readmissions and transfers 

to other hospitals. For these reasons we believe this measure is appropriate for the 

Hospital Readmissions Reduction Program. 

 We invite public comments on this proposal. 

c. Proposed Methodology for the CABG Measure: Hospital-Level, 30-Day, All-Cause, 

Unplanned Readmission Following Coronary Artery Bypass Graft (CABG) Surgery 

 The proposed CABG readmission measure assesses hospitals’ 30-day, all-cause 

risk-standardized rate of unplanned readmission following admission for a CABG 

procedure. In general, the measure uses the same approach to risk-adjustment and 

hierarchical logistic modeling (HLM) methodology that is specified for the AMI, HF, 

PN, COPD and THA/TKA readmission measures that we previously adopted for this 

program. Information on how the measure employs HLM can be found in the 2012 

CABG Readmission Measure Methodology Report (available at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-
 569 

Instruments/HospitalQualityInits/Measure-Methodology.html). This approach 

appropriately accounts for the types of patients a hospital treats (that is, hospital 

case-mix), the number of patients it treats, and the quality of care it provides. The HLM 

methodology is an appropriate statistical approach to measuring quality based on patient 

outcomes when the patients are clustered within hospitals (and, therefore, the patients’ 

outcomes are not statistically independent) and sample sizes vary across hospitals. The 

measure methodology defines hospital case-mix based on the clinical diagnoses provided 

in the hospitals’ claims for the hospitals’ patient inpatient and outpatient visits for the 

12 months prior to the hospitalization for CABG, as well as those present in the claims 

for care at admission. However, the methodology specifically does not account for 

diagnoses present in the index admission that may indicate complications rather than 

patient comorbidities. 

 We discuss the measure methodology below. 

(1) Data Sources 

 The proposed CABG readmission measure is based on data derived from 

administrative claims. It uses Medicare administrative data from hospitalizations for 

fee-for-service Medicare beneficiaries hospitalized for a CABG procedure. 

(2) Definition of Outcome 

 The proposed CABG readmission measure defines 30-day, all-cause readmission 

as an unplanned subsequent inpatient admission to any applicable acute care facility for 

any cause within 30 days of the date of discharge from the index hospitalization. A 

number of studies demonstrate that improvements in care at the time of discharge can 
 570 

reduce 30-day readmission rates.32,33 Thirty days is a meaningful timeframe for hospitals 

because readmissions are more likely attributable to care received within the index 

hospitalization and during the transition to the outpatient setting. 

 The proposed CABG readmission measure assesses all-cause unplanned 

readmissions (excluding planned readmissions) rather than readmissions for CABG only. 

We include all unplanned readmissions for several reasons. First, from the patient 

perspective, a readmission for any reason is likely to be an undesirable outcome of care, 

even though not all readmissions are preventable. Second, limiting the measure to 

CABG-related readmissions may focus quality improvement efforts too narrowly rather 

than encouraging broader initiatives aimed at improving the overall care within the 

hospital and care transitions from the hospital setting. Moreover, it is often hard to 

exclude quality issues and accountability for a readmission based on the documented 

cause of readmission. For example, a patient who underwent a CABG surgery and 

developed a hospital-acquired infection might ultimately be readmitted for sepsis. It 

would be inappropriate to consider such a readmission to be unrelated to the care the 

patient received for their CABG surgery. Finally, while the measure does not presume 

that each readmission is preventable, quality improvement interventions generally have 

shown reductions in all types of readmissions. 

 The proposed measure does not count planned readmissions as readmissions. 

Planned readmissions are identified in claims data using the CMS Planned Readmission 

 

32 Gulshan Sharma, Kou Yong-Fang, Freeman Jean L, Zhang Dong D, Goodwin James S.: Outpatient 

Follow-up Visit and 30-Day Emergency Department Visit and Readmission in Patients Hospitalized for 

Chronic Obstructive Pulmonary Disease. Arch Intern Med. Oct. 2010;170:1664-1670. 

33 Nelson EA, Maruish ME, Axler JL.: Effects of Discharge Planning and Compliance with Outpatient 

Appointments on Readmission Rates. Psychiatr Serv. July 1 2000;51(7):885-889. 
 571 

Algorithm Version 3.0 that detects planned readmissions that may occur within 30 days 

of discharge from the hospital. Version 2.1 of the algorithm was finalized for use in the 

Hospital Readmissions Reduction Program in the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50651 through 50655). We have since updated the algorithm to Version 3.0 as 

part of yearly measure maintenance. The proposed CABG readmission measure uses the 

planned readmission algorithm, tailored for CABG patients. We adapted the algorithm 

for this group of patients with input from Cardiothoracic surgeons and other experts, 

narrowing the types of readmissions considered planned since planned readmissions 

following CABG are less common and less varied than among patients discharged from 

the hospital following a medical admission. More detailed information on how the 

proposed CABG readmission measure incorporates the CMS Planned Readmission 

Algorithm Version 3.0 can be found in the 2012 CABG Readmission Measure 

Methodology Report on the CMS Web site (available at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html). For the proposed CABG 

readmission measure, unplanned readmissions that fall within the 30-day post-discharge 

timeframe from the index admission would not be counted as readmissions for the index 

admission if they were preceded by a planned readmission. 

(3) Cohort of Patients 

 In order to include a clinically coherent set of patients in the measure, we sought 

input from clinical experts regarding the inclusion of other concomitant cardiac and 

non-cardiac procedures, such as valve replacement and carotid endarterectomy. Adverse 
 572 

clinical outcomes following such procedures are higher than those following “isolated” 

CABG procedures; that is, CABG procedures performed without concomitant high-risk 

cardiac and noncardiac procedures.34 Limiting the measure cohort to “isolated” CABG 

patients is consistent with published reports of CABG outcomes; therefore, the proposed 

measure cohort considers only patients undergoing isolated CABG as eligible for 

inclusion in the measure. We defined isolated CABG patients as those undergoing 

CABG procedures without concomitant valve or other major cardiac, vascular or thoracic 

procedures. In addition, our clinical experts, consultants, and Technical Expert Panel 

(TEP) members agreed that an isolated CABG cohort is a clinically coherent cohort 

suitable for a risk-adjusted outcome measure. For detailed information on the cohort 

definition, we refer readers to the 2012 CABG Readmission Measure Methodology 

Report on the CMS Web site (available at: http://www.cms.gov/Medicare/QualityInitiatives-Patient-Assessment-Instruments/HospitalQualityInits/MeasureMethodology.html). 

(4) Inclusion and Exclusion Criteria 

 The proposed CABG readmission measure includes hospitalizations for patients 

who are 65 years of age or older at the time of index admission and for whom there was a 

complete 12 months of Medicare fee-for-service enrollment to allow for adequate data for 

risk adjustment. The measure excludes the following admissions from the measure 

cohort: (1) Admissions for patients who are discharged against medical advice (excluded 

because providers do not have the opportunity to deliver full care and prepare the patient 

 

34 Hannan EL, Zhong Y, Lahey SJ, et al. 30-day readmissions after coronary artery bypass graft surgery in 

New York State. JACC Cardiovasc Interv. 2011;4(5):569-576. 
 573 

for discharge); (2) admissions for patients who die during the initial hospitalization (these 

patients are not eligible for readmission); (3) admissions for patients with subsequent 

qualifying CABG procedures during the measurement period (a repeat CABG procedure 

during the measurement period very likely represents a complication of the original 

CABG procedure and is a clinically more complex and higher risk surgery; therefore, we 

select the first CABG admission for inclusion in the measure and exclude subsequent 

CABG admissions from the cohort); and (4) admissions for patients without at least 

30 days post-discharge enrollment in Medicare fee-for-service (excluded because the 

30-day readmission outcome cannot be assessed in this group). 

(5) Transferred Patients and Attribution of Readmission Outcome 

 Among medical conditions, such as AMI, heart failure and pneumonia, transfers 

between acute care facilities can occur for a variety of different reasons and it is likely 

that the discharging hospital has the most influence over a patient’s risk of readmission 

and therefore the readmission outcome is appropriately assigned to the hospital that 

discharges the patient. For that reason, the currently publicly reported AMI, heart failure 

and pneumonia readmission measures attribute the readmission outcome to the hospital 

discharging the patient, even if that is not the hospital that initially admitted the patient. 

 In contrast, following CABG surgery, transfer to another acute care facility after 

CABG is most likely due to a complication of the CABG procedure or the peri-operative 

care the patient received. Therefore, the care provided by the hospital performing the 

CABG procedure likely dominates readmission risk, even among transferred patients. 

This viewpoint is supported by the high proportion of CABG readmissions for diagnoses 
 574 

such as heart failure, pleural effusion and pneumonia and endorsed by the clinical experts 

on both the Yale New Haven Hospital Health Services Corporation, Center for Outcomes 

Research and Evaluation (YNHHSC/CORE), and the Society of Thoracic Surgeons 

(STS) CABG readmission measure development working groups and our TEP. 

Therefore, for this measure, the readmission outcome is attributed to the hospital 

performing the first (“index”) CABG, even if this is not the discharging hospital. For 

example, a patient may be admitted to hospital A for a CABG that qualifies them for 

inclusion in the measure and is then transferred to hospital B. The initial admission to 

hospital A and the admission to hospital B are considered one acute episode of care, 

made up of two inpatient admissions. The measure identifies transferred patients as those 

who are admitted to an acute care hospital on the same day or following day of discharge 

from an eligible admission. 

(6) Risk-Adjustment

The proposed CABG readmission measure adjusts for differences across hospitals 

in the level of risk their patients have for readmission relative to patients cared for by 

other hospitals. The measure uses administrative claims data to identify patient clinical 

conditions and comorbidities to adjust patient risk for readmission across hospitals, but 

does not adjust for potential complications of care. The model does not adjust for 

socioeconomic status or race because risk adjusting for these characteristics would hold 

hospitals with a large proportion of patients of minority race or low socioeconomic status 

to a different standard of care than other hospitals. Rather, this measure seeks to 
 575 

illuminate quality differences, and risk adjustment for socioeconomic status or race 

would obscure such quality differences.

(7) Calculating the Excess Readmissions Ratio

The proposed CABG readmission measure uses the same methodology and 

statistical modeling approach as the other Hospital Readmissions Reduction Program 

measures. We published a detailed description of how the readmission measures estimate 

the excess readmissions ratio in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53380 

through 53381).

In summary, we are proposing to adopt the Hospital-Level, 30-Day, All-Cause, 

Unplanned Readmission Following Coronary Artery Bypass Graft (CABG) Surgery 

measure in the Hospital Readmissions Reduction Program beginning in FY 2017.

We note that the set of hospitals for which this measure is calculated for the 

Hospital Readmissions Reduction Program differs from those used in calculations for the 

Hospital IQR Program. The Hospital Readmissions Reduction Program includes only 

subsection (d) hospitals as defined in 1886(d)(1)(B) of the Act (and, if not waived from 

participating, hospitals paid under section 1814(b)(3) of the Act), while the Hospital IQR 

Program calculations include non-IPPS hospitals such as CAHs, cancer hospitals, and 

hospitals located in the Territories of the United States. However, we believe that the 

CABG readmissions measure is appropriate for use in both programs.

We invite public comment on this proposal. 
 576 

7. Maintenance of Technical Specifications for Quality Measures 

 Technical specification of the re admission measures are provided at our Web site 

in the Measure Methodology Reports (available at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html). Additional resources 

about the Hospital Readmissions Reduction Program and measure technical 

specifications and methodology are on the QualityNet Web site on the Resources Web 

page (available at: 

https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage

%2FQnetTier3&cid=1228772412995). 

 Many of the quality measures used in different Medicare and Medicaid reporting 

programs are NQF endorsed. As part of its regular maintenance process for 

NQF-endorsed performance measures, the NQF requires measure stewards to submit 

annual measure maintenance updates and undergo maintenance of endorsement review 

every 3 years. In the measure maintenance process, the measure steward 

(owner/developer) is responsible for updating and maintaining the currency and relevance 

of the measure and will confirm existing or minor specification changes with NQF on an 

annual basis. NQF solicits information from measure stewards for annual reviews, and it 

reviews measures for continued endorsement in a specific 3-year cycle. 

 We note that NQF’s annual or triennial maintenance processes for endorsed 

measures may result in the NQF requiring updates to the measures. We believe that it is 

important to have in place a subregulatory process to incorporate nonsubstantive updates 
 577 

required by the NQF into the measure specifications we have adopted for the Hospital 

Readmissions Program so that these measures remain up-to-date. The NQF regularly 

maintains its endorsed measures through annual and triennial reviews, which may result 

in the NQF requiring updates to the measures. We note for this calendar year the AMI 

readmission measure is undergoing the NQF maintenance endorsement process. 

 For the Hospital Readmissions Reduction Program, we are proposing to follow 

the finalized processes outlined for addressing changes to adopted measures in the 

Hospital IQR Program “Maintenance of Technical Specifications for Quality Measures” 

section found in section IX.A.1.b. of the preamble of this proposed rule. 

 We believe this proposal adequately balances our need to incorporate NQF 

updates to NQF-endorsed Hospital Readmissions Reduction Program measures in the 

most expeditious manner possible while preserving the public’s ability to comment on 

updates that so fundamentally change an endorsed measure that it is no longer the same 

measure that we originally adopted. We invite public comment on this proposal. 

8. Waiver from the Hospital Readmissions Reduction Program for Hospitals Formerly 

Paid Under Section 1814(b)(3) of the Act (§ 412.152 and § 412.154(d)) 

 The definition of “applicable hospital” under section 1886(q)(5)(C) of the Act 

also includes hospitals paid under section 1814(b)(3) of the Act. 

Section 1886(q)(2)(B)(ii) of the Act, however, allows the Secretary to exempt such 

hospitals from the Hospital Readmissions Reduction Program, provided that the State 

submit an annual report to the Secretary describing how a similar program to reduce 

hospital readmissions in that State achieves or surpasses the measured results in terms of 
 578 

health outcomes and cost savings established by Congress for the program as applied to 

“subsection (d) hospitals.” 

 The State of Maryland entered into an agreement with CMS, effective 

January 1, 2014, to participate in CMS’ new Maryland All-Payer Model, a 5-year 

hospital payment model. This model is being implemented under section 1115A of the 

Act, as added by section 3021 of the Affordable Care Act, which authorizes the testing of 

innovative payment and service delivery models, including models that allow States to 

“test and evaluate systems of all-payer payment reform for the medical care of residents 

of the State, including dual-eligible individuals.” Section 1115A of the Act authorizes 

the Secretary to waive such requirements of titles XI and XVIII of the Act as may be 

necessary solely for purposes of carrying out section 1115A of the Act with respect to 

testing models. 

As part of this agreement, the State of Maryland also elected to no longer have Medicare 

pay Maryland hospitals in accordance with section 1814(b)(3) of the Act. Therefore, 

section 1886(q)(2)(B)(ii) of the Act is no longer applicable to Maryland hospitals. The 

effect of Maryland hospitals no longer being paid under 1814(b)(3) of the Act is that they 

are not entitled to be exempted from the Hospital Readmissions Reduction Program 

under section 1886(q)(2)(B)(ii) of the Act and, but for the model, would be included in 

the Hospital Readmissions Reduction Program. In other words, the exemption from the 

Hospital Readmissions Reduction Program under section 1814(b)(3) of the Act no longer 

applies. However Maryland hospitals will not be participating in the Hospital 

Readmissions Reduction Program because section 1886(q) and its implementing 
 579 

regulations have been waived for purposes of the model, subject to the terms of the 

agreement. 

We are proposing to make conforming changes to the implementing regulations to reflect 

this change. Under § 412.152, we are proposing to delete from the definition of an 

“applicable hospital” the following language: “or a hospital in Maryland that is paid 

under section 1814(b)(3) of the Act and that, absent the waiver specified by section 

1814(b)(3) of the Act, would have been paid under the hospital inpatient prospective 

payment system.” Under § 412.154, we are proposing to delete § 412.154(d) in its 

entirety. We invite public comment on these proposals. 

9. Floor Adjustment Factor for FY 2015 (§ 412.154(c)(2)) 

 Section 1886(q)(3)(A) of the Act defines the “adjustment factor” for an applicable 

hospital for a fiscal year as equal to the greater of “(i) the ratio described in subparagraph 

(B) for the hospital for the applicable period (as defined in paragraph (5)(D)) for such 

fiscal year; or (ii) the floor adjustment factor specified in subparagraph (C).” 

Section 1886(q)(3)(B) of the Act, in turn, describes the ratio used to calculate the 

adjustment factor. Specifically, it states that the ratio is “equal to 1 minus the ratio of – 

(i) the aggregate payments for excess readmissions . . . and (ii) the aggregate payments 

for all discharges . . . .” The calculation of this ratio is codified at § 412.154(c)(1) of the 

regulations. Section 1886(q)(3)(C) of the Act specifies the floor adjustment factor, which 

is set at 0.99 for FY 2013, 0.98 for FY 2014, and 0.97 for FY 2015 and subsequent fiscal 

years. We codified the floor adjustment factor at § 412.154(c)(2) of the regulations 

(77 FR 53386). 
 580 

 Consistent with 1886(q)(3) of the Act, codified at § 412.154(c)(2), the adjustment 

factor is either the greater of the ratio or, for FY 2015 and subsequent fiscal years, a floor 

adjustment factor of 0.97. Under our established policy, the ratio is rounded to the fourth 

decimal place. In other words, for FY 2015 and subsequent fiscal years, a hospital 

subject to the Hospital Readmissions Reduction Program will have an adjustment factor 

that is between 1.0 and 0.9700. 

10. Applicable Period for FY 2015 

 Under section 1886(q)(5)(D) of the Act, the Secretary has the authority to specify 

the applicable period with respect to a fiscal year under the Hospital Readmissions 

Reduction Program. We finalized our policy to use 3 years of claims data to calculate the 

readmission measures in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51671). In the 

FY 2013 IPPS/LTCH PPS final rule (77 FR 53675), we codified the definition of 

“applicable period” in the regulations at 42 CFR 412.152 as the 3-year period from which 

data are collected in order to calculate excess readmissions ratios and adjustments for the 

fiscal year, which includes aggregate payments for excess readmissions and aggregate 

payments for all discharges used in the calculation of the payment adjustment. 

 Consistent with the definition at § 412.152, we established that the applicable 

period for FY 2014 under the Hospital Readmissions Reduction Program is the 3-year 

period from July 1, 2009, to June 30, 2012. That is, we determined the excess 

readmissions ratios and calculate the payment adjustment (including aggregate payments 

for excess readmissions and aggregate payments for all discharges) for FY 2014 using 

data from the 3-year time period of July 1, 2009 to June 30, 2012, as this was the most 
 581 

recent available 3-year period of data upon which to base these calculations 

(78 FR 50669). 

 In this proposed rule, for FY 2015, consistent with the definition at § 412.152, we 

are proposing an “applicable period” for the Hospital Readmissions Reduction Program 

to be the 3-year period from July 1, 2010 to June 30, 2013. In other words, we are 

proposing that the excess readmissions ratios and the payment adjustment (including 

aggregate payments for excess readmissions and aggregate payments for all discharges) 

for FY 2015 would be calculated based on data from the 3-year time period of 

July 1, 2010 to June 30, 2013. We note that for the purpose of modeling the readmissions 

payment adjustments for FY 2015 in this proposed rule, the excess readmissions ratios 

will be based on the applicable period from FY 2014 (that is July 1, 2009 to 

June 30, 2012) and the MedPAR claims data to calculate the readmissions payment 

adjustments will be based on the proposed applicable period for FY 2015 (that is 

July 1, 2010 to June 30, 2013). 

 We invite public comment on these proposals. 

11. Proposed Inclusion of THA/TKA and COPD Readmissions Measures to Calculate 

Aggregate Payments for Excess Readmissions Beginning in FY 2015 

 Under the Hospital Readmissions Reduction Program the “base operating DRG 

payment amount”’ defined at § 412.152 is used both to determine the readmission 

adjustment factor that accounts for excess readmissions under section 1886(q)(3) of the 

Act and to determine which payment amounts will be adjusted to account for excess 

readmissions under section 1886(q) of the Act. Consistent with section 1886(q)(2) of the 
 582 

Act, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53374 through 53383), under the 

regulations at § 412.152, we define the “base operating DRG payment amount” and 

specify that it does not include adjustments or add-on payments for IME, DSH, outliers 

and low-volume hospitals as required by section 1886(q)(2) of the Act. Furthermore, 

consistent with section 1886(q)(2)(B)(i) of the Act, for SCHs and for MDHs for FY 2013, 

the definition of “base operating DRG payment amount” at § 412.152 excludes the 

difference between the hospital’s applicable hospital-specific payment rate and the 

Federal payment rate. 

 For FY 2015 and subsequent years, for purposes of calculating the payment 

adjustment factors and applying the payment methodology, we are proposing that the 

base operating DRG payment amount for MDHs includes the difference between the 

hospital-specific payment rate and the Federal payment rate (as applicable). 

 Section 1886(q)(3)(B) of the Act specifies the ratio used to calculate the 

adjustment factor under the Hospital Readmissions Reduction Program. It states that the 

ratio is “equal to 1 minus the ratio of – (i) the aggregate payments for excess 

readmissions . . . and (ii) the aggregate payments for all discharges . . . .” The definition 

of “aggregate payments for excess readmissions” and “aggregate payments for all 

discharges,” as well as a methodology for calculating the numerator of the ratio 

(aggregate payments for excess readmissions) and the denominator of the ratio (aggregate 

payments for all discharges) are codified at § 412.154(c)(2) of the regulations 

(77 FR 53387). 
 583 

 Section 1886(q)(4) of the Act sets forth the definitions of “aggregate payments for 

excess readmissions” and “aggregate payments for all discharges” for an applicable 

hospital for the applicable period. The term “aggregate payments for excess 

readmissions” is defined in section 1886(q)(4)(A) of the Act as “for a hospital for an 

applicable period, the sum, for applicable conditions . . . of the product, for each 

applicable condition, of (i) the base operating DRG payment amount for such hospital for 

such applicable period for such condition; (ii) the number of admissions for such 

condition for such hospital for such applicable period; and (iii) the excess readmissions 

ratio... for such hospital for such applicable period minus 1.” We codified this definition 

of “aggregate payments for excess readmissions” under the regulations at § 412.152 as 

the product, for each applicable condition, of: (1) the base operating DRG payment 

amount for the hospital for the applicable period for such condition; (2) the number of 

admissions for such condition for the hospital for the applicable period; and (3) the 

excess readmissions ratio for the hospital for the applicable period minus 1 

(77 FR 53675). 

 The excess readmissions ratio is a hospital-specific ratio calculated for each 

applicable condition. Specifically, section 1886(q)(4)(C) of the Act defines the excess 

readmissions ratio as the ratio of “risk-adjusted readmissions based on actual 

readmissions” for an applicable hospital for each applicable condition, to the 

“risk-adjusted expected readmissions” for the applicable hospital for the applicable 

condition. The methodology for the calculation of the excess readmissions ratio was 

finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51673). “Aggregate 
 584 

payments for excess readmissions” is the numerator of the ratio used to calculate the 

adjustment factor under the Hospital Readmissions Reduction Program (as described in 

further detail later in this section). 

 The term “aggregate payments for all discharges” is defined at section 

1886(q)(4)(B) of the Act as “for a hospital for an applicable period, the sum of the base 

operating DRG payment amounts for all discharges for all conditions from such hospital 

for such applicable period.” “Aggregate payments for all discharges” is the denominator 

of the ratio used to calculate the adjustment factor under the Hospital Readmissions 

Reduction Program. We codified this definition of “aggregate payments for all 

discharges” under the regulations at § 412.152 (77 FR 53387). 

 We finalized the inclusion of two additional applicable conditions, COPD and 

THA/TKA, to the Hospital Readmissions Reduction Program beginning for FY 2015 in 

the FY 2014 IPPS/LTCH PPS final rule (78 FR 50657 through 50664). In this section, 

we discuss the proposed methodology to include these two additional measures in the 

calculation of the readmissions payment adjustment for FY 2015. Specifically, we are 

proposing how the addition of COPD and THA/TKA applicable conditions would be 

included in the calculation of the aggregate payments for excess readmissions, which is 

the numerator of the readmissions payment adjustment. We note that this proposal does 

not alter our established methodology for calculating aggregate payments for all 

discharges, that is, the denominator of the ratio (77 FR 53387). 

 As discussed above, when calculating the numerator (aggregate payments for 

excess readmissions), we determine the base operating DRG payments for the applicable 
 585 

period. “Aggregate payments for excess readmissions” (the numerator) is defined as “the 

sum, for applicable conditions . . . of the product, for each applicable condition, of (i) the 

base operating DRG payment amount for such hospital for such applicable period for 

such condition; (ii) the number of admissions for such condition for such hospital for 

such applicable period; and (iii) the excess readmissions ratio . . . for such hospital for 

such applicable period minus 1.” 

 When determining the base operating DRG payment amount for an individual 

hospital for such applicable period for such condition, we use Medicare inpatient claims 

from the MedPAR file with discharge dates that are within the same applicable period to 

calculate the excess readmissions ratio. We use MedPAR claims data as our data source 

for determining aggregate payments for excess readmissions and aggregate payments for 

all discharges, as this data source is consistent with the claims data source used in IPPS 

rulemaking to determine IPPS rates. 

 For FY 2015, we are proposing to use MedPAR claims with discharge dates that 

are on or after July 1, 2010, and no later than June 30, 2013. Under our established 

methodology that we use the update of the MedPAR file for each Federal fiscal year, 

which is updated 6 months after the end of each Federal fiscal year within the applicable 

period, as our data source (that is, the March updates of the respective Federal fiscal year 

MedPAR files) for the final rules. 

 The FY 2010 through FY 2013 MedPAR data files can be purchased from CMS. 

Use of these files allows the public to verify the readmissions adjustment factors. 

Interested individuals may order these files through the CMS Web site at: 
 586 

http://www.cms.hhs.gov/LimitedDataSets/ by clicking on MedPAR Limited Data Set 

(LDS)-Hospital (National). This Web page describes the files and provides directions 

and further detailed instructions for how to order the data sets. Persons placing an order 

must send the following: a Letter of Request, the LDS Data Use Agreement and 

Research Protocol (refer to the Web site for further instructions), the LDS Form, and a 

check for $3,655 to: 

● If using the U.S. Postal Service: Centers for Medicare and Medicaid Services, 

RDDC Account, Accounting Division, P.O. Box 7520, Baltimore, MD 21207-0520. 

● If using express mail: Centers for Medicare and Medicaid Services, 

OFM/Division of Accounting- RDDC, Mailstop C#-07-11, 7500 Security Boulevard, 

Baltimore, MD 21244-1850. 

 For this proposed rule, we are proposing to determine aggregate payments for 

excess readmissions and aggregate payments for all discharges using data from MedPAR 

claims with discharge dates that are on or after July 1, 2010, and no later than 

June 30, 2013. However, we note that for the purpose of modeling the proposed FY 2015 

readmissions payment adjustment factors for this proposed rule, we are using excess 

readmissions ratios for applicable hospitals from the FY 2014 Hospital Readmissions 

Reduction Program applicable period. For the final rule, applicable hospitals will have 

had the opportunity to review and correct data from the proposed FY 2015 applicable 

period of July 1, 2010 to June 30, 2013 before they are made public under our policy 

regarding the reporting of hospital-specific information, which is discussed later in this 

section. 
 587 

 In this proposed rule, for FY 2015, we are proposing to use MedPAR data from 

July 1, 2010 through June 30, 2013. Specifically, in this proposed rule, we are using the 

March 2011 update of the FY 2010 MedPAR file to identify claims within FY 2010 with 

discharges dates that are on or after July 1, 2010, the March 2012 update of the FY 2011 

MedPAR file to identify claims within FY 2011, the March 2013 update of the FY 2012 

MedPAR file to identify claims within FY 2012, and the December 2013 update of the 

FY 2013 MedPAR file to identify claims within FY 2013 with discharge dates no later 

than June 30, 2013. For the final rule, we are proposing to use the same MedPAR files as 

listed above for claims within FY 2010, FY 2011 and FY 2012. For claims within 

FY 2013, we are proposing to use in the final rule the March 2014 update of the FY 2013 

MedPAR file. 

 In order to identify the admissions for each condition, including the two 

additional conditions THA/TKA and COPD, to calculate the aggregate payments for 

excess readmissions for an individual hospital, for FY 2015, we are proposing to identify 

each applicable condition using the ICD-9-CM codes used to identify applicable 

conditions to calculate the excess readmissions ratios. Under our existing policy, we 

identify eligible hospitalizations and readmissions of Medicare patients discharged from 

an applicable hospital having a principal diagnosis for the measured condition in an 

applicable period (76 FR 51669). The discharge diagnoses for each applicable condition 

are based on a list of specific ICD-9-CM codes for that condition. These codes are 

posted on the QualityNet Web site at: http://www.QualityNet.org > Hospital-Inpatient > 

Claims-Based Measures > Readmission Measures > Measure Methodology. 
 588 

 In order to identify the applicable conditions to calculate the aggregate payments 

for excess readmissions, for FY 2015, we are proposing to identify the claim as an 

applicable condition consistent with the methodology to identify conditions to calculate 

the excess readmissions ratio. In other words, the applicable conditions of AMI, HF and 

PN are identified for the calculation of aggregate payments for excess readmissions if the 

ICD-9-CM code for that condition is listed as the principal diagnosis on the claim. 

 In order to identify claims with the applicable condition of THA/TKA, we are 

proposing that any claim that has the procedure codes for THA/TKA listed in any 

diagnosis/procedure field of the claim would be included in the calculation of aggregate 

payments for readmissions, consistent with the methodology to calculate the excess 

readmissions ratio for THA/TKA. In order to identify claims with the applicable 

condition of COPD, we are proposing to identify claims that either have the ICD-9-CM 

code for that condition is listed as the principal diagnosis on the claim or has a principal 

diagnosis of some respiratory failure along with secondary diagnosis of COPD. 

 Under our established methodology for calculating aggregate payments for 

readmissions, admissions that are not considered index admissions for the purpose of the 

readmissions measures are excluded from the calculation of the excess readmissions 

ratio, and therefore also are not considered admissions for the purposes of determining a 

hospital’s aggregate payments for excess readmissions (78 FR 50670 through 50876). 

With the addition of THA/TKA and COPD as applicable conditions beginning in 

FY 2015, we are proposing to modify our current methodology to identify the admissions 

included in the calculation of “aggregate payments for excess readmissions” for 
 589 

THA/TKA and COPD in the same manner as the original applicable conditions (AMI, 

HF and PN). That is, THA/TKA and COPD admissions that would not considered index 

admissions in the readmissions measures also would not considered admissions for the 

purposes of calculation a hospital’s aggregate payments for excess readmissions. 

 In this proposed rule, for FY 2015, we are proposing to continue to apply the 

same exclusions to the claims in the MedPAR file as we applied for FY 2014 

(78 FR 50670 through 50673), and we are proposing to apply those exclusions for the 

two additional applicable conditions, THA/TKA and COPD. For FY 2015, in order to 

have the same types of admissions to calculate aggregate payments for excess 

readmissions as is used to calculate the excess readmissions ratio, we are proposing to 

identify admissions for all five applicable conditions, AMI, HF, PN, THA/TKA and 

COPD, for the purposes of calculating aggregate payments for excess readmissions as 

follows: 

● We would exclude admissions that are identified as an applicable condition if 

the patient died in the hospital, as identified by the discharge status code on the MedPAR 

claim. 

● We would exclude admissions identified as an applicable condition for which 

the patient was transferred to another provider that provides acute care hospital services 

(that is, a CAH or an IPPS hospital), as identified through examination of contiguous 

stays in MedPAR at other hospitals. 
 590 

● We would exclude admissions identified as an applicable condition for patients 

who are under the age of 65, as identified by linking the claim information to the 

information provided in the Medicare Enrollment Database. 

● For conditions identified as AMI, we would exclude claims that are same day 

discharges, as identified by the admission date and discharge date on the MedPAR claim. 

● We would exclude admissions for patients who did not have Medicare Parts A 

and B FFS enrollment in the 12 months prior to the index admission, based on the 

information provided in the Medicare Enrollment Database. 

● We would exclude admissions for patients without at least 30 days 

post-discharge enrollment in Medicare Parts A and B fee-for-service, based on the 

information provided in the Medicare Enrollment Database. 

● We would exclude all multiple admissions within 30 days of a prior index 

admission’s discharge date, as identified in the MedPAR file, consistent with how 

multiple admissions within 30 days of an index admission are excluded from the 

calculation of the excess readmissions ratio. 

 These exclusions are consistent with our current methodology, which was 

established in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50671). 

 In addition to the exclusions described above for all five applicable conditions, for 

FY 2015, we are proposing the following steps to identify admissions specifically for 

THA/TKA for the purposes of calculating aggregate payments for excess readmissions: 
 591 

● We are proposing to exclude admissions for THA/TKA for all transfer cases 

regardless of whether the discharge was a transfer to another hospital or from another 

hospital, consistent with the calculation of the excess readmissions ratio for THA/TKA. 

● We are proposing to exclude admissions for THA/TKA for cases where the 

discharge includes a femur, hip, or pelvic fracture coded in the principal or secondary 

diagnosis fields, consistent with the calculation of the excess readmissions ratio for 

THA/TKA. 

● We are proposing to exclude admissions for THA/TKA for cases where the 

discharge includes a mechanical complication coded in the principal diagnosis field, 

consistent with the calculation of the excess readmissions ratio for THA/TKA. 

● We are proposing to exclude admissions for THA/TKA for cases where the 

discharge includes a malignant neoplasm of the pelvis, sacrum, coccyx, lower limbs, or 

bone/bone marrow or a disseminated malignant neoplasm coded in the principal 

diagnosis field, consistent with the calculation of the excess readmissions ratio for 

THA/TKA. 

● We are proposing to exclude admissions for THA/TKA for cases where the 

discharge includes more than two hip/knee procedures.. 

● We are proposing to exclude admissions for THA/TKA for cases that meet 

either any of the following conditions or following procedures concurrent with 

THA/TKA: revision procedures; partial hip arthroplasty (PHA) procedures; resurfacing 

procedures; and removal of implanted devices/prostheses. 
 592 

 Furthermore, we are proposing to only identify Medicare FFS claims that meet 

the criteria (that is, claims paid for under Medicare Part C (Medicare Advantage) would 

not be included in this calculation), consistent with the methodology to calculate excess 

readmissions ratios based solely on admissions and readmissions for Medicare FFS 

patients. Therefore, consistent with our established methodology, for FY 2015, we would 

exclude admissions for patients enrolled in Medicare Advantage as identified in the 

Medicare Enrollment Database. This proposal is consistent with how admissions for 

Medicare Advantage patients are identified in the calculation of the excess readmissions 

ratios under our established methodology. The tables below list the ICD-9-CM codes we 

are proposing to use to identify each applicable condition to calculate the aggregate 

payments for excess readmissions under this proposal for FY 2015. The tables include 

the ICD-9-CM codes we are proposing to use to identify the two conditions, THA/TKA 

and COPD, added to the Hospital Readmissions Reduction Program beginning for 

FY 2015. These ICD-9-CM codes also would be used to identify the applicable 

conditions to calculate the excess readmissions ratios, consistent with our established 

policy (76 FR 51673 through 51676). 

 
 593 

ICD-9-CM CODES TO IDENTIFY PNEUMONIA (PN) CASES 

ICD-9-CM 

Code Description of Code 

480.0 Pneumonia due to adenovirus 

480.1 Pneumonia due to respiratory syncytial virus 

480.2 Pneumonia due to parainfluenza virus 

480.3 Pneumonia due to SARS-associated coronavirus 

480.8 Viral pneumonia: pneumonia due to other virus not elsewhere classified 

480.9 Viral pneumonia unspecified 

481 Pneumococcal pneumonia [streptococcus pneumoniae pneumonia] 

482.0 Pneumonia due to klebsiella pneumoniae 

482.1 Pneumonia due to pseudomonas 

482.2 Pneumonia due to hemophilus influenzae [h. influenzae] 

482.30 Pneumonia due to streptococcus unspecified 

482.31 Pneumonia due to streptococcus group a 

482.32 Pneumonia due to streptococcus group b 

482.39 Pneumonia due to other streptococcus 

482.40 Pneumonia due to staphylococcus unspecified 

482.41 Pneumonia due to staphylococcus aureus 

482.42 Methicillin Resistant Pneumonia due to Staphylococcus Aureus 

482.49 Other staphylococcus pneumonia 

482.81 Pneumonia due to anaerobes 

482.82 Pneumonia due to escherichia coli [e.coli] 

482.83 Pneumonia due to other gram-negative bacteria 

482.84 Pneumonia due to legionnaires' disease 

482.89 Pneumonia due to other specified bacteria 

482.9 Bacterial pneumonia unspecified 

483.0 Pneumonia due to mycoplasma pneumoniae 

483.1 Pneumonia due to chlamydia 

483.8 Pneumonia due to other specified organism 

485 Bronchopneumonia organism unspecified 

486 Pneumonia organism unspecified 

487.0 Influenza with pneumonia 

488.11 Influenza due to identified novel H1N1 influenza virus with pneumonia 
 594 

ICD-9-CM CODES TO IDENTIFY HEART FAILURE (HF) CASES 

ICD-9-CM 

Code Code Description 

402.01 Hypertensive heart disease, malignant, with heart failure 

402.11 Hypertensive heart disease, benign, with heart failure 

402.91 Hypertensive heart disease, unspecified, with heart failure 

404.01 

Hypertensive heart and chronic kidney disease, malignant, with heart 

failure and with chronic kidney disease stage I through stage IV, or 

unspecified 

404.03 Hypertensive heart and chronic kidney disease, malignant, with heart 

failure and with chronic kidney disease stage V or end stage renal disease 

404.11 Hypertensive heart and chronic kidney disease, benign, with heart failure 

and with chronic kidney disease stage I through stage IV, or unspecified 

404.13 

Hypertensive heart and chronic kidney disease, benign, with heart failure 

and with chronic kidney disease stage I through stage IV, or unspecified 

failure and chronic kidney disease stage V or end stage renal disease 

404.91 

Hypertensive heart and chronic kidney disease, unspecified, with heart 

failure and chronic kidney disease stage V or end stage renal disease heart 

failure and with chronic kidney disease stage I through stage IV, or 

unspecified 

404.93 Hypertensive heart and chronic kidney disease, unspecified, with heart 

failure and chronic kidney disease stage V or end stage renal disease 

428.xx Heart Failure 
 595 

ICD-9-CM CODES TO IDENTIFY ACUTE MYOCARDIAL INFARCTION (AMI) 

CASES 

ICD-9-CM 

Code Description of Code 

410.00 AMI (anterolateral wall) – episode of care unspecified 

410.01 AMI (anterolateral wall) – initial episode of care 

410.10 AMI (other anterior wall) – episode of care unspecified 

410.11 AMI (other anterior wall) – initial episode of care 

410.20 AMI (inferolateral wall) – episode of care unspecified 

410.21 AMI (inferolateral wall) – initial episode of care 

410.30 AMI (inferoposterior wall) – episode of care unspecified 

410.31 AMI (inferoposterior wall) – initial episode of care 

410.40 AMI (other inferior wall) – episode of care unspecified 

410.41 AMI (other inferior wall) – initial episode of care 

410.50 AMI (other lateral wall) – episode of care unspecified 

410.51 AMI (other lateral wall) – initial episode of care 

410.60 AMI (true posterior wall) – episode of care unspecified 

410.61 AMI (true posterior wall) – initial episode of care 

410.70 AMI (subendocardial) – episode of care unspecified 

410.71 AMI (subendocardial) – initial episode of care 

410.80 AMI (other specified site) – episode of care unspecified 

410.81 AMI (other specified site) – initial episode of care 

410.90 AMI (unspecified site) – episode of care unspecified 

410.91 AMI (unspecified site) – initial episode of care 
 596 

ICD-9-CM CODES TO IDENTIFY CHRONIC OBSTRUCTIVE PULMONARY 

DISEASE (COPD) CASES 

ICD-9-CM Code Description of Code

491.21 Obstructive chronic bronchitis; With (acute) exacerbation; acute 

exacerbation of COPD, decompensated COPD, decompensated 

COPD with exacerbation 

491.22 Obstructive chronic bronchitis; with acute bronchitis 

491.8 Other chronic bronchitis. Chronic: tracheitis, tracheobronchitis. 

491.9 Unspecified chronic bronchitis 

492.8 Other emphysema; emphysema (lung or pulmonary): NOS, 

centriacinar, centrilobular, obstructive, panacinar, panlobular, 

unilateral, vesicular. MacLeod's syndrome; Swyer-James 

syndrome; unilateral hyperlucent lung 

493.20 Chronic obstructive asthma; asthma with COPD, chronic 

asthmatic bronchitis, unspecified 

493.21 Chronic obstructive asthma; asthma with COPD, chronic 

asthmatic bronchitis, with status asthmaticus 

493.22 Chronic obstructive asthma; asthma with COPD, chronic 

asthmatic bronchitis, with (acute) exacerbation 

496 Chronic: nonspecific lung disease, obstructive lung disease, 

obstructive pulmonary disease (COPD) NOS. NOTE: This code 

is not to be used with any code from categories 491-493. 

518.81* Other diseases of lung; acute respiratory failure; respiratory 

failure NOS 

518.82* Other diseases of lung; acute respiratory failure; other pulmonary 

insufficiency, acute respiratory distress 

518.84* Other diseases of lung; acute respiratory failure; acute and 

chronic respiratory failure 

799.1* Other ill-defined and unknown causes of morbidity and 

mortality; respiratory arrest, cardiorespiratory failure 

*Principal diagnosis when combined with a secondary diagnosis of AECOPD (491.21, 

491.22, 493.21, or 493.22)

ICD-9-CM CODES TO IDENTIFY TOTAL HIP ARTHROPLASTY/TOTAL 

KNEE ARTHROPLATY (THA/TKA) CASES 

ICD-9-CM Code Description of Code

81.51 Total hip arthroplasty 

81.54 Total knee arthroplasty 
 597 

 For FY 2015, we are proposing to calculate aggregate payments for excess 

readmissions, using MedPAR claims from July 1, 2010 to June 30, 2013, to identify 

applicable conditions based on the same ICD-9-CM codes used to identify the conditions 

for the readmissions measures, and to apply the proposed exclusions for the types of 

admissions discussed above. To calculate aggregate payments for excess readmissions, 

we are proposing to calculate the base operating DRG payment amounts for all claims in 

the 3-year applicable period for each applicable condition (AMI, HF, PN, COPD and 

THA/TKA) based on the claims we have identified as described above. Once we have 

calculated the base operating DRG amounts for all the claims for the five applicable 

conditions, we are proposing to sum the base operating DRG payments amounts by each 

condition, resulting in five summed amounts, one amount for each of the five applicable 

conditions. We are proposing to then multiply the amount for each condition by the 

respective excess readmissions ratio minus 1 when that excess readmissions ratio is 

greater than 1, which indicates that a hospital has performed, with respect to readmissions 

for that applicable condition, worse than the average hospital with similar patients. Each 

product in this computation represents the payments for excess readmissions for that 

condition. We are proposing to then sum the resulting products which represent a 

hospital’s proposed “aggregate payments for excess readmissions” (the numerator of the 

ratio). Because this calculation is performed separately for each of the five conditions, a 

hospital’s excess readmissions ratio must be less than or equal to 1 on each measure to 

aggregate payments for excess readmissions (and thus a payment reduction under the 

Hospital Readmissions Reduction Program). We note that we are not proposing any 
 598 

changes to our existing methodology to calculate “aggregate payments for all discharges” 

(the denominator of the ratio). 

 We are proposing the following methodology for FY 2015 as displayed in the 

chart below. 

FORMULAS TO CALCULATE THE READMISSIONS ADJUSTMENT FACTOR 

Aggregate payments for excess readmissions = [sum of base operating DRG payments 

for AMI x (Excess Readmissions Ratio for AMI-1)] + [sum of base operating DRG 

payments for HF x (Excess Readmissions Ratio for HF-1)] + [sum of base operating 

DRG payments for PN x (Excess Readmissions Ratio for PN-1)] + [sum of base 

operating DRG payments for COPD) x (Excess Readmissions Ratio for COPD-1)] + 

[sum of base operating DRG payments for THA/TKA x (Excess Readmissions Ratio for 

THA/TKA-1)]. 

*Note, if a hospital’s excess readmissions ratio for a condition is less than/equal to 1, 

then there are no aggregate payments for excess readmissions for that condition included 

in this calculation. 

Aggregate payments for all discharges = sum of base operating DRG payments for all 

discharges. 

Ratio = 1-(Aggregate payments for excess readmissions/Aggregate payments for all 

discharges). 

Proposed Readmissions Adjustment Factor for FY 2015 is the higher of the ratio or 

0.9700. 

*Based on claims data from July 1, 2010 to June 30, 2013 for FY 2015. 

 We invite public comment on these proposals. 

12. Hospital Readmissions Reduction Program Extraordinary Circumstances Exceptions 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50676), we indicated that 

commenters had requested a potential waiver or exemption process for hospitals located 

in areas that experience disasters or other extraordinary circumstances, even though we 
 599 

had not proposed an extraordinary circumstance exceptions/exemptions (ECE) policy for 

the Hospital Readmissions Reduction Program. We noted that there are several policy 

and operational considerations in developing a disaster exemption process for the 

Hospital Readmissions Reduction Program. 

 We welcome public comment on whether an exemption process should be 

implemented, and the policy and operational considerations for a potential Hospital 

Readmissions Reduction Program ECE policy.
 600 

I. Hospital Value-Based Purchasing (VBP) Program 

1. Statutory Background 

 Section 1886(o) of the Act, as added by section 3001(a)(1) of the Affordable Care 

Act, requires the Secretary to establish a hospital value-based purchasing program (the 

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

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

established for a performance period for such fiscal year. Both the performance 

standards and the performance period for a fiscal year are to be established by the 

Secretary. 

 Section 1886(o)(1)(B) of the Act states that the Hospital VBP Program applies to 

payments for hospital discharges occurring on or after October 1, 2012. In accordance 

with section 1886(o)(6)(A) of the Act, we are required to make value-based incentive 

payments under the Hospital VBP Program to hospitals that meet or exceed performance 

standards for a performance period for a fiscal year. As further required by 

section 1886(o)(6)(C)(ii)(I) of the Act, we base each hospital’s value-based payment 

percentage on the hospital’s Total Performance Score (TPS) for a specified performance 

period. In accordance with section 1886(o)(7) of the Act, the total amount available for 

value-based incentive payments for a fiscal year will be equal to the total amount of the 

payment reductions for all participating hospitals for such fiscal year, as estimated by the 

Secretary. For FY 2014, the available funding pool was equal to 1.25 percent of the 

base-operating DRG payments to all participating hospitals, as estimated by the 

Secretary. The size of the applicable percentage has increased to 1.50 percent for 
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FY 2015 and will increase to 1.75 percent for FY 2016, and to 2.0 percent for FY 2017 

and successive fiscal years. 

 Section 1886(o)(1)(C) of the Act generally defines the term “hospital” for 

purposes of the Hospital VBP Program as a subsection (d) hospital (as that term is 

defined in section 1886(d)(1)(B) of the Act), but excludes from the definition of the term 

“hospital,” with respect to a fiscal year: (1) a hospital that is subject to the payment 

reduction under section 1886(b)(3)(B)(viii)(I) of the Act (the Hospital IQR Program) for 

such fiscal year; (2) a hospital for which, during the performance period for the fiscal 

year, the Secretary has cited deficiencies that pose immediate jeopardy to the health or 

safety of patients; and (3) a hospital for which there are not a minimum number (as 

determined by the Secretary) of measures that apply to the hospital for the performance 

period for the fiscal year involved, or for which there are not a minimum number (as 

determined by the Secretary) of cases for the measures that apply to the hospital for the 

performance period for such fiscal year. 

2. Overview of Previous Hospital VBP Program Rulemaking 

 We refer readers to the Hospital Inpatient VBP Program final rule (76 FR 26490 

through 26547), FY 2012 IPPS/LTCH PPS final rule (76 FR 51653 through 51660), 

CY 2012 OPPS/ASC final rule with comment period (76 FR 74527 through 74547), 

FY 2013 IPPS/LTCH PPS final rule (77 FR 53567 through 53614), FY 2014 IPPS/LTCH 

PPS final rule (78 FR 50676 through 50707), and CY 2014 OPPS/ASC final rule with 

comment period (78 FR 75120 through 75121) for further descriptions of our policies for 

the Hospital VBP Program. 
 602 

 We have also codified certain requirements for the Hospital VBP Program at 

§§ 412.160 through 412.167 of our regulations. 

3. FY 2015 Payment Details 

a. Payment Adjustments 

 Section 1886(o)(7)(B) of the Act instructs the Secretary to reduce the base 

operating DRG payment amount for a hospital for each discharge in a fiscal year by an 

applicable percent. Under section 1886(o)(7)(A) of the Act, the sum total of these 

reductions in a fiscal year must equal the total amount available for value-based incentive 

payments for all eligible hospitals for the fiscal year, as estimated by the Secretary. We 

finalized details on how we would implement these provisions in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53571 through 53573) and refer readers to that rule for 

further details. 

 Under section 1886(o)(7)(C)(iii) of the Act, the applicable percent for the 

FY 2015 Hospital VBP Program is 1.50 percent. Using the methodology we adopted in 

the FY 2013 IPPS/LTCH PPS final rule (77 FR 53571 through 53573), we estimate that 

the total amount available for value-based incentive payments for FY 2015 is $1.4 

billion, based on the December 2013 update of the FY 2013 MedPAR file. We intend to 

update this estimate for the FY 2015 IPPS/LTCH PPS final rule, using the March 2014 

update of the FY 2013 MedPAR file. 

 As finalized in the FY 2013 IPPS/LTCH PPS final rule, as referenced above, we 

will utilize a linear exchange function to translate this estimated amount available into a 

value-based incentive payment percentage for each hospital, based on its TPS. We will 
 603 

then calculate a value-based incentive payment adjustment factor that will be applied to 

the base operating DRG payment amount for each discharge occurring in FY 2015, on a 

per-claim basis. We are publishing proxy value-based incentive payment adjustment 

factors in Table 16 of this proposed rule (which is available via the Internet on the CMS 

Web site). The proxy factors are based on the TPSs from the FY 2014 Hospital VBP 

Program. These FY 2014 performance scores are the most recently available 

performance scores that hospitals have been given the opportunity to review and correct. 

The slope of the linear exchange function used to calculate those proxy value-based 

incentive payment adjustment factors was 2.0952951561. This slope, along with the 

estimated amount available for value-based incentive payments, is also published in 

Table 16. 

 We intend to update this table as Table 16A in the final rule (which will be 

available via the Internet on the CMS Web site) to reflect changes based on the 

March 2014 update to the FY 2013 MedPAR file. We also intend to update the slope of 

the linear exchange function used to calculate those updated proxy value-based incentive 

payment adjustment factors. The updated proxy value-based incentive payment 

adjustment factors for FY 2015 will continue to be based on historic FY 2014 Program 

TPSs because hospitals will not have been given the opportunity to review and correct 

their actual TPSs for the FY 2015 Hospital VBP Program until after the FY 2015 

IPPS/LTCH PPS final rule is published. After hospitals have been given an opportunity 

to review and correct their actual TPSs for FY 2015, we will add Table 16B (which will 

be available via the Internet on the CMS Web site) to display the actual value-based 
 604 

incentive payment adjustment factors, exchange function slope, and estimated amount 

available for the FY 2015 Hospital VBP Program. We expect that Table 16B will be 

posted on the CMS Web site in October 2014. 

b. Base Operating DRG Payment Amount Definition for Medicare-Dependent Small 

Rural Hospitals (MDHs) 

 Section 106 of Pub. L. 113–93, the Protecting Access to Medicare Act of 2014 

(PAMA), extended the MDH program through March 31, 2015. We note that that the 

special treatment for MDHs under section 1886(o)(7)(D)(ii)(I) of the Act, with regard to 

definition of base operating DRG payment amount, does not apply to discharges 

occurring after FY 2013. 

 For FY 2015 and subsequent years, for purposes of calculating the payment 

adjustment factors and applying the payment methodology, we are proposing that the 

base operating DRG payment amount for MDHs will include the difference between the 

hospital-specific payment rate and the Federal payment rate (as applicable). We are also 

proposing to revise the definition of base operating DRG payment amount in § 412.160 

paragraph (2) of our regulations to reflect this change. We welcome comments on this 

proposal. 

4. Measures for the FY 2017 Hospital VBP Program 

a. Measures Previously Adopted 

 In the FY 2013 IPPS/LTCH PPS final rule, we finalized our proposal to readopt 

measures from the prior program year for each successive program year, unless proposed 

and finalized otherwise (for example, because one or more of the measures is 
 605 

“topped-out” or for other policy reasons). We stated our belief that this policy would 

facilitate measure adoption for the Hospital VBP Program for future years, as well as 

align the Hospital VBP Program with the Hospital IQR Program (77 FR 53592). The 

FY 2016 Hospital VBP Program includes the following measures: 

Finalized Measures for the FY 2016 Hospital VBP Program 

Clinical Process of Care Domain

AMI-7a Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival 

IMM-2 Influenza Immunization 

PN-6 Initial Antibiotic Selection for CAP in Immunocompetent Patient 

SCIP-Inf-2 Prophylactic Antibiotic Selection for Surgical Patients 

SCIP-Inf-3 Prophylactic Antibiotics Discontinued Within 24 Hours After Surgery 

End Time 

SCIP-Inf-9 Urinary Catheter Removed on Postoperative Day 1 or Postoperative Day 

2 

SCIP-Card-2 Surgery Patients on Beta-Blocker Therapy Prior to Arrival Who 

Received a Beta-Blocker During the Perioperative Period 

SCIP-VTE-2 Surgery Patients Who Received Appropriate Venous Thromboembolism 

Prophylaxis Within 24 Hours Prior to Surgery to 24 Hours After 

Surgery 

Patient Experience of Care Domain

HCAHPS Hospital Consumer Assessment of Healthcare Providers and Systems 

Survey 

Outcome Domain

CAUTI Catheter-Associated Urinary Tract Infection 

CLABSI Central Line-Associated Blood Stream Infection 

MORT-30-

AMI 

Acute Myocardial Infarction (AMI) 30-day mortality rate 

MORT-30-HF Heart Failure (HF) 30-day mortality rate 

MORT-30-PN Pneumonia (PN) 30-day mortality rate 

PSI-90 Complication/patient safety for selected indicators (composite) 

SSI Surgical Site Infection: 

● Colon 

● Abdominal Hysterectomy 

Efficiency Domain
 606 

MSPB-1 Medicare Spending per Beneficiary 

b. Proposed Changes Affecting Topped Out Measures 

(1) Proposed Removal of Six Topped-Out Measures 

 For the FY 2017 Hospital VBP Program measure set, we evaluated whether any 

measures that we previously adopted are now “topped out” by focusing on two criteria: 

(1) national measure data showing statistically indistinguishable performance levels at the 

75th and 90th percentiles; and (2) national measure data showing a truncated coefficient of 

variation (TCV) less than 0.10. We refer readers to the Hospital Inpatient VBP Program 

final rule (76 FR 26496 through 26497) for further discussion of these current “toppedout” criteria and to our proposal below to modify the second criterion. 

 Based on our evaluation of the most recently available data, we believe that PN-6, 

SCIP-Card-2, SCIP-Inf-2, SCIP-Inf-3, SCIP-Inf-9, and SCIP-VTE-2 are all now 

“topped-out.” Therefore, we are proposing to remove these six measures from the 

FY 2017 Hospital VBP measure set because measuring hospital performance on these 

measures will have no meaningful effect on a hospital’s TPS. We believe that removing 

these “topped-out” measures will continue to ensure that we make valid statistical 

comparisons through our finalized scoring methodology, and will reduce the reporting 

burden on participating hospitals. 

 We welcome public comment on this proposal. 
 607 

(2) Proposed Change to Truncated Coefficient of Variation Criterion to Determine 

Whether a Measure is Topped Out 

 As stated above, we have adopted two criteria for determining the “topped-out” 

status of Hospital VBP Program measures: 

● Statistically indistinguishable performance at the 75th and 90th percentiles; and 

● Truncated coefficient of variation < 0.10. 

 We are proposing to modify the second criterion to the following: 

● Truncated coefficient of variation ≤ 0.10. 

 The coefficient of variation (CV) is a common statistic that expresses the standard 

deviation as a percentage of the sample mean in a way that is independent of the units of 

observation. Applied to this analysis, a large CV would indicate a broad distribution of 

individual hospital scores, with large and presumably meaningful differences between 

hospitals in relative performance. A small CV would indicate that the distribution of 

individual hospital scores is clustered tightly around the mean value, suggesting that it is 

not useful to draw distinctions among individual hospitals’ measure performance. By 

proposing to change the truncated CV from “less than” to “less than or equal to” 0.10 

under our “topped out” test, we will better be able to distinguish measures with 

significant variation in performance among hospitals and more accurately apply 

determine what measures are “topped out” for purposes of the Program. 

 We welcome public comments on this proposal. 
 608 

c. Proposed New Measures for the FY 2017 Hospital VBP Program 

 We considered if we should adopt additional measures for the FY 2017 Hospital 

VBP Program. We considered which measures are eligible for adoption based on the 

statutory requirements, including specification under the Hospital IQR Program and 

posting dates on the Hospital Compare Web site, and our priorities for quality 

improvement as outlined in the NQS (available for download at 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/QualityInitiativesGenInfo/Downloads/CMS-Quality-Strategy.pdf). 

 We believe that the following three proposed measures meet the statutory 

requirements for inclusion in the FY 2017 Hospital VBP Program. We also believe that 

these measures represent important components of quality improvement in the acute 

inpatient hospital setting. 

(1) Methicillin-Resistant Staphylococcus aureus (MRSA) Bacteremia (NQF #1716) 

 Methicillin-Resistant Staphylococcus aureus (MRSA) Bacteremia (NQF #1716) 

is a risk-adjusted outcome measure monitoring hospital onset of MRSA bloodstream 

infection events using the standardized infection ratio (MRSA bacteremia SIR) among all 

inpatients in the facility, and is reported via CDC’s National Healthcare Safety Network 

(NHSN). We adopted this measure beginning with the FY 2015 payment determination 

under the Hospital IQR Program in the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51630), and initial measure data were posted on Hospital Compare in 

December 2013. 
 609 

 We remain concerned about the persistent public health threat presented by 

MRSA infections. According to a 2013 study available at the NIH Web site, MRSA 

“results in longer hospitalization, increased expenses, and poorer patient prognosis,” and 

MRSA “has been swiftly increasing worldwide over the past several decades.”35 As we 

noted in the FY 2012 IPPS/LTCH PPS final rule, invasive MRSA infections may cause 

about 18,000 deaths during a hospital stay a year.36

 The MAP supported the direction of the MRSA bacteremia measure for inclusion 

in the Hospital VBP Program in the MAP Pre-Rulemaking Report: 2013 

Recommendations on Measures Under Consideration by HHS found at 

https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72746. 

The MAP noted that the measure addresses an NQS priority not adequately addressed in 

the program measure set, the measure should be applied following public reporting on 

Hospital Compare, and that the most recent version of the NQF-endorsed measure should 

be applied. 

We believe that this measure is eligible for the Hospital VBP Program based on 

the MAP recommendation, our adoption of the most recent NQF-endorsed version under 

the Hospital IQR Program, and our posting of measure data on Hospital Compare. Based 

on the continued danger that MRSA infections present to patients and to the public 

health, we further believe that this measure is appropriate for the Hospital VBP Program. 

Therefore, we are proposing to adopt the MRSA bacteremia measure for the FY 2017 

 

35 Tatokoro et al. BMC Urology 2013, 13:35. Available at 

http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3720197/pdf/1471-2490-13-35.pdf

36 Catherine Liu, Arnold Bayer, et al., Clinical practice Guidelines for the treatment of Methicillin-Resistant 

Staphylococcus aureus Infections in Adult and Children. Infectious Disease Society of America 2011; 

52:e18 
 610 

Hospital VBP Program, and we are proposing to place the measure into the Safety 

domain. 

 We invite public comment on this proposal. 

(2) Clostridium difficile Infection (NQF #1717) 

Clostridium difficile Infection (NQF #1717) is a risk-adjusted outcome measure 

monitoring hospital onset of C. difficile infection events using the standardized infection 

ratio (C. difficile SIR) among all inpatients in the facility, and is reported via CDC’s 

NHSN. We adopted this measure for the FY 2015 payment determination under the 

Hospital IQR Program in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51630 through 

51631), and initial measure data were posted on Hospital Compare in December 2013. 

 As with MRSA infections, we are concerned about the seriousness of C. difficile

infections. According to a 2012 study, “infection with Clostridium difficile is associated 

with poor outcomes for patients. Previous work has determined that, regardless of 

baseline risk of death, for every 10 patients that acquire C. difficile in hospital, 1 patient 

will die. Clostridium difficile is also associated with increased health care costs. One of 

the primary mechanisms by which C. difficile increases costs is by increasing the length 

of time patients spend in hospital.”37 As we stated in the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51630 through 51631), C. difficile infections have become more frequent, 

more severe, and more difficult to treat in recent years. Each year, tens of thousands of 

people in the United States get sick from C. difficile, including some otherwise healthy 

people who are not hospitalized or taking antibiotics. 

 

37 Forster et al. “The effect of hospital-acquired infection with Clostridium difficile on length of stay in 

hospital.” Canadian Medical Association Journal, January 10, 2012. Available at 

http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3255231/pdf/1840037.pdf
 611 

 The MAP supported the direction of the C. difficile infection measure for 

inclusion in the Hospital VBP Program in the MAP Pre-Rulemaking Report: 2013 

Recommendations on Measures Under Consideration by HHS found at 

https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72746. 

The MAP noted that the measure addresses an NQS priority not adequately addressed in 

the program measure set, the measure should be applied following public reporting on 

Hospital Compare, and that the most recent version of the NQF-endorsed measure should 

be applied. 

 We believe that this measure is eligible for the Hospital VBP Program based on 

the MAP recommendation, our adoption of the most recent NQF-endorsed version under 

the Hospital IQR Program, and our posting of measure data on Hospital Compare, as 

well as the continued danger that C. difficile infections present to patients and the public 

health. Therefore, we are proposing to adopt the C. difficile SIR measure for the 

FY 2017 Hospital VBP Program, and we are proposing to place the measure into the 

Safety domain. 

 We invite public comment on this proposal. 

(3) PC-01: Elective Delivery Prior to 39 Completed Weeks Gestation (NQF #0469) 

 PC-01: Elective Delivery Prior to 39 Completed Weeks Gestation (NQF #0469) is 

a chart-abstracted measure that we adopted beginning with the FY 2015 payment 

determination for the Hospital IQR Program in the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53528 through 53530). Initial measure data were posted on Hospital Compare in 

December 2013. Although this is a chart-abstracted measure, we finalized our policy in 
 612 

the FY 2013 IPPS/LTCH PPS final rule (77 FR 53528 through 53529) that this measure 

would be collected in aggregated numerator, denominator, and exclusion counts per 

hospital via a Web-based tool, instead of collecting patient-level data from hospitals. 

 As we described in the FY 2013 IPPS/LTCH PPS final rule referenced above, the 

Strong Start Initiative (http://www.innovation.cms.gov/initiatives/strong-start/) was 

launched to help reduce early elective births. At launch, the HHS Secretary stated that 

more than half a million infants are born prematurely in America each year. Fortunately, 

the early elective birth rate has steadily decreased. In 2012, the number of early elective 

births had decreased to approximately 456,000 or 11.55 percent of the total number of 

births.38 Early elective births may require additional medical attention and early 

intervention services. Research indicates that elective deliveries before 39 weeks 

increase the risk of significant complications for mother and baby, as well as long-term 

health problems.39,40,41,42 Early elective births are a public health problem that has 

significant consequences for families well into a child’s life. 

 As a public campaign to reduce early elective births, the Strong Start Initiative’s 

objective is to test ways to reverse this trend by helping provide expectant mothers with 

the care they need for a healthy delivery and a healthy baby, and by focusing on reducing 

 

38 Martin, JA, Hamilton, BE, Osterman, MJK, Curtin, SC, Mathews, TJ. (2013). Births: Final data for 2012. 

Natl Vital Stat Rpt. 62(9). Retrieved from http://www.cdc.gov/nchs/data/nvsr/nvsr62/nvsr62_09.pdf 39 Glantz, J. (Apr. 2005). Elective induction vs. spontaneous labor associations and outcomes. J Reprod 

Med. 50(4):235–40. 

40 Vardo, J., Thornburg, L., Glantz J., (2011). Maternal and neonatal morbidity among nulliparous women 

undergoing elective induction of labor. J. report med. 56(1–2): 25–30. 

41 Tita, A., Landon, M., Spong, C., Lai, Y., Leveno, K., Varner, M., et al. (2009). Timing of elective repeat 

cesarean delivery at term and neonatal outcomes. [Electronic Version]. NEJM. 360:2, 111–120. 

42 Clark, S., Miller, D., Belfort, M., Dildy, G., Frye, D., & Meyers, J. (2009). Neonatal and maternal 

outcomes associated with elective delivery. [Electronic Version]. Am J Obstet Gynecol. 200:156.e1–

156.e4. 
 613 

early elective deliveries, which can lead to a variety of health problems for mothers and 

infants. 

 The Strong Start Initiative cuts across many agencies within HHS and involves 

external organizations including the March of Dimes, and the American College of 

Obstetricians and Gynecologists (ACOG). We believe that a reduction in the number of 

nonmedically indicated elective deliveries at ≥37 to <39 weeks gestation will result in a 

substantial decrease in neonatal morbidity and mortality, as well as a significant savings 

in healthcare costs. In addition, the rate of cesarean sections should decrease with fewer 

elective inductions, resulting in decreased length of stay and healthcare costs. 

 The MAP supported adoption of the PC-01 Elective Delivery measure for 

inclusion in the Hospital VBP Program in the MAP Pre-Rulemaking Report: 2013 

Recommendations on Measures Under Consideration by HHS found at 

https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72746. 

The MAP noted that the measure addresses an NQS priority not adequately addressed in 

the program measure set. 

 We are proposing to adopt this measure for the Hospital VBP Program and we are 

proposing to place the measure into the Clinical Care -- Process domain because we 

believe this measure furthers the NQS’s three-part aim of better health care for 

individuals, better health for populations, and lower costs for health care. In addition, 

although the PC-01 measure captures data from all applicable patients, we also believe 

that the measure is specifically relevant to the nearly 2 million Medicare beneficiaries 

who are aged 44 and under, most of who are dual eligible beneficiaries, who have the 
 614 

potential to be impacted by early elective births. In 2011, Medicare paid for roughly 

14,000 births. 

 We welcome public comment on this proposal. 

d. Proposed Adoption of the Current CLABSI Measure (NQF #0139) for the FY 2017 

Hospital VBP Program 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50682 and 50686), we adopted 

the CLABSI measure for the FY 2016 Hospital VBP Program. We stated our belief that 

adopting the current CLABSI measure is consistent with the MAP’s recommendations in 

the MAP Pre-Rulemaking Report: 2013 Recommendations on Measures Under 

Consideration by HHS found at 

https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72746, 

to use the standardized infection ratio version of the measure until the reliability-adjusted 

CLABSI measure is NQF-endorsed. We have stated our intent to consider adopting the 

reliability-adjusted CLABSI measure in future rulemaking. 

 The reliability-adjusted standardized infection ratio (SIR) is an outcome measure 

that summarizes the healthcare-associated infection experience by type of infection (for 

example, central-line associated bloodstream infection, surgical site infection) for 

individual hospitals. The reliability-adjusted measure enables more meaningful statistical 

differentiation between hospitals by accounting for differences in patient case-mix, 

exposures to medical devices or procedures (for example, central line days, surgical 

procedure volume), and unmeasured factors that are not reflected in the unadjusted SIR 

and that cause variation in outcomes between hospitals. Accounting for these sources of 
 615 

variability enables better measure discrimination between hospitals and leads to more 

reliable quality measurements. 

 However, in the absence of NQF endorsement of the reliability-adjusted measure 

and any additional MAP recommendations, and unless and until the Hospital IQR 

Program adopts the reliability adjustments, we believe we may only consider the current 

version of the CLABSI measure for adoption under the Hospital VBP Program. We 

continue to believe that the CLABSI measure encourages hospitals to minimize infection 

events that present significant health risks to patients. Therefore, we are proposing to 

adopt the current version of the CLABSI measure for the FY 2017 Hospital VBP 

Program and subsequent years. If a reliability-adjusted version of the measure becomes 

available to us in the future, we will consider adopting it. 

 We welcome public comment on this proposal. 

e. Summary of Previously Adopted and Proposed New Measures for the FY 2017 

Hospital VBP Program 

 The following table outlines the measures for the FY 2017 Hospital VBP Program 

that we are readopting, as well as those measures we are proposing to adopt. As 

discussed further below, this table includes the FY 2017 domains in which we would 

place the previously adopted measures, as well as the proposed domains in which we 

would place the newly proposed measures. 

Previously Adopted and Proposed New Measures for the FY 2017 Hospital VBP 

Program 

Measure Description Domain 

CAUTI* Catheter-Associated Urinary Tract Infection 

(NQF #0138) 

Safety 
 616 

CLABSI** Central Line-Associated Blood Stream 

Infection (NQF #0139) 

Safety 

C. difficile*** Clostridium difficile Infection (NQF #1717) Safety 

MRSA*** Methicillin-Resistant Staphylococcus aureus

Bacteremia (NQF #1726) 

Safety 

PSI-90* Complication/patient safety for selected 

indicators (composite) (NQF #0531) 

Safety 

SSI* Surgical Site Infection: (NQF #0753) 

● Colon 

● Abdominal Hysterectomy 

Safety 

MORT-30-AMI* Acute Myocardial Infarction (AMI) 30-day 

mortality rate (NQF #0230) 

Clinical Care -- 

Outcomes 

MORT-30-HF* Heart Failure (HF) 30-day mortality rate 

(NQF #0229) 

Clinical Care -- 

Outcomes 

MORT-30-PN* Pneumonia (PN) 30-day mortality rate (NQF 

#0468) 

Clinical Care -- 

Outcomes 

AMI-7a* Fibrinolytic Therapy Received Within 30 

Minutes of Hospital Arrival (NQF #0164) 

Clinical Care -- 

Process 

IMM-2* Influenza Immunization (NQF #1659) Clinical Care -- 

Process 

PC-01*** Elective Delivery Prior to 39 Completed 

Weeks Gestation (NQF #0469) 

Clinical Care -- 

Process 

MSPB-1* Medicare Spending per Beneficiary (NQF 

#2158) 

Efficiency and Cost 

Reduction 

HCAHPS* Hospital Consumer Assessment of 

Healthcare Providers and Systems Survey 

(NQF #0166) 

Patient and Caregiver 

Centered Experience 

of Care/Care 

Coordination 

* Measures readopted for the FY 2017 Hospital VBP Program. 

** Measure adopted for the FY 2016 Hospital VBP Program but not previously subject to 

automatic readoption. 

*** Measures proposed for the FY 2017 Hospital VBP Program. 

5. Proposed Additional Measures for the FY 2019 Hospital VBP Program 

a. Hospital-level Risk-Standardized Complication Rate (RSCR) Following Elective 

Primary Total Hip Arthroplasty (THA) and Total Knee Arthroplasty (TKA) 

 Hospital-level Risk-Standardized Complication Rate (RSCR) Following Elective 

Primary Total Hip Arthroplasty (THA) and Total Knee Arthroplasty (TKA) (NQF #1550) 
 617 

is an outcome measure that we adopted beginning with the FY 2015 payment 

determination under the Hospital IQR Program in the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53516 through 53518). The measure assesses complications occurring after 

THA and TKA surgery from the date of the index admission to 90 days post date of the 

index admission. The outcome is one or more of the following complications: Acute 

myocardial infarction, pneumonia, or sepsis/septicemia within 7 days of admission; 

surgical site bleeding, pulmonary embolism or death within 30 days of admission; or 

mechanical complications, periprosthetic joint infection or wound infection within 90 

days of admission. We posted THA/TKA measure data on the Hospital Compare Web 

site in December 2013. We refer readers to the FY 2013 IPPS/LTCH PPS final rule and 

to the THA/TKA complication methodology report 

(http://qualitynet.org/dcs/BlobServer?blobkey=id&blobnocache=true&blobwhere=12288

90067881&blobheader=multipart%2Foctet-stream&blobheadername1=ContentDisposition&blobheadervalue1=attachment%3Bfilename%3DTHK_CmpMsrUpdtSpecs_

080113.pdf&blobcol=urldata&blobtable=MungoBlobs) for additional details on the 

THA/TKA measure. 

 We continue to believe that measuring and reporting risk-standardized 

complication rates will inform health care providers about opportunities to improve care, 

strengthen incentives for quality improvement, and promote improvements in the quality 

of care received by patients and in the outcomes they experience. We believe that 

THA/TKA is an important measure of clinical outcomes, and we therefore are proposing 

to adopt it for the FY 2019 Hospital VBP Program and subsequent years. The MAP 
 618 

supported the adoption of the measure for inclusion in the Hospital VBP Program in its 

MAP Pre-Rulemaking Report: 2013 Recommendations on Measures Under 

Consideration by HHS found at 

https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72746, 

noting it addresses a high-volume elective procedure with variation in performance. We 

are proposing to adopt this measure for FY 2019 based on the length of the measure’s 

reporting period and the time necessary to complete scoring calculations. Because it is an 

outcome measure, we are proposing to place it in the Clinical Care – Outcomes domain. 

 We welcome public comments on this proposal. 

b. PSI-90 Measure 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50698), we declined to finalize 

the PSI-90 measure for the FY 2019 Hospital VBP Program in order to adopt a more 

recent baseline period than would have been possible at that time. However, we did not 

intend to signal that we would not adopt the PSI-90 measure for FY 2019 and subsequent 

years. We continue to believe that adopting this AHRQ PSI composite measure provides 

strong incentives for hospitals to ensure that patients are not harmed by the medical care 

they receive, which is a critical consideration in quality improvement. In order to clarify 

the measure’s status under the Hospital VBP Program and ensure that there is no 

confusion about our intent, we are proposing to readopt the PSI-90 measure for FY 2019 

Hospital VBP Program and subsequent years. 

 We welcome public comments on this proposal. 
 619 

6. Possible Measure Topics for Future Program Years 

a. Care Transition Measure (CTM-3) Items for HCAHPS Survey 

 We are considering proposing to add the Care Transition Measure from the 

Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) Survey 

to the Patient and Caregiver Centered Experience of Care/Care Coordination (PEC/CC) 

domain of the FY 2018 Hospital VBP Program. We seek public comments on this topic. 

 The Care Transition Measure (CTM) was added to the HCAHPS Survey of 

hospital inpatients in January 2013 (77 FR 53513 through 53516). Three items were 

added to the HCAHPS Survey to create the new Care Transition Measure composite. 

After collecting four quarters of data on these items (January 2013 through December 

2013), we intend to publicly report CTM scores for the first time on our Hospital 

Compare Web site in October 2014. 

 Once the Care Transition Measure has been publicly reported on Hospital 

Compare for one year, in accordance with the statutory requirements of the Hospital VBP 

Program, we are considering proposing to adopt CTM as the ninth dimension of the 

HCAHPS survey in the PEC/CC domain for the FY 2018 Hospital VBP Program. We 

intend to propose that the PEC/CC domain in the FY 2018 Hospital VBP Program would 

have a baseline period of January 1, 2014 through December 31, 2014, and a 

performance period of January 1, 2016 through December 31, 2016. 

 Currently, the PEC/CC domain (formerly known as the Patient Experience of 

Care domain) is comprised of eight dimensions of the HCAHPS Survey. Scoring in this 

domain is based on two elements: the HCAHPS Base Score and HCAHPS Consistency 
 620 

Points Score. For additional information on the calculation of the PEC/CC domain score, 

we refer readers to “A Step-by-Step Guide to Calculating the Patient Experience of Care 

Domain Score in the Hospital Value-Based Purchasing FY 2013 Actual Percentage 

Payment Summary Report,” at: http://www.hcahpsonline.org/HospitalVBP.aspx. 

 We specifically seek public comments on how the new CTM dimension should be 

included in the scoring methodology that we have adopted for the PEC/CC domain. In 

accordance with the finalized Hospital VBP Program scoring methodology for other 

domains, we are considering the “normalization” approach, which would introduce only 

minor changes to the original scoring formula, as follows. 

 For purposes of the HCAHPS Base Score, the new CTM dimension would be 

calculated in the same manner as the eight existing HCAHPS dimensions; for further 

details, we refer readers to “A Step-by-Step Guide to Calculating the Patient Experience 

of Care Domain Score in the Hospital Value-Based Purchasing FY 2013 Actual 

Percentage Payment Summary Report,” at: 

http://www.hcahpsonline.org/HospitalVBP.aspx. For each of the nine dimensions, 

Achievement Points (0-10 points) and Improvement Points (0-9 points) would be 

calculated, the larger of which will be summed across the nine dimensions to create a 

pre-normalized HCAHPS Base Score (0-90 points, as compared to 0-80 points when only 

eight dimensions were included). The pre-normalized HCAHPS Base Score would then 

be multiplied by 8/9 (0.88888) and rounded according to standard rules (values of 0.5 and 

higher are rounded up, values below 0.5 are rounded down) to create the normalized 
 621 

HCAHPS Base Score. Each of the nine dimensions would be of equal weight, so that, as 

before, the normalized HCAHPS Base Score would range from 0 to 80 points. 

 HCAHPS Consistency Points would then be calculated in the same manner as 

before and would continue to range from 0 to 20 points. The Consistency Points Score 

would now consider scores across all nine of the PEC/CC domain dimensions, whereas 

before it considered only the eight dimensions that preceded the CTM measure. 

 The final element of the scoring formula would be the sum of the HCAHPS Base 

Score and the HCAHPS Consistency Points Score and would range from 0 to 100 points, 

as before. 

 We welcome public comments on this approach to including the CTM-3 

dimension in the PEC/CC domain score. 

b. Possible Future Efficiency and Cost Reduction Domain Measure Topics 

 In the interest of expanding the Efficiency domain to include a more robust 

measure set, including measures that supplement the Medicare Spending per Beneficiary 

(MSPB) measure with more condition and/or treatment specific episodes, as well as 

facilitating alignment with the Physician Value-Based Payment Modifier (VM) Program, 

we are considering proposing to add new episode-based payment measures to the 

Hospital VBP Program through future rulemaking. Expanding the Efficiency domain to 

include such measures would create incentives for coordination between hospitals and 

physicians to optimize the care they provide to Medicare beneficiaries and would 

increase alignment between the Hospital VBP and Physician VM Programs. Any future 

Hospital VBP Program measures would first be finalized for inclusion in the Hospital 
 622 

IQR Program and included on the Hospital Compare Web site for one year, as required 

by section 1886(o)(2)(C) of the Act. 

 The six episode-based standardized payment measures we are considering are 

discussed below and are similar in many ways to the NQF-endorsed MSPB measure 

already included in the Efficiency domain. Like the MSPB measure, these episode-based 

standardized payment measures would include services initiated during an episode that 

spans from 3 days prior to a hospital admission through 30 days post-discharge from the 

hospital. We would sum the standardized Medicare payment amounts for Part A and Part 

B services provided during this timeframe and attribute them to the hospital at which the 

index admission occurred. Medicare payments included in these episode-based measures 

would be standardized according to the CMS standardization methodology finalized for 

the MSPB measure in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51626). 

 Episodes in the six new measures would be risk-adjusted in a manner similar to 

the MSPB measure risk adjustment methodology finalized in the FY 2013 IPPS/LTCH 

PPS final rule (76 FR 51625 through 51626). The difference between the risk adjustment 

approaches stems from the fact that MSPB episodes are standardized at the Major 

Diagnostic Category (MDC) level, whereas two of the new episode-based measures, the 

hip episode measure and the knee episode measure, represent conditions that are in the 

same MDC. Accordingly, the new episode-based measures would be individually 

risk-adjusted at the specific episode type level, in order to recognize the distinctions. 

 The payment standardization methodology is available in the document entitled 

“CMS Price Standardization” and the MSPB risk adjustment methodology is included in 
 623 

the document entitled “MSPB Measure Information Form,” both available at: 

http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage

%2FQnetTier4&cid=1228772057350. The risk adjustment methodology specific to these 

six episode-based standardized payment measures can be found on the CMS Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/hospital-value-based-purchasing/index.html?redirect=/hospital-value-basedpurchasing. Risk adjustment and payment standardization would allow us to compare 

performance on these measures across hospitals. 

 In contrast to the MSPB measure, we would only include Medicare payments for 

services that are clinically related to the health conditions treated during the hospital stay 

that triggered the episode. The aim of including these episode-based payment measures 

in the Hospital VBP Program would be to differentiate between hospitals that provide 

care efficiently (that is, high quality care at a lower cost to Medicare). We believe that 

risk-adjusted standardized Medicare payments are an appropriate indicator of efficiency 

as they allow us to compare hospitals without regard to such factors as geography and 

teaching status. This comparison is particularly important with clinically coherent 

episodes because it distinguishes the degree to which practice pattern variation influences 

the cost of care. We believe that creating incentives for appropriately reducing practice 

pattern variation is an important part of our aims to lower the cost of care appropriately 

and create better coordinated care for Medicare beneficiaries. 

 Another notable difference between the episode-based measures we are 

considering and the MSPB measure occurs when, during the 30 days following discharge 
 624 

from an index admission, a beneficiary is readmitted for a condition that is clinically 

related to the index admission and that also triggers an episode-based cost measure 

episode. For example, if a beneficiary were discharged after a hip replacement, then 

readmitted for a revision 15 days later, the standardized Medicare payments associated 

with the revision would count toward the initial hip replacement/revision episode and 

would also trigger a new hip replacement/revision episode where the index admission 

would be that for the revision. Details of which admissions would begin a new episode 

and contribute to a preceding episode may be found at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/hospital-value-based-purchasing/index.html?redirect=/hospital-value-basedpurchasing. 

 We are considering three medical and three surgical episodes for the initial 

expansion of the Efficiency domain. The medical episodes would address the following 

conditions: (1) kidney/urinary tract infection; (2) cellulitis; and (3) gastrointestinal 

hemorrhage. A medical episode would be ‘triggered’ by an inpatient claim with a 

specified MS-DRG. The surgical episodes currently under consideration are (1) hip 

replacement/revision; (2) knee replacement/revision; and (3) lumbar spine 

fusion/refusion. A surgical episode would be triggered when an inpatient claim has one 

of the specified MS-DRGs and at least one of the procedure codes specified for that 

episode. We welcome public comment on the three medical and three surgical conditions 

that we are considering as new episode-based measures for initial expansion of the 

Efficiency domain. 
 625 

 There are a number of other types of episodes that could also meet the episode 

selection criteria we describe below, including those related to heart and lung (for 

example, heart failure and pneumonia). We note that we are exploring data related to 

episodes for these types of conditions under the Physician VM Program. We welcome 

comment regarding the applicability of episode-based measures for these or other 

conditions for future expansion of the Efficiency domain. 

 In selecting the six conditions around which we would develop episode measures 

for future expansion of the Efficiency domain, we considered the following five criteria: 

(1) the condition constitutes a significant share of Medicare payments for hospitalized 

patients during and surrounding the hospital stay; (2) the degree to which clinical experts 

consulted for this project agree that standardized Medicare payments for services 

provided during the episode can be linked to the care provided during the hospitalization; 

(3) episodes of care for the condition are comprised of a substantial proportion of 

payments for post-acute care, indicating episode payment differences are driven by 

utilization outside of the MS-DRG payment; (4) episodes of care for the condition reflect 

high variation in post-discharge payments, enabling differentiation between hospitals; 

and, (5) the medical condition is managed by general medicine physicians or hospitalists 

and the surgical conditions are managed by surgical subspecialists, enabling comparison 

between similar practitioner types within each episode measure. 

 For analysis purposes, the five selection criteria were applied to 2012 Medicare 

acute inpatient hospital data in a hierarchical manner, to prioritize the inpatient 

conditions. After the selection criteria were applied, we narrowed the medical and 
 626 

surgical episodes to those episodes that are less complex, in order to allow CMS and 

hospitals to gain experience with this new measure type. Full details of the episode 

selection criteria are available on the CMS Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/hospital-value-based-purchasing/index.html?redirect=/hospital-value-basedpurchasing. We welcome public comments on the episode selection criteria we utilized. 

 Complete episode specifications, including the MS-DRG and ICD-9-CM 

procedure codes used to identify each of the episodes, details of episode construction 

methodology, and information on the clinical expert reviewers for this project are 

available on the CMS Web site at: http://www.cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/hospital-value-basedpurchasing/index.html?redirect=/hospital-value-based-purchasing. We welcome public 

comments on these specifications and the construction of the six episode-based payment 

measures that we are considering. 

7. Previously Adopted and Proposed Performance Periods and Baseline Periods for the 

FY 2017 Hospital VBP Program 

a. Background 

 Section 1886(o)(4) of the Act requires the Secretary to establish a performance 

period for the Hospital VBP Program for a fiscal year that begins and ends prior to the 

beginning of such fiscal year. We refer readers to the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50689 through 50692) and the CY 2014 OPPS/ASC final rule with comment 

period (78 FR 75020 through 75021) for the performance periods and baseline periods 
 627 

for the Clinical Process of Care, Patient Experience of Care, Outcome, and Efficiency 

domains for the FY 2016 Hospital VBP Program. 

 As discussed further below, in the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50702 through 50704), we adopted new NQS-based quality domains for FY 2017, 

and we are proposing to adopt performance and baseline periods using those new 

domains for the FY 2017 Hospital VBP Program. 

b. Previously Adopted Baseline and Performance Periods for the FY 2017 Hospital VBP 

Program 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50692 through 50694 and 

50698 through 50699), because of the time needed to process measure data for the three 

30-day mortality measures (Clinical Care – Outcomes domain) and the PSI-90 measure 

(also referred to in previous rulemaking as the AHRQ patient safety PSI-90 composite 

measure) (Safety domain), and in consideration of our policy goal to collect enough data 

to generate the most reliable scores possible, we adopted performance periods and 

performance standards for the 30-day mortality measures for FY 2017, FY 2018, and 

FY 2019, and for the PSI-90 measure for FY 2017 and FY 2018. 

c. Proposed Clinical Care - Process Domain Performance Period and Baseline Period for 

the FY 2017 Hospital VBP Program 

 In the FY 2014 IPPS/LTCH PPS final rule, we adopted a 12-month performance 

period for the FY 2016 Clinical Process of Care domain measures of CY 2014 

(January 1, 2014 through December 31, 2014). We also adopted a corresponding 
 628 

12-month baseline period of CY 2012 (January 1, 2012, through December 31, 2012), for 

purposes of calculating improvement points and performance standards. 

 Based on our review of FY 2013 and FY 2014 Hospital VBP performance period 

denominator data, we continue to believe that a 12-month performance period provides 

us with reliable and sufficient data for scoring Clinical Care – Process domain measures 

under the Hospital VBP Program. These data are available for public review on our 

Hospital Compare Web site. We are therefore proposing to adopt a 12-month 

performance period for FY 2017 Clinical Care - Process domain measures (including the 

proposed PC-01 measure) of CY 2015 (January 1, 2015, through December 31, 2015). 

We also are proposing to adopt a corresponding 12-month baseline period of CY 2013 

(January 1, 2013, through December 31, 2013) for purposes of calculating improvement 

points and calculating performance standards. 

 We invite public comment on these proposals. 

d. Proposed Patient and Caregiver-Centered Experience of Care/Care Coordination 

(PEC/CC) Domain Performance Period and Baseline Period for the FY 2017 Hospital 

VBP Program 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50689), we adopted a 

12-month performance period for FY 2016 Patient Experience of Care domain measures 

of CY 2014, or January 1, 2014 through December 31, 2014, for the FY 2016 Hospital 

VBP Program. We also adopted a corresponding 12-month baseline period of CY 2012 

(January 1, 2012 through December 31, 2012), for purposes of calculating improvement 

points and calculating performance standards. We continue to believe that a 12-month 
 629 

performance period provides us sufficient HCAHPS data on which to score hospital 

performance, which is an important goal both for CMS and for stakeholders. 

 We are proposing to adopt a 12-month performance period for the FY 2017 

PEC/CC domain of CY 2015 (January 1, 2015 through December 31, 2015). We also are 

proposing to adopt a corresponding 12-month baseline period of CY 2013 

(January 1, 2013 through December 31, 2013) for purposes of calculating improvement 

points and calculating performance standards. 

 We invite public comment on these proposals. 

e. Proposed Safety Domain Performance Period and Baseline Period for NHSN 

Measures for the FY 2017 Hospital VBP Program 

 In the CY 2014 OPPS/ASC final rule with comment period (78 FR 75121), for 

the three NHSN HAI measures that we have adopted for the FY 2016 Hospital VBP 

Program (CAUTI, CLABSI, and SSI), we adopted an FY 2016 performance period of 

CY 2014 (January 1, 2014 through December 31, 2014), with a corresponding baseline 

period of CY 2012 (January 1, 2012 through December 31, 2012) for purposes of 

calculating improvement points and calculating performance standards. 

 We continue to believe that a 12-month performance period provides us with 

sufficient data on which to score hospital performance on NHSN measures in the Safety 

domain. We also note that 12-month performance and baseline periods are consistent 

with the reporting periods used for these measures under the Hospital IQR Program 

(78 FR 50689). Therefore, for the FY 2017 NHSN measures in the Safety domain 

(including the proposed CLABSI, C. difficile infection and MRSA bacteremia measures), 
 630 

we are proposing to adopt a performance period of CY 2015 (January 1, 2015 through 

December 31, 2015), and a corresponding baseline period of CY 2013 (January 1, 2013 

through December 31, 2013) for purposes of calculating improvement points and 

calculating performance standards. 

 We invite public comment on these proposals. 

f. Proposed Efficiency and Cost Reduction Domain Performance Period and Baseline 

Period for the FY 2017 Hospital VBP Program 

 In the FY 2014 IPPS/LTCH PPS final rule, we adopted a 12-month performance 

period for the MSPB measure for the FY 2016 Hospital VBP Program of CY 2014 

(January 1, 2014, through December 31, 2014), with a corresponding baseline period of 

CY 2012 (January 1, 2012, through December 31, 2012). This performance and baseline 

period enable us to collect sufficient measure data, while allowing time to calculate and 

incorporate MSPB measure data into the Hospital VBP Program scores in a timely 

manner. 

 We are proposing to adopt a 12-month performance period for the FY 2017 

Efficiency and Cost Reduction domain of CY 2015 (January 1, 2015 through 

December 31, 2015), with a corresponding baseline period of CY 2013 (January 1, 2013 

through December 31, 2013). We note that this proposed performance and baseline 

period aligns with the performance and baseline periods for Clinical Care – Process, 

PEC/CC, and certain Safety measures under the new domain structure. 

 We invite public comments on these proposals. 
 631 

g. Summary of Previously Adopted and Proposed Performance Periods and Baseline 

Periods for the FY 2017 Hospital VBP Program 

 The table below summarizes the proposed baseline and performance periods for 

the FY 2017 Hospital VBP Program (with previously adopted baseline and performance 

periods for the mortality and AHRQ PSI composite (PSI-90) measures noted). 

Previously Adopted and Proposed Performance and Baseline Periods for the 

FY 2017 Hospital VBP Program 

Domain Baseline Period Performance Period 

Safety 

● PSI-90* 

● NHSN (CAUTI, 

CLABSI, SSI, C. 

difficile Infection, 

MRSA Bacteremia) 

● October 1, 2010 – 

June 30, 2012* 

● January 1, 2013 – 

December 31, 2013 

● October 1, 2013 – 

June 30, 2015* 

● January 1, 2015 – 

December 31, 2015 

Clinical Care – Outcomes 

● Mortality* 

(MORT-30-AMI, 

MORT-30-HF, 

MORT-30-PN) 

● October 1, 2010 – 

June 30, 2012* 

● October 1, 2013 – 

June 30, 2015* 

Clinical Care – Process 

● (AMI-7a, IMM-2, 

PC-01) 

January 1, 2013 – 

December 31, 2013 

January 1, 2015 – 

December 31, 2015 

Efficiency and Cost 

Reduction (MSPB-1) 

January 1, 2013 – 

December 31, 2013 

January 1, 2015 – 

December 31, 2015

Patient and CaregiverCentered Experience of 

Care/Care Coordination 

(HCAHPS) 

January 1, 2013 – 

December 31, 2013 

January 1, 2015 – 

December 31, 2015 

* Previously adopted performance and baseline periods. 
 632 

 We note that we intend to propose additional baseline and performance periods 

for the FY 2018 Hospital VBP Program in future rulemaking. 

8. Previously Adopted and Proposed Performance Periods and Baseline Periods for 

Certain Measures for the FY 2019 Hospital VBP Program 

a. Previously Adopted and Proposed Performance Period and Baseline Period for the 

FY 2019 Hospital VBP Program for Clinical Care – Outcomes Domain Measures 

 As described above, we have previously adopted the FY 2019 performance and 

baseline periods for the three 30-day mortality measures that we have adopted for the 

former Outcome domain and that we have since placed into the Clinical Care – Outcomes 

domain under the new domain structure. 

 In this proposed rule, we are proposing to adopt the THA/TKA measure for the 

FY 2019 Hospital VBP Program and to place that measure in the Clinical 

Care - Outcomes domain. THA/TKA is reported to the Hospital IQR Program for 

36-month time periods. However, we do not believe that we can feasibly adopt a 

36-month performance period for this measure and adopt it for the FY 2019 Hospital 

VBP Program. Based on the time needed to complete measure calculations and 

performance scoring, we believe that we must conclude the performance period for this 

measure by June 30, 2017. We believe that a 30-month performance period will result in 

sufficiently reliable quality measure data for purposes of Hospital VBP Program scoring, 

and our analysis of historic data supports our belief that comparisons between a 36-month 

baseline period and a 30-month performance period will not result in significant 

differences in measure scores. Further, adopting this proposed performance period would 
 633 

enable us to include the measure in the FY 2019 Hospital VBP Program, which would 

ensure that hospitals continue focusing on measures of outcomes under the Hospital VBP 

Program and that we continue transitioning the Hospital VBP Program from its initial 

focus on process measures to outcome measures. 

 We note that we have proposed below to adopt a 36-month performance period 

for the THA/TKA measure for the FY 2020 Hospital VBP Program. We have examined 

the correlation between hospitals’ performance on the THA/TKA measure for 30-month 

and 36-month periods, and we believe that the 30-month period meets our standard for 

moderate reliability of quality measure data during the specified time period. However, 

as with the 30-day mortality and PSI-90 measures, we are attempting to align 

performance periods under the Hospital VBP Program with reporting periods under the 

Hospital IQR Program, while introducing measures covering important clinical topics 

into the Hospital VBP Program as quickly as possible. We believe that our proposal for a 

30-month performance period for this measure for the FY 2019 Hospital VBP Program 

allows us to bring the measure into the Program in FY 2019 and to accomplish that 

alignment beginning with the FY 2020 Hospital VBP Program. 

 Therefore, we are proposing to adopt an FY 2019 performance period of 

January 1, 2015, through June 30, 2017, for the THA/TKA measure. Further, we are 

proposing to adopt an FY 2019 baseline period for this measure of July 1, 2010 to 

June 30, 2013, for purposes of calculating performance standards and awarding 

improvement points. 

 We welcome public comments on these proposals. 
 634 

b. Proposed Performance Period and Baseline Period for the PSI-90 Safety Domain 

Measure for the FY 2019 Hospital VBP Program 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50692 through 5094), we 

adopted performance periods and baseline periods for the PSI-90 measure for the 

FY 2017 and FY 2018 Hospital VBP Programs. We adopted this policy in light of the 

time needed to process measure data and our policy goal to collect enough data to 

generate the most reliable measure scores possible. We stated our belief that aligning the 

Hospital VBP Program performance periods with the Hospital IQR Program reporting 

period duration would allow hospitals to review Hospital Compare measure rates when 

they are updated and incorporate this information into their quality improvement efforts, 

rather than having to wait until the Hospital VBP Program provides its scoring reports to 

hospitals. We stated our further belief that aligning the Hospital IQR Program and the 

Hospital VBP Program in this manner will minimize the burden on participating hospitals 

by aligning the time periods during which they must monitor their performance on this 

measure. 

 We did not finalize a baseline period and performance period for the AHRQ 

PSI-90 measure for FY 2019 in that final rule (78 FR 50692 through 50694). We stated 

that, by declining to finalize the measure’s FY 2019 performance and baseline periods in 

that final rule, we would be able to adopt a more recent baseline period than we initially 

proposed. We stated that we intended to propose baseline and performance periods for 

the AHRQ PSI measure for the FY 2019 Hospital VBP Program in future rulemaking. 
 635 

 We continue to believe that we should adopt performance and baseline periods of 

24 months for the PSI-90 measure. Therefore, we are proposing to adopt an FY 2019 

performance period for the PSI-90 measure of July 1, 2015 through June 30, 2017, with a 

corresponding 24-month baseline period of July 1, 2011 through June 30, 2013, for 

purposes of calculating performance standards and awarding improvement points. 

 We welcome public comments on these proposals. 

c. Summary of Previously Adopted and Proposed Performance Periods and Baseline 

Periods for Certain Measures for the FY 2019 Hospital VBP Program 

 The following table summarizes previously adopted and proposed performance 

and baseline periods for the FY 2019 Hospital VBP Program: 

Previously Adopted and Proposed Performance and Baseline Periods for Certain 

Measures for the FY 2019 Hospital VBP Program 

Domain Baseline Period Performance Period 

Safety 

● PSI-90 ● July 1, 2011 – 

June 30, 2013 

● July 1, 2015 – 

June 30, 2017 

Clinical Care – Outcomes 

● Mortality* 

(MORT-30-AMI, 

MORT-30-HF, 

MORT-30-PN) 

● THA/TKA 

● July 1, 2009 – 

June 30, 2012* 

● July 1, 2010 – 

June 30, 2013 

● July 1, 2014 – 

June 30, 2017* 

● January 1, 2015 – 

June 30, 2017 

* Previously adopted performance and baseline periods. 

 We welcome public comment on these proposals. 
 636 

9. Proposed Performance Period and Baseline Period for the Clinical Care – Outcomes 

Domain for the FY 2020 Hospital VBP Program 

 As described above with respect to the mortality measures, in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50692 through 50694), we adopted performance 

periods and baseline periods for the three 30-day mortality measures for the FY 2017, 

FY 2018, and FY 2019 Hospital VBP Programs. We adopted this policy in light of the 

time needed to process measure data and to ensure that we collect enough measure data 

for reliable performance scoring, as described further above. We continue to believe that 

we should adopt 36-month performance and baseline periods for the mortality measures 

when possible to accommodate those durations. 

 We believe that a similar rationale applies to the new THA/TKA measure that we 

are proposing to adopt for the Clinical Care – Outcomes domain for the FY 2019 

Hospital VBP Program, and which, under our policy of measure readoption, we generally 

would readopt for the FY 2020 Hospital VBP Program if finalized. As stated above, we 

have examined the correlation between hospitals’ performance on the THA/TKA 

measure for 30-month and 36-month periods, and we believe that the 30-month period 

meets our standard for moderate reliability of quality measure data during the specified 

time period. However, as with the 30-day mortality and PSI-90 measures, we are 

attempting to align performance periods under the Hospital VBP Program with reporting 

periods under the Hospital IQR Program, while introducing measures covering important 

clinical topics into the Program as quickly as possible. We believe that our proposal for a 
 637 

30-month performance period for this measure for FY 2019 allows us to accomplish that 

alignment beginning with the FY 2020 Program. 

 Therefore, we are proposing to adopt a 36-month performance period for the 

measures in the Clinical Care - Outcomes domain in the FY 2020 Hospital VBP Program 

(including the proposed THA/TKA measure for FY 2020, if that measure is adopted for 

the FY 2020 Hospital VBP Program) of July 1, 2015 through June 30, 2018, with a 

corresponding 36-month baseline period of July 1, 2010 through June 30, 2013, for 

purposes of calculating performance standards and awarding improvement points. 

 The following table summarizes the proposed performance and baseline period 

for the Clinical Care – Outcomes domain for the FY 2020 Hospital VBP Program: 

Proposed Performance and Baseline Period for the Clinical 

Care - Outcomes Domain for the FY 2020 Hospital VBP Program

Domain Baseline Period Performance 

Period 

Clinical Care – Outcomes 

● Mortality (MORT-30 AMI, 

MORT-30-HF, MORT-30-PN) 

● THA/TKA 

● July 1, 2010 – 

June 30, 2013 

● July 1, 2010 – 

June 30, 2013 

● July 1, 2015 – 

June 30, 2018 

● July 1, 2015 – 

June 30, 2018 

 We welcome public comment on these proposals. 

10. Proposed Performance Standards for the Hospital VBP Program 

a. Background 

 Section 1886(o)(3)(A) of the Act requires the Secretary to establish performance 

standards for the measures selected under the Hospital VBP Program for a performance 
 638 

period for the applicable fiscal year. The performance standards must include levels of 

achievement and improvement, as required by section 1886(o)(3)(B) of the Act, and must 

be established and announced not later than 60 days before the beginning of the 

performance period for the fiscal year involved, as required by section 1886(o)(3)(C) of 

the Act. We refer readers to the Hospital Inpatient VBP Program final rule (76 FR 26511 

through 26513) for further discussion of achievement and improvement standards under 

the Hospital VBP Program. 

 In addition, when establishing the performance standards, section 1886(o)(3)(D) 

of the Act requires the Secretary to consider appropriate factors, such as: (1) practical 

experience with the measures, including whether a significant proportion of hospitals 

failed to meet the performance standard during previous performance periods; 

(2) historical performance standards; (3) improvement rates; and (4) the opportunity for 

continued improvement. 

b. Performance Standards for the FY 2016 Hospital VBP Program 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53599 through 53604), we 

adopted performance standards for FY 2015 and certain FY 2016 Hospital VBP Program 

measures. We also finalized our policy to update performance periods and performance 

standards for future Hospital VBP Program years via notice on the CMS Web site or 

another publicly available Web site. 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50694 through 50698), we 

revised our regulatory definitions of “achievement threshold” and “benchmark” at 

§ 412.160 and adopted performance standards for additional FY 2016 Hospital VBP 
 639 

Program measures. We also adopted an interpretation of “achievement threshold” and 

“benchmark” under § 412.160 to not include the numerical values that result when the 

performance standards are calculated. We further adopted a policy under which we may 

update a measure’s performance standards for a fiscal year once if we identify data 

issues, calculation errors, or other problems that would significantly affect the displayed 

performance standards. We refer readers to the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50695 through 50698) for the complete set of FY 2016 performance standards. 

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

Hospital VBP Programs 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50698 through 50699), we 

adopted performance standards for the three 30-day mortality measures for the FY 2017, 

FY 2018, and FY 2019 Hospital VBP Programs and for the PSI-90 measure for the 

FY 2017 and FY 2018 Hospital VBP Programs. We refer readers to that final rule for 

those performance standards. 

d. Proposed Additional Performance Standards for the FY 2017 Hospital VBP Program 

 In accordance with our finalized methodology for calculating performance 

standards (discussed more fully in the Hospital Inpatient VBP Program final rule 

(76 FR 26511 through 26513)), we are proposing to adopt the following additional 

performance standards for the FY 2017 Hospital VBP Program. We note that the 

numerical values for the performance standards displayed below represent estimates 

based on the most recently available data, and we intend to update the numerical values 

in the FY 2015 IPPS/LTCH PPS final rule. We note further that the MSPB measure’s 
 640 

performance standards are based on performance period data; therefore, we are unable to 

provide numerical equivalents for the standards at this time. 

 We note further that the performance standards for the NHSN measures (CAUTI, 

SSI, and proposed CLABSI, MRSA Bacteremia, and C. difficile Infection), the PSI-90 

measure, and the MSPB measure are calculated with lower values representing better 

performance, in contrast to other measures, on which higher values indicate better 

performance. As discussed further in the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50684), the performance standards for SSI are computed separately for each 

measure stratum, and we will award achievement and improvement points to each 

stratum separately, then compute a weighted average of the points awarded to each 

stratum by predicted infections. 

Previously Adopted and Proposed Performance Standards for the FY 2017 Hospital 

VBP Program: Safety, Clinical Care – Outcomes, Clinical Care – Process, and 

Efficiency and Cost Reduction Measures

Measure ID Description Achievement 

Threshold 

Benchmark 

Safety Measures 

CAUTI Catheter-Associated Urinary 

Tract Infection 

0.8371 0.0000

CLABSI Central Line-Associated Blood 

Stream Infection 

0. 4483 0.0000

C. difficile Clostridium difficile Infection 0.7927 0.0000

MRSA bacteremia Methicillin-Resistant 

Staphylococcus aureus

Bacteremia 

0.8613 0.0000

PSI-90* Complication/patient safety for 

selected indicators 

(composite)* 

0.577321* 0.397051*
 641 

Previously Adopted and Proposed Performance Standards for the FY 2017 Hospital 

VBP Program: Safety, Clinical Care – Outcomes, Clinical Care – Process, and 

Efficiency and Cost Reduction Measures

Measure ID Description Achievement 

Threshold 

Benchmark 

SSI Surgical Site Infection 

● Colon 

● Abdominal Hysterectomy 

● 0.7117 

● 0.7509 

● 0.0000 

● 0.0000 

Clinical Care – Outcomes Measures 

MORT-30-AMI* Acute Myocardial Infarction 

(AMI) 30-day mortality rate* 

0.851458* 0.871669*

MORT-30-HF* Heart Failure (HF) 30-day 

mortality rate* 

0.881794* 0.903985*

MORT-30-PN* Pneumonia (PN) 30-day 

mortality rate* 

0.882986* 0.908124*

Clinical Care – Process Measures

AMI-7a Fibrinolytic Therapy Received 

Within 30 Minutes of Hospital 

Arrival 

0.954545 1.000000

IMM-2 Influenza Immunization 0.995882 1.000000

PC-01 Elective Delivery Prior to 39 

Completed Weeks Gestation 

0.031250 1.000000

Efficiency and Cost Reduction Measure 

MSPB-1 Medicare Spending per 

Beneficiary 

Median 

Medicare 

Spending per 

Beneficiary 

ratio across all 

hospitals 

during the 

performance 

period 

Mean of the 

lowest decile 

Medicare 

Spending per 

Beneficiary 

ratios across all 

hospitals during 

the performance 

period 

*Previously adopted performance standards. 

Proposed Performance Standards for the FY 2017 Hospital VBP Program 

Patient and Caregiver-Centered Experience of Care/Care Coordination Domain

HCAHPS Survey Dimension Floor Achievement 

Threshold 

Benchmark 

Communication with Nurses 56.90% 78.08% 86.41% 

Communication with Doctors 62.03% 80.43% 88.71% 

Responsiveness of Hospital Staff 36.46% 64.83% 79.62% 
 642 

Proposed Performance Standards for the FY 2017 Hospital VBP Program 

Patient and Caregiver-Centered Experience of Care/Care Coordination Domain

HCAHPS Survey Dimension Floor Achievement 

Threshold 

Benchmark 

Pain Management 49.47% 70.20% 78.18% 

Communication about Medicines 42.89% 62.82% 73.15% 

Hospital Cleanliness & Quietness 43.46% 65.26% 79.06% 

Discharge Information 61.86% 85.59% 91.04% 

Overall Rating of Hospital 35.00% 69.81% 84.27% 

 We note that we intend to propose additional performance standards for the 

FY 2018 Hospital VBP Program in future rulemaking. 

 We welcome public comments on these proposed performance standards. 

e. Proposed Performance Standards for the FY 2019 and FY 2020 Hospital VBP 

Programs 

 As discussed further above, we have adopted certain Safety and Clinical 

Care - Outcomes domain measures for future program years in order to ensure that we 

can adopt performance periods and baseline periods of sufficient length for performance 

scoring purposes. We are also proposing to adopt the PSI-90 measure in the Safety 

domain and the THA/TKA measure in the Clinical Care - Outcomes domain for the 

FY 2019 Hospital VBP Program. We note that, as described above with respect to the 

NHSN measures, the PSI-90 measure, and the MSPB measure, for the THA/TKA 

measure, better performance is represented by lower values. Therefore, we are proposing 

to adopt the following performance standards for the FY 2019 Hospital VBP Program: 
 643 

Previously Adopted and Proposed Performance Standards for Certain Safety and 

Clinical Care – Outcomes Domain Measures for the FY 2019 Hospital VBP 

Program 

Measure ID Description Achievement 

Threshold 

Benchmark 

Safety Measures

PSI-90 Complication/patient safety for 

selected indicators (composite) 

0.840421 0.589716

Outcomes Measures 

MORT-30-AMI* Acute Myocardial Infarction 

(AMI) 30-day mortality rate* 

0.850671* 0.873263*

MORT-30-HF* Heart Failure (HF) 30-day 

mortality rate* 

0.883472* 0.908094*

MORT-30-PN* Pneumonia (PN) 30-day 

mortality rate* 

0.882334* 0.907906*

THA/TKA Hospital-level RiskStandardized Complication 

Rate Following Elective 

Primary Total Hip Arthroplasty 

(THA) And/Or Total Knee 

Arthroplasty (TKA) 

0.032521 0.022895

*Previously adopted performance standards.

 We welcome public comments on these proposed performance standards. 

 We also are proposing to adopt the following performance standards for the 

FY 2020 Hospital VBP Program: 

Proposed Performance Standards for Clinical Care – Outcomes Domain Measures 

for the FY 2020 Hospital VBP Program 

Measure ID Description Achievement 

Threshold 

Benchmark 

Clinical Care – Outcomes Measures 

MORT-30-AMI Acute Myocardial Infarction 

(AMI) 30-day mortality rate 

0.853511 0.875840

MORT-30-HF Heart Failure (HF) 30-day 

mortality rate 

0.881394 0.905962

MORT-30-PN Pneumonia (PN) 30-day 

mortality rate 

0.882281 0.909460
 644 

Proposed Performance Standards for Clinical Care – Outcomes Domain Measures 

for the FY 2020 Hospital VBP Program 

Measure ID Description Achievement 

Threshold 

Benchmark 

THA/TKA Hospital-level RiskStandardized Complication 

Rate Following Elective 

Primary Total Hip Arthroplasty 

(THA) And/Or Total Knee 

Arthroplasty (TKA) 

0.032521 0.022895

 We welcome public comments on these proposed performance standards. 

f. Proposed Technical Updates Policy for Performance Standards 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50694 through 50698), we 

revised our regulatory definitions of “achievement threshold” and “benchmark” at 

§ 412.160 and adopted performance standards for additional FY 2016 Hospital VBP 

Program measures. We also adopted an interpretation of “achievement threshold” and 

“benchmark” under § 412.160 to not include the numerical values that result when the 

performance standards are calculated. We further adopted a policy under which we may 

update a measure’s performance standards for a fiscal year once if we identify data 

issues, calculation errors, or other problems that would significantly change the displayed 

performance standards. 

 Our historic practice has been to display Hospital VBP Program performance 

standards’ numerical values in rulemaking. We adopted this practice for the convenience 

of the public. Although we have typically expressed the performance standards for each 

Hospital VBP measure as a numerical value prior to the start of the performance period 

for that measure, we do not display numerical values for the MSPB measure because the 
 645 

measure is constructed as a measure of costs attributable to patient care during a specified 

episode of care during the performance period itself (77 FR 53601). We have stated that 

with respect to the MSPB measure, we do not believe it is helpful for hospitals to be 

compared against performance standards constructed from baseline period data given the 

potential changes in market forces and utilization practices that occur over time. 

 Further, during the long interval between the time we first display the 

performance standards for all measures but the MSPB measure and the time that we 

calculate the achievement and improvement scores for those measures based on actual 

hospital performance, one or more of those measures might have been technically 

updated in a way that inhibits our ability to ensure that we are making appropriate 

comparisons between the baseline and performance period. For example, the software 

used to calculate the PSI-90 measure is regularly updated to incorporate coding changes, 

refinements based on the consensus development process, and refinements to improve 

specificity and sensitivity. The statistical modeling we use to adjust measure calculations 

for PSI-90 and HCAHPS also needs to be periodically updated to incorporate coefficient 

factors that more properly account for patient mix (both measures) and the HCAHPS 

survey data collection mode (HCAHPS survey). These types of technical updates do not 

substantively affect the measure rate calculation methodology, but they do sometimes 

affect our ability to make appropriate comparisons between the baseline and performance 

period if, for example, the baseline performance standards are tabulated using one version 

of the software and hospital performance during subsequent performance periods is 

tabulated with another version. We believe that in order to make the most accurate 
 646 

comparison of hospital performance across time, we should use the most updated version 

of the measure that is available at the time we calculate that performance because the 

updated version will produce the most valid measure rates. 

 Further, as part of its regular maintenance process for NQF-endorsed performance 

measures, NQF requires measure stewards to submit annual measure maintenance 

updates and undergo maintenance of endorsement review every 3 years. In the measure 

maintenance process, the measure steward (owner/developer) is responsible for updating 

and maintaining the currency and relevance of the measure and will confirm existing or 

minor specification changes with NQF on an annual basis. NQF solicits information 

from measure stewards for annual reviews, and it reviews measures for continued 

endorsement in a specific 3-year cycle. 

 The NQF’s annual or triennial maintenance processes for endorsed measures may 

result in the NQF requiring updates to the measures in order to maintain endorsement 

status. We believe that it is important to incorporate nonsubstantive updates required by 

the NQF, as well as nonsubstantive updates made to other measures, into the measure 

specifications we have adopted for the Hospital VBP Program so that these measures 

remain up-to-date and ensure that we make fair comparisons between the performance 

and baseline periods that we adopt under the Program. We also recognize that some 

updates to measures are substantive in nature and might not be appropriate for adoption 

without further rulemaking. 

 With respect to what constitutes substantive versus nonsubstantive changes to 

measures, we would make this determination on a case-by-case basis. Examples of 
 647 

nonsubstantive changes to measures might include updated diagnosis or procedure codes, 

medication updates for categories of medications, broadening of age ranges, and 

exclusions for a measure (such as the addition of a hospice exclusion to the 30-day 

mortality measures). We believe that nonsubstantive changes may include updates to 

measures based upon changes to guidelines upon which the measures are based. 

 Therefore, we are proposing to amend the definition of “performance standards” 

under § 412.160 to enable us to update performance standards’ numerical values to 

incorporate nonsubstantive technical updates that are made to Hospital VBP Program 

measures between the time that they are adopted for a particular program year and the 

time that we actually calculate hospital performance on those measures after the 

performance period for the program year has concluded. Further, we are proposing to 

inform hospitals of these technical updates through postings on our Hospital VBP 

Program Web site, the QualityNet Web site, other educational outreach efforts, and/or the 

scoring reports that we provide for each program year. We note that these proposals, if 

finalized, may have the effect of superseding the performance standards that we establish 

prior to the start of the performance period for the affected measures, but we believe them 

to be necessary to ensure that the performance standards in the Hospital VBP Program’s 

scoring calculations enable the fairest comparisons between performance measured 

during the baseline period and performance period. 

 We would continue to use rulemaking to adopt substantive updates to the 

measures we have adopted for the Hospital VBP Program. Examples of changes that we 

might consider to be substantive would be those in which the changes are so significant 
 648 

that the measure is no longer the same measure, or when a standard of performance 

assessed by a measure becomes more stringent (for example: changes in acceptable 

timing of medication, procedure/process, or test administration). We also note that the 

NQF process incorporates an opportunity for public comment and engagement in the 

measure maintenance process. 

 We are also proposing to include in our revised definition of “performance 

standards” under § 412.160 of our regulations the policy we adopted in the FY 2013 

IPPS/LTCH final rule to update the performance standards once if we identify data 

issues, calculation errors, or other problems that would significantly change the standards 

(78 FR 50695). We are proposing to make this change so that our policies governing 

updates to the performance standards appear together. 

 We welcome public comments on these proposals. We also specifically seek 

public comments on what we should consider to be substantive changes in measures’ 

performance standards, including whether or not we should consider certain changes in 

performance standards as a result of technical or non-substantive updates to be 

substantive. 

g. Request for Public Comments on ICD-10-CM/PCS Transition 

 The ICD-10-CM/PCS transition is scheduled to take place on October 1, 2015. 

After that date, we will collect nonelectronic health record-based quality measure data 

coded only in ICD-10-CM/PCS. Even though we expect that the endorsement status of 

the measures we have adopted for the Hospital VBP Program will remain the same, we 

are concerned that the transition to a new coding system might have unintended 
 649 

consequences on quality measure data denominators, statistical adjustment coefficients, 

and measure rates. We are concerned about the possible impacts on the Hospital VBP 

Program, and request public comments on how we should accommodate the transition. 

 Specifically, we request comments on how, if at all, we should adjust 

performance scoring under the Hospital VBP Program to accommodate quality data 

coded under ICD-10-CM/PCS, or otherwise ensure fair and accurate comparisons under 

the Hospital VBP Program once the transition date has passed. For example, we could 

consider analyzing the effects of the ICD-10-CM/PCS transition on hospitals’ measured 

performance and, if substantive differences result, retrospectively adjusting performance 

standards in order to ensure that they accurately reflect the underlying methodology. We 

could also consider performing similar adjustments to hospitals’ measure rates, measure 

scores, or TPSs once our analysis is completed. We also might consider scoring hospitals 

only on achievement if analysis indicates that we are unable to reliably and validly 

calculate improvement scores when comparing ICD-9-CM based baseline period data to 

ICD-10-CM/PCS based performance period data. However, while we intend to analyze 

the effects of the ICD-10-CM/PCS transition on hospitals’ performance, we do not have 

the necessary data for all hospitals at this time. 

 We intend to take two steps to analyze ICD-10-CM/PCS potential impact before 

receiving ICD-10-CM/PCS-based fall 2015 discharge data in May 2016. First, we will 

assess measure specifications to qualitatively assess impact to measure denominators 

after CMS releases ICD-10-CM/PCS-based measure specifications in the future. Second, 

we intend to voluntarily solicit information from no more than 9 hospitals before 
 650 

October 1, 2015 to estimate the impact of ICD-10-CM/PCS on their Hospital VBP 

measure rates and denominator counts. We intend to use this information to inform both 

proposed and future Hospital VBP Program policy and measures. 

 We welcome public comments on this topic. 

11. Proposed FY 2017 Hospital VBP Program Scoring Methodology 

a. Proposed General Hospital VBP Program Scoring Methodology 

 In the Hospital Inpatient VBP Program final rule (76 FR 26514), we adopted a 

methodology for scoring clinical process of care, patient experience of care, and outcome 

measures. As noted in that rule, this methodology outlines an approach that we believe is 

well understood by patient advocates, hospitals, and other stakeholders because it was 

developed during a lengthy process that involved extensive stakeholder input, and was 

based on a scoring methodology we presented in a report to Congress. We also noted in 

that final rule that we had conducted extensive additional research on a number of other 

important methodology issues to ensure a high level of confidence in the scoring 

methodology. In addition, we believe that, for reasons of simplicity, transparency, and 

consistency, it is important to score hospitals using the same general methodology each 

year, with appropriate modifications to accommodate new domains and measures. We 

finalized a similar scoring methodology for the MSPB measure in the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51654 through 51656). 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53604 through 53605), for the 

FY 2015 Hospital VBP Program, we finalized our proposal to use these same general 

scoring methodologies to score hospital performance for the FY 2015 Hospital VBP 
 651 

Program. In that rule, we stated that we believe these scoring methodologies continue to 

appropriately capture hospital quality as reflected by the finalized quality measure sets. 

We also noted that readopting the finalized scoring methodology from prior program 

years represents the simplest and most consistent policy for providers and the public. In 

the FY 2014 IPPS/LTCH PPS final rule (78 FR 50699), we readopted the finalized 

general scoring methodology adopted for the FY 2015 Hospital VBP Program for the 

FY 2016 Hospital VBP Program. 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50702 through 50704), we 

adopted new quality domains based on the NQS for FY 2017 and subsequent years. 

 We continue to agree with the reasoning for the scoring methodology outlined in 

the FY 2013 IPPS/LTCH PPS final rule and summarized above. Therefore, we are 

proposing to adopt the general scoring methodology adopted for the FY 2016 Hospital 

VBP Program for the FY 2017 Hospital VBP Program, with appropriate modifications to 

accommodate the new quality domains that we have previously adopted. These proposed 

modifications to our scoring methodology are limited to reclassified quality domains, 

new placements for measures within those domains, and domain weighting. We discuss 

below a proposal to revise the finalized domain weighting for FY 2017. 

 We welcome public comment on this proposal. 

b. Proposed Domain Weighting for the FY 2017 Hospital VBP Program for Hospitals 

That Receive a Score on All Domains 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50702 through 50704), we 

adopted our proposal to align the Hospital VBP Program’s quality measurement domains 
 652 

with the NQS’ quality priorities, with certain modifications. We adopted this realignment 

beginning with the FY 2017 Hospital VBP Program. We also adopted the following 

domains and domain weights for the FY 2017 Hospital VBP Program for hospitals that 

receive a score in all newly aligned domains. 

Previously Adopted Domains and Domain Weights for the FY 2017 Hospital VBP 

Program for Hospitals Receiving a Score on All Newly Aligned Domains 

Domain Weight 

Safety 15 percent 

Clinical Care 

● Clinical Care – Outcomes 

● Clinical Care – Process 

35 percent 

● 25 percent 

● 10 percent 

Efficiency and Cost Reduction 25 percent 

Patient and Caregiver Centered Experience of Care/Care 

Coordination 

25 percent 

 However, as discussed in more detail above, we are proposing to remove six 

“topped out” measures from the FY 2017 Clinical Care – Process subdomain. We 

believe that the proposed substantial reduction in the number of measures adopted for the 

Clinical Care – Process subdomain, if finalized, warrants reconsideration of the finalized 

domain weighting for FY 2017 that we adopted in the FY 2014 IPPS/LTCH PPS final 

rule. 

 As described in more detail above, we are proposing to re-adopt the CLABSI 

measure and to adopt two new measures (MRSA Bacteremia and C. difficile Infection) 

for the Safety domain for FY 2017 Hospital VBP Program and subsequent years, and, if 

finalized, they would raise the total number of measures in this domain for FY 2017 to 

six. Because we are proposing to make changes in the number of measures in only two 

domains (Safety and Clinical Care), we focused our proposed domain weighting changes 
 653 

in this proposed rule on these domains only. Because we continue to believe that 

hospitals should be provided strong incentives to perform well on measures of patient 

safety, in view of the new measures we are proposing to add to that domain, we are 

proposing to revise the previously finalized domain weighting for the FY 2017 Hospital 

VBP Program for hospitals receiving a score on all newly aligned domains as follows: 

Proposed Revised Domain Weights for the FY 2017 Hospital VBP Program for 

Hospitals Receiving a Score on All Newly Aligned Domains 

Domain Weight 

Safety 20 percent 

Clinical Care 

● Clinical Care – Outcomes 

● Clinical Care – Process 

30 percent 

● 25 percent 

● 5 percent 

Efficiency and Cost Reduction 25 percent 

Patient and Caregiver Centered Experience of Care/Care 

Coordination 

25 percent 

 We welcome public comments on this proposal. 

c. Proposed Domain Weighting for the FY 2017 Hospital VBP Program for Hospitals 

Receiving Scores on Fewer than Four Domains 

 In prior program years, we finalized a policy that hospitals must have received 

domain scores on all finalized domains in order to receive a TPS. However, because the 

Hospital VBP Program has evolved from its initial two domains to an expanded measure 

set with additional domains, we considered whether it was appropriate to continue this 

policy. 

 Therefore, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53606 through 

53607), we finalized our proposal that, for the FY 2015 Hospital VBP Program and 
 654 

subsequent years, hospitals with sufficient data to receive at least two out of the four 

domain scores that existed for the FY 2015 Hospital VBP Program (that is, sufficient 

cases and measures to receive a domain score on at least two domains) will receive a 

TPS. We also finalized our proposal that, for hospitals with at least two domain scores, 

TPSs would be reweighted proportionately to the scored domains to ensure that the TPS 

is still scored out of a possible 100 points and that the relative weights for the scored 

domains remain equivalent to the weighting which occurs when there are scores in all 

four domains. We believe that this approach allows us to include relatively more 

hospitals in the Hospital VBP Program while continuing to focus on reliably scoring 

hospitals on their quality measure performance. 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50701 through 50702), we 

continued this approach for the FY 2016 Hospital VBP Program and subsequent fiscal 

years for purposes of eligibility for the program even though, based on the NQS, we 

adopted four NQS-based domains for the FY 2017 Hospital VBP Program (78 FR 50702 

through 50704), which include the subdivided Clinical Care domain. 

 In light of the four NQS-based domains we have adopted, we have reconsidered 

the appropriate minimum number of domains (that is, the number of domains on which 

hospitals must receive scores) in order to receive a TPS. We are concerned that requiring 

just two out of the four NQS-based domains in order to receive a TPS may be insufficient 

to ensure robust quality measurement under the Hospital VBP Program. Further, given 

the transition to NQS-based domains that we have adopted, we believe an additional 

independent analysis of appropriate minimum numbers of domains under the new domain 
 655 

structure is appropriate. We commissioned that analysis from our Reports & Analytics 

contractor for the Hospital VBP Program. The results of that analysis informed our 

proposal below, and we intend to post a summary of the reliability and minimum 

numbers analysis on the CMS Web site during the public comment period. We believe 

that requiring three out of the four NQS-based domains appropriately balances our desire 

to be as inclusive as possible with Hospital VBP Program requirements while ensuring 

that TPSs under the Program are sufficiently reliable. 

 Therefore, we are proposing to require that, for the FY 2017 Hospital VBP 

Program and subsequent years, hospitals must receive domain scores on at least three 

quality domains in order to receive a TPS. For purposes of the Clinical Care domain 

score, we are proposing to consider either the Clinical Care – Process or Clinical 

Care - Outcome subdomains as one domain in order to meet this proposed requirement. 

By adopting this policy, we believe we will continue to allow as many hospitals as 

possible may participate in the program while ensuring that reliable TPSs result. 

However, we would only reweight hospitals’ TPSs once, and will therefore not reallocate 

the Clinical Care – Process and Clinical Care – Outcome subdomains’ weighting within 

the Clinical Care domain if a hospital does not have sufficient data for one of the 

subdomains. For example, a hospital receiving domain scores on all domains except the 

Clinical Care – Process subdomain would not have the 5 percent weighting from the 

Clinical Care – Process subdomain reallocated entirely to the Clinical Care – Outcome 

subdomain. Instead, the 5 percent weighting from the Clinical Care – Process subdomain 

would be proportionately reallocated across all domains. 
 656 

 We welcome public comments on this proposal. 

12. Proposed Minimum Numbers of Cases and Measures for the FY 2016 and FY 2017 

Hospital VBP Program’s Quality Domains 

a. Previously Adopted Minimum Numbers of Cases and FY 2016 Proposed Minimum 

Numbers of Cases 

 In the Hospital Inpatient VBP Program final rule (76 FR 26527 through 26531), 

we adopted minimum numbers of at least 10 cases on at least 4 measures for hospitals to 

receive a Clinical Process of Care domain score. In the same final rule, we adopted a 

minimum number of 100 HCAHPS surveys for a hospital to receive a Patient Experience 

of Care domain score. In the CY 2012 OPPS/ASC final rule with comment period 

(76 FR 74532 through 74534), we adopted a minimum number of 10 cases for the 

mortality measures that we adopted for FY 2014. In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53608 through 53609), we adopted a new minimum number of 25 cases for 

the mortality measures for FY 2015. In the same final rule, we adopted a minimum 

number of 25 cases for the MSPB measure (77 FR 53609 through 53610), a minimum of 

three cases for any underlying indicator for the PSI-90 measure based on AHRQ’s 

measure methodology (77 FR 53608 through 53609), and a minimum of one predicted 

infection for NHSN-based surveillance measures based on CDC’s minimum case criteria 

(77 FR 53608 through 53609). However, we note that we adopted these case minimums 

for FY 2015 only, although we intended to adopt them for FY 2015 and subsequent 

years. We continue to believe that the finalized minimum numbers of cases described 

above are appropriate and provide sufficiently reliable data for scoring purposes under 
 657 

the Hospital VBP Program. Therefore, we are proposing to adopt the specified case 

minimums for the FY 2016 Hospital VBP Program and subsequent years. 

 We welcome public comment on this proposal. We note that we are proposing 

below to specify minimum numbers of measures for the FY 2017 Hospital VBP Program 

and subsequent years based on the new domain structure. 

b. Proposed Minimum Number of Measures – Safety Domain 

 As described in more detail above, we have proposed to adopt six quality 

measures in the Safety domain for the FY 2017 Hospital VBP Program. Of these 

measures, five are NHSN-based surveillance measures, and one is the PSI-90 measure. 

After consideration of these measures and of previous independent analyses of the 

necessary minimum number of measures adopted for the Outcome domain, whose 

measures formed the basis for part of the new Safety domain, we are proposing to adopt a 

minimum number of three measures for the Safety domain for FY 2017 and subsequent 

years. We believe this proposal balances our desire to be as inclusive as possible with the 

Hospital VBP Program and the need for reliable quality measurement data on which to 

base TPSs. We would also like to clarify that we will continue to score hospitals on 

NHSN measures if, as we discussed with respect to the CLABSI measure (77 FR 53608) 

and the SSI measure (78 FR 50684), the hospital has met CDC’s minimum case criteria, 

or one predicted infection during the applicable period. 

 We welcome public comments on this proposal. 
 658 

c. Proposed Minimum Number of Measures – Clinical Care Domain 

(1) Background 

 In the FY 2014 IPPS/LTCH PPS final rule, we adopted a new domain structure 

for the FY 2017 Hospital VBP Program and subsequent years based on the National 

Quality Strategy. In that final rule, we adopted a Clinical Care domain that was 

subdivided into the Clinical Care – Process and Clinical Care – Outcomes subdomains. 

We adopted these subdomains in order to ensure that we place the appropriate domain 

weighting on measures of clinical processes and measures of clinical outcomes. We 

believe the same consideration is appropriate for determining minimum numbers of 

measures for each subdomain, and based on prior independent analyses conducted of the 

appropriate minimum numbers for the Clinical Process of Care and Outcome domains 

whose measures formed the basis for the new Clinical Care domain, are proposing 

separate minimum numbers for each of these subdomains below. As described further 

above, we also attempted to balance our desire to be as inclusive as possible with the 

Hospital VBP Program and the need for reliable quality measurement data on which to 

base Total Performance Scores. 

(2) Clinical Care – Outcomes Subdomain 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50707), we adopted a 

minimum number of two measures in the former Outcome domain. We stated our belief 

that this minimum number is appropriate for the expanded Outcome domain that formed 

the basis for the Clinical Care – Outcomes subdomain because adding measure scores 
 659 

beyond the minimum number of measures has the effect of enhancing the domain score’s 

reliability. 

 As noted above, the Clinical Care – Outcomes subdomain now contains the three 

30-day mortality measures, and based on previous independent analysis of the 

appropriate minimum number of measures for the Outcome domain that formed the basis 

for the Clinical Care – Outcomes domain (available on our Web site at: 

http://cms.hhs.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/hospital-value-based-purchasing/Downloads/HVBP_Measure_Reliability-

.pdf), we continue to believe that a minimum number of two measures within the 

subdomain appropriately balances scoring reliability with inclusiveness under the 

Program. As noted above, we intend to post a summary of the reliability and minimum 

numbers analysis on the CMS Web site during the public comment period. Therefore, we 

are proposing to adopt a minimum number of two measures in the Clinical Care – 

Outcomes subdomain for FY 2017 and subsequent years. 

 We welcome public comment on this proposal. 

(3) Clinical Care – Process Subdomain 

 We have reconsidered the finalized minimum number of measures given the 

significant reduction in Clinical Care – Process measures due to “topped-out” removals 

that we are proposing in this proposed rule. We are concerned that requiring hospitals to 

report on all three proposed Clinical Care – Process measures for the FY 2017 Hospital 

VBP Program, or even requiring two out of three measures, could prevent a significant 

proportion of participating hospitals from receiving a Clinical Care – Process subdomain 
 660 

score. We are aware that relatively few hospitals report data for the AMI-7a measure, 

and the proposed PC-01 measure will only include hospitals that provide maternity 

services. In accordance with our preference for including as many hospitals as possible 

in the Hospital VBP Program while ensuring the reliability of the domain score and based 

on a prior independent analysis conducted with respect the Clinical Process of Care 

domain that formed the basis for the Clinical Care – Process domain, we are proposing to 

require hospitals to report a minimum of one measure in the Clinical Care – Process 

subdomain for the FY 2017 Hospital VBP Program and subsequent years to receive a 

domain score. 

 We welcome public comment on this proposal. 

d. Proposed Minimum Number of Measures – Efficiency and Cost Reduction Domain 

 Because the MSPB measure remains the only measure within the Efficiency and 

Cost Reduction domain for FY 2017, we are proposing to require that hospitals receive a 

MSPB measure score in order to receive an Efficiency and Cost Reduction domain score. 

If we adopt additional measures for this domain in the future, we will consider if we 

should revisit this policy. 

 We welcome public comments on this proposal. 

e. Proposed Minimum Number of Measures – Patient and Caregiver Centered 

Experience of Care/Care Coordination (PEC/CC) Domain 

 As with the MSPB measure adopted for the Efficiency and Cost Reduction 

domain described further above, we have not adopted additional measures for the 

PEC/CC domain. Because the HCAHPS survey measure remains the only measure 
 661 

within the PEC/CC domain for FY 2017, we are proposing to require that hospitals 

receive a HCAHPS survey measure score in order to receive a PEC/CC domain score. If 

we adopt additional measures for this domain in the future, we will consider if we should 

revisit this policy. 

 We welcome public comments on this proposal. 

13. Applicability of the Hospital VBP Program to Maryland Hospitals 

 Section 1886(o)(1)(C) of the Act specifies the hospitals for which the Hospital 

VBP Program applies. Specifically, the term “hospital” is defined under 

section 1886(o)(1)(C)(i) of the Act as a “subsection (d) hospital (as defined in 

section 1886(d)(1)(B) [of the Act]).”. Section 1886(o)(1)(C)(ii) of the Act sets forth a list 

of exclusions to the definition of the term “hospital” with respect to a fiscal year. Section 

1886(o)(1)(C)(iv) of the Act states that in the case of a hospital that is paid under section 

1814(b)(3) of the Act, the Secretary may exempt the hospital from the Hospital VBP 

Program if the State submits an annual report to the Secretary describing how a similar 

program in the State for a participating hospital or hospitals achieves or surpasses the 

measured results in terms of patient health outcomes and cost savings established under 

the Hospital VBP Program. We have interpreted the reference to section 1814(b)(3) of 

the Act to mean those Maryland hospitals that were paid under section 1814(b)(3) of the 

Act and that, absent the “waiver” provided by section 1814(b)(3) of the Act, would have 

been paid under the IPPS. 

 The State of Maryland entered into an agreement with CMS, effective 

January 1, 2014, to participate in CMS’ new Maryland All-Payer Model, a 5-year 
 662 

hospital payment model. This model is being implemented under section 1115A of the 

Act, as added by section 3021 of the Affordable Care Act, which authorizes the testing of 

innovative payment and service delivery models, including models that allow States to 

“test and evaluate systems of all-payer payment reform for the medical care of residents 

of the State, including dual-eligible individuals.” Section 1115A of the Act authorizes 

the Secretary to waive such requirements of titles XI and XVIII of the Act as may be 

necessary solely for purposes of carrying out section 1115A of the Act with respect to 

testing models. 

 Under the agreement with CMS, Maryland will limit per capita total hospital cost 

growth for all payers, including Medicare. In order to implement the new model, 

effective January 1, 2014, Maryland elected to no longer have Medicare pay Maryland 

hospitals in accordance with section 1814(b)(3) of the Act. Maryland also represented 

that it is no longer in continuous operation of a demonstration project reimbursement 

system since July 1, 1977, as specified under section 1814(b)(3) of the Act. Because 

Maryland hospitals are no longer paid under section 1814(b)(3) of the Act, they are no 

longer subject to those provisions of the Act and related implementing regulations that 

are specific to hospitals paid under section 1814(b)(3)of the Act, including but not limited 

to section 1886(o)(1)(C)(iv) of the Act, which provides an exemption for hospitals paid 

under section 1814(b)(3) of the Act from the application of the Hospital VBP Program if 

the State which is paid under that section meets certain requirements. 

 In order to implement the Maryland All-Payer Model, we have waived certain 

provisions of the Act, and the corresponding implementing regulations, as set forth in the 
 663 

agreement between CMS and Maryland and subject to Maryland’s compliance with the 

terms of the agreement. The effect of Maryland hospitals no longer being paid under 

1814(b)(3) is that they are not entitled to be exempted from the Hospital VBP Program 

under section 1886(o)(1)(C)(iv) of the Act and, but for the model, would be included in 

the Hospital VBP Program. In other words, although the exemption from the Hospital 

VBP Program no longer applies, Maryland hospitals will not be participating in the 

Hospital VBP Program because section 1886(o) of the Act and its implementing 

regulations have been waived for purposes of the model, subject to the terms of the 

agreement. 

 Accordingly, we are proposing to make conforming revisions to § 412.160, in the 

definition of “base-operating DRG payment amount” and to § 412.161, which describes 

the applicability of the Hospital VBP Program. We are proposing to delete references in 

these regulations to hospitals paid under section 1814(b)(3) of the Act because, at this 

time, there are no hospitals paid under that section. 

 We welcome public comment on these proposals. 

14. Disaster/Extraordinary Circumstance Exception under the Hospital VBP Program 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50704 through 50706), we 

adopted a disaster/extraordinary circumstance exception. We refer readers to that final 

rule for the policy’s details. 

 We note that we are currently in the process of revising the Extraordinary 

Circumstances/Disaster Extension or Waiver Request form, previously approved under 

OMB control number 0938-1171. 
 664 

J. Proposed Changes to the Hospital-Acquired Condition (HAC) Reduction Program 

1. Background 

 We refer readers to section V.I.1.a. of the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50707 through 50708) for a general overview of the HAC Reduction Program. 

2. Statutory Basis for the HAC Reduction Program 

 Section 3008 of the Affordable Care Act added section 1886(p) to the Act to 

provide an incentive for applicable hospitals to reduce the incidence of HACs. Section 

1886(p) of the Act requires the Secretary to make an adjustment to payments to 

“applicable hospitals” effective beginning on October 1, 2014 and for subsequent 

programs years. Section 1886(p)(1) of the Act sets forth the requirements by which 

payments to “applicable hospitals” will be adjusted to account for HACs with respect to 

discharges occurring during FY 2015 or later. The amount of payment shall be equal to 

99 percent of the amount of payment that would otherwise apply to such discharges under 

section 1886(d) or 1814(b)(3) of the Act, as applicable. Section 1886(p)(2)(A) of the Act 

defines “applicable hospitals” as subsection (d) hospitals that meet certain criteria. 

Section 1886(p)(2)(B)(i) of the Act defines these criteria and specifies that the payment 

adjustment would apply to an applicable hospital that ranks in the top quartile (25 

percent) of all subsection (d) hospitals, relative to the national average, of conditions 

acquired during the applicable period, as determined by the Secretary. Section 

1886(p)(2)(B)(ii) of the Act requires the Secretary to establish and apply a 

risk-adjustment methodology. 
 665 

 Sections 1886(p)(3) and (p)(4) of the Act define “hospital-acquired conditions” 

and “applicable period”, respectively. The term “hospital-acquired condition” means “a 

condition identified in subsection 1886(d)(4)(D)(iv) of the Act and any other condition 

determined appropriate by the Secretary that an individual acquires during a stay in an 

applicable hospital, as determined by the Secretary.” The term “applicable period” 

means, with respect to a fiscal year, a period specified by the Secretary. 

 Section 1886(p)(5) of the Act requires that, prior to FY 2015 and each subsequent 

fiscal year, the Secretary provides the delivery of confidential reports to applicable 

hospitals with respect to HACs of the applicable hospital during the applicable period. 

Section 1886(p)(6)(A) of the Act sets forth the reporting requirements by which the 

Secretary would make information available to the public regarding HACs for each 

applicable hospital. Section 1886(p)(6)(B) of the Act requires the Secretary to ensure 

that an applicable hospital has the opportunity to review, and submit corrections for, the 

information to be made public with respect to the HACs of the applicable hospital prior 

to such information being made public. Section 1886(p)(6)(C) of the Act requires that, 

once corrected, the HAC information be posted on the Hospital Compare Web site on the 

Internet in an easily understandable format. 

 Section 1886(p)(7) of the Act limits administrative and judicial review of certain 

determinations made pursuant to section 1886(p) of the Act. These determinations 

include what qualifies as an applicable hospital, the specifications of a HAC, the 

Secretary’s determination of an applicable period, the provision of confidential reports 
 666 

submitted to the applicable hospital, and the information publically reported on the 

Hospital Compare Web site. 

3. Implementation of the HAC Reduction Program for FY 2015 

a. Overview 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50707 through 50729), we 

presented the general framework for implementation of the HAC Reduction Program for 

the FY 2015 implementation. We included the following provisions for the program: 

(a) the relevant definitions applicable to the program; (b) the payment adjustment under 

the program; (c) the measure selection and conditions for the program, including a riskadjustment and scoring methodology; (d) performance scoring; (e) the process for 

making hospital-specific performance information available to the public, including the 

opportunity for a hospital to review the information and submit corrections; and 

(f) limitation of administrative and judicial review. 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50967), we established the 

rules governing the payment adjustment under the HAC Reduction Program at Subpart I 

of 42 CFR Part 412 (§§ 412.170 and 412.172). We also amended existing § 412.150 (the 

section that describes the basis and scope of Subpart I of Part 412, which contains the 

regulations governing adjustments to the base operating DRG payment amounts under 

the IPPS for inpatient operating costs) to incorporate the basis and scope of §§ 412.170 

and 412.172 for the HAC Reduction Program. 

 In accordance with the provisions of section 1886(p) of the Act, in the FY 2014 

IPPS/LTCH PPS final rule, we included, under § 412.170, definitions for the terms 
 667 

“hospital-acquired condition,” “applicable hospital,” and “applicable time period” 

(78 FR 50967). In § 412.170, we defined “hospital-acquired condition” as a condition as 

described in section 1886(d)(4)(D)(iv) of the Act and any other condition determined 

appropriate by the Secretary that an individual acquires during a stay in an applicable 

hospital, as determined by the Secretary. We defined an “applicable hospital” as “a 

hospital described in section 1886(d)(1)(B) of the Act (including a hospital in Maryland 

that is paid under section 1814(b)(3) of the Act and that, absent the waiver specified by 

section 1814(b)(3) of the Act, would have been paid under the hospital inpatient 

prospective payment system) as long as the hospital meets the criteria specified under 

§ 412.172(e)” (78 FR 50967). We specified that this definition does not include hospitals 

and hospital units excluded from the IPPS, such as LTCHs, cancer hospitals, children’s 

hospitals, IRFs, IPFs, CAHs, and Puerto Rico hospitals. We defined the “applicable 

period” as, with respect to a fiscal year, the 2-year period (as specified by the Secretary) 

from which data are collected in order to calculate the Total HAC Score for the HAC 

Reduction Program. 

 Below we summarize the specific provisions for the HAC Reduction Program that 

were established in the FY 2014 IPPS/LTCH PPS final rule for implementation in 

FY 2015. 

b. Payment Adjustment under the HAC Reduction Program, including Exemptions 

(1) Basic Payment Adjustment 

 Section 1886(p)(1) of the Act sets forth the requirements by which payments to 

“applicable hospitals” will be adjusted to account for HACs with discharges beginning on 
 668 

October 1, 2014. Section 1886(p)(1) of the Act specifies that the amount of payment 

shall be equal to 99 percent of the amount of payment that would otherwise apply to such 

discharges under section 1886(d) or 1814(b)(3) of the Act, as applicable. As specified in 

the statute, this payment adjustment is calculated and made after payment adjustments 

under sections 1886(o) and 1886(q) of the Act, the Hospital VBP Program and the 

Hospital Readmissions Reduction Program respectively, are calculated and made. (We 

note that the Hospital VBP Program is discussed in section IV.I. of the preamble of this 

proposed rule and the Hospital Readmissions Reduction Program is discussed in section 

IV.H. of the preamble of this proposed rule.) Section 1886(p)(2)(A) of the Act defines 

“applicable hospitals” as subsection (d) hospitals that meet certain criteria. Section 

1886(p)(2)(B)(i) of the Act defines these criteria and specifies that the payment 

adjustment would apply to an applicable hospital that ranks in the top quartile (25 

percent) of all subsection (d) hospitals, relative to the national average of hospitals that 

report conditions acquired during the applicable period, as determined by the Secretary. 

 Therefore, in the FY 2014 IPPS/LTCH PPS final rule (78 FR50967), we specified 

in § 412.172(b) of the regulations that, for applicable hospitals, beginning with 

discharges occurring during FY 2015, the amount of payment under § 412.172, or section 

1814(b)(3) of the Act, as applicable, for such discharges shall be equal to 99 percent of 

the amount of payment that would otherwise apply to such discharges under § 412.172, 

or section 1814(b)(3) of the Act. This amount of payment will be determined after the 

application of the payment adjustment under the Hospital Readmissions Reduction 

Program under § 412.154, and the adjustment made under the Hospital VBP Program 
 669 

under § 412.162, and section 1814(l)(4) but without regard to this section 1886(p) of the 

Act. 

(2) Applicability to Maryland Hospitals 

Section 1886(p)(2)(c) of the Act specifies that the Secretary may exempt hospitals 

paid under 1814(b)(3) “from the application of this subsection if the State which is paid 

under such section submits an annual report to the Secretary describing how a similar 

program in the state for a participating hospital or hospitals achieves or surpasses the 

measured results in terms of patient health outcomes and cost savings established under 

this subsection.” Accordingly, a program established by the State of Maryland that could 

serve to exempt hospitals in the State from the HAC Reduction Program would focus on 

hospitals operating under the waiver provided by section 1814(b)(3) of the Act, that is, 

those hospitals that would otherwise have been paid by Medicare under the IPPS, absent 

this provision. As we stated in section IV.J.3. of the preamble of this proposed rule, 

because hospitals paid under section 1814(b)(3) of the Act are subsection (d) hospitals, 

they are included in determining “applicable hospitals” (subject to the payment 

adjustment under the HAC Reduction Program), and unless the Secretary exempts these 

hospitals from the application of payment adjustments under the HAC Reduction 

Program under the authority of section 1886(p)(2)(C) of the Act, they are considered to 

be “applicable hospitals” (subject to the payment adjustments in the HAC Reduction 

Program) under the HAC Reduction Program. 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50967 through 50968), we 

established criteria for evaluation to determine whether Maryland will be exempted from 
 670 

the application of the payment adjustments under the HAC Reduction Program for a 

given fiscal year. Under § 412.172(c), we specified that “CMS will determine whether to 

exempt Maryland hospitals that are paid under section 1814(b)(3) of the Act and not 

under the hospital inpatient prospective payment system . . . .” and that, absent the 

provisions of section 1814(b)(3) of the Act, to make payment under section 1886(d) of 

the Act exempt from the application of payment adjustments under the HAC Reduction 

Program, provided that the State submits an annual report to the Secretary describing how 

a similar program to reduce hospital acquired conditions in that State achieves or 

surpasses the measured results in terms of health outcomes and cost savings for the HAC 

Reduction Program as applied to hospitals described in section 1886(d)(1)(B) of the Act. 

We specified in the regulations that “CMS will establish criteria for evaluation of 

Maryland’s annual report to the Secretary to determine whether Maryland will be 

exempted from the application of payment adjustments under this program for a given 

fiscal year.” We also specified that Maryland’s annual report to the Secretary and request 

for exemption from the HAC Reduction Program must be resubmitted and reconsidered 

annually. We provided that, for FY 2015, Maryland must submit a preliminary report to 

us by January 15, 2014 and a final report to us by June 1, 2014. 

 We noted that our criteria to evaluate Maryland’s program is for FY 2015, the 

first year of the payment adjustment under the HAC Reduction Program, and that our 

evaluation criteria may change through notice and comment rulemaking as this program 

evolves. 
 671 

 The State of Maryland entered into an agreement with CMS, effective 

January 1, 2014, to participate in CMS’ new Maryland All-Payer Model, a 5-year 

hospital payment model. This model is being implemented under section 1115A of the 

Social Security Act (“Act”), as added by section 3021 of the Affordable Care Act, which 

authorizes the testing of innovative payment and service delivery models, including 

models that allow states to “test and evaluate systems of all-payer payment reform for the 

medical care of residents of the State, including dual eligible individuals.” Section 

1115A of the Act authorizes the Secretary to waive such requirements of titles XI and 

XVIII of the Act as may be necessary solely for purposes of carrying out Section 1115A 

with respect to testing models. 

 Under the agreement with CMS, Maryland will limit per capita total hospital cost 

growth for all payers, including Medicare. In order to implement the new model, 

effective January 1, 2014, Maryland elected to no longer have Medicare reimburse 

Maryland hospitals in accordance with section 1814(b)(3) of the Act. Maryland also 

represented that it is no longer in continuous operation of a demonstration project 

reimbursement system since July 1, 1977, as specified under Section 1814(b)(3) of the 

Act. Because Maryland hospitals are no longer reimbursed under section 1814(b)(3) of 

the Act, they are no longer subject to those provisions of the Act and related 

implementing regulations that are specific to section 1814(b)(3) hospitals, including but 

not limited to section 1886(p)(2)(C) of the Act, which provides exemptions for hospitals 

paid under section 1814(b)(3) from the application of the HAC Reduction Program. 
 672 

 However, in order to implement the Maryland All-Payer Model, CMS has waived 

certain provisions of the Act for Maryland hospitals, including section 1886(p), and the 

corresponding implementing regulations, as set forth in the agreement between CMS and 

Maryland and subject to Maryland’s compliance with the terms of the agreement. In 

other words, although section 1886(p)(2)(C) of the Act no longer applies to Maryland 

hospitals, Maryland hospitals will not be participating in the HAC Reduction Program 

because section 1886(p) of the Act and its implementing regulations have been waived 

for purposes of the model, subject to the terms of the agreement. Consequently, we are 

proposing that the Total HAC scores for Maryland hospitals will not be included when 

identifying the top quartile of all hospitals with respect to their Total HAC Score during 

the applicable period. 

 As a result of changes to the status of Maryland hospitals under 1814(b)(3) of the 

Act described above, we are proposing conforming changes to these regulations and seek 

public comment on this proposal. Specifically, we are proposing to remove the entire 

contents of paragraph (c) under § 412.172 and reserve the paragraph (c) designation. 

c. Measure Selection and Conditions, Including a Risk-Adjustment Scoring 

Methodology 

(1) General Selection of Measures 

 We are not proposing any new measures for the HAC Reduction Program in this 

FY 2015 proposed rule. Although we are not required under section 1886(p) of the Act 

to address specific measure scoring methodologies and domain weights regarding the 

HAC Reduction Program in notice-and-comment rulemaking, as required under the 
 673 

Hospital VBP program, we believe that it is important to set forth such scoring 

methodologies for each individual HAC measure, in order for the public to understand 

how the measures adopted in previous rulemaking relate to the performance methodology 

used to determine the applicable hospitals subject to the payment adjustment under the 

HAC Reduction Program. However, below we set forth the specific measure scoring 

methodology and domain weights regarding the HAC Reduction Program for FY 2015 as 

finalized in the FY 2014 IPPS/LTCH PPS final rule. 

(2) Updates on AHRQ PSI–90, and CDC NHSN CLABSI and CAUTI Measures 

 For FY 2015, we will keep the AHRQ PSI-90 composite measure (in Domain 1) 

that we adopted in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50717) as it is 

currently endorsed by NQF. However, we note that the AHRQ PSI-90 composite 

measure is currently undergoing NQF maintenance review. The PSI-90 composite 

consists of eight component indicators: PSI-3 Pressure ulcer rate; PSI-6 Iatrogenic 

pneumothorax rate; PSI-7 Central venous catheter-related blood stream infections rate; 

PSI-8 Postoperative hip fracture rate; PSI-12 Postoperative PE/DVT rate; PSI-13 

Postoperative sepsis rate; PSI-14 Wound dehiscence rate; and PSI-15 Accidental 

puncture & laceration rate. AHRQ is considering the addition of PSI-9 (Perioperative 

hemorrhage rate), PSI-10 (Perioperative physiologic metabolic derangement rate) and 

PSI-11 (Post-operative respiratory failure rate) or a combination of these three measures 

into the PSI-90 composite. We consider the inclusion of measures in the PSI-90 

composite to be a significant change to the PSI-90 composite that we finalized in the 
 674 

FY 2014 IPPS/LTCH PPS final rule. Should the changes be significant, we will issue 

notice-and-comment rulemaking prior to requiring reporting of this composite. 

 Similarly, the CDC NHSN Catheter-Associated Urinary Tract Infection (CAUTI) 

and Central Line-Associated Blood Stream Infection (CLABSI) measures in Domain 2 

that we adopted in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50717) for FY 2015 

also are currently undergoing NQF maintenance review. Should the changes be 

significant, we will issue notice-and-comment rulemaking prior to requiring reporting of 

the changes made to CDCs NHSN CLABSI and CAUTI measures. For FY 2015, we will 

keep CDC’s NHSN CAUTI and CLABSI measures in Domain 2 as they are currently 

endorsed. 

(3) Measure Selection 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50717), we finalized the 

following measures for selection: (i) the AHRQ PSI-90 composite measure for Domain 1 

and the CDC NHSN measures CAUTI and CLABSI for Domain 2 for FY 2015; 

(ii) addition of CDC NHSN Surgical Site Infection (SSI) measure for FY 2016; and 

(iii) addition of CDC NHSN Methicillin-Resistant Staphylococcus aureus (MRSA) 

Bactremia and C. difficile measures for FY 2017. Several of these measures are already 

part of the Hospital IQR Program and are reported on the Hospital Compare Web site. 

(4) Measure Risk-Adjustment Methodology 

 In the FY 2014 IPPS/LTCH PPS final rule, we established that we will use the 

existing measure-level risk-adjustment that is already part of the methodology for the 

individual measures for Domains 1 and 2 in order to fulfill this requirement 
 675 

(78 FR 50719). We codified the use of this methodology under § 412.172(d) of the 

regulations. The AHRQ PSI-90 composite measure and the CDC NHSN measures 

selected for the program are risk-adjusted and reliability-adjusted. Specifically, risk 

factors such as the patient’s age, gender, comorbidities, and complications will be 

considered in the calculation of the measure rates so that hospitals serving a large 

proportion of sicker patients are not unfairly penalized. We noted that the 

risk-adjustment methodology for these measures meets NQF endorsement criteria. We 

believe that such risk-adjustment is appropriate, pursuant to section 1886(p) of the Act. 

 We will continue to examine the impact of the additional measures in the 

program, and propose refinements to the program if necessary. Should changes to the 

risk-adjustment models for the measures be adopted during NQF endorsement 

maintenance processes, we will propose adopting these changes as soon as possible 

through rulemakings. 

(5) Measure Calculations 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50717 through 50719), we 

established that we will perform measure calculations for the AHRQ PSI-90 composite 

measure under Domain 1 and the CDC NHSN measures under Domain 2. We stated that 

measure calculations for the AHRQ PSI-90 composite measures included using 

ICD-9-CM diagnosis and/or procedure codes and, for the principal and secondary 

diagnoses, a present on admission (POA) indicator value associated with all diagnoses on 

the claim. We also stated that subsection (d) Maryland hospitals paid under the waiver at 

section 1814(b)(3) of the Act also must report on whether a diagnosis is present on 
 676 

admission (78 FR 50718). (As noted in section IV.J.3.b.(2) of the preamble of this 

proposed rule, in order to implement the new Maryland All-Payer Model, Maryland 

elected to no longer have Medicare payment made to Maryland hospitals in accordance 

with section 1814(b)(3) of the Act, effective January 1, 2014. Although CMS has waived 

certain provisions of the Act for Maryland hospitals as set forth in the agreement between 

CMS and Maryland and subject to Maryland’s compliance with the terms of the 

agreement, CMS has not waived the POA indicator reporting requirement. In other 

words, the changes to the status of Maryland hospitals under section 1814(b)(3) of the 

Act as described above do not in any way change the POA indicator reporting 

requirement for Maryland hospitals.) We also finalized that the same rules under the 

Hospital IQR Program be applied to determine how the AHRQ PSI-90 composite 

measure and CDC NHSN measures are applied and calculated. 

(6) Applicable Time Period 

 In the FY 2014 IPPS/LTCH final rule (78 FR 50717), we adopted a 2-year 

applicable period to collect data that would be used to calculate the Total HAC Score for 

FY 2015. For Domain 1 (AHRQ PSI-90 composite measure), we established a 2-year 

data period to calculate the measures based on recommendations from AHRQ, the 

measure developer, as we believed that the 24-month data period will provide hospitals 

and the general public the most current data available. The 24-month data period also 

will allow time to complete the complex calculation process for these measures, to 

perform comprehensive quality assurance to enhance the accuracy of measure results, and 

to disseminate confidential reports on hospital-level results to individual hospitals. 
 677 

 As such, for FY 2015, we will use the 24-month period from July 1, 2011 through 

June 30, 2013 as the applicable time period for the AHRQ PSI-90 composite measure. 

The claims for all Medicare FFS beneficiaries discharged during this period will be 

included in the calculation of measure results for FY 2015. This includes claims data 

from the 2011, 2012, and 2013 Inpatient Standard Analytic Files (SAFs). 

 The CDC NHSN measures, CAUTI and CLABSI, are currently collected and 

calculated on a quarterly basis. However, for the purpose of the HAC Reduction 

Program, we will use 2 years of data to calculate the Domain 2 score. For FY 2015, we 

will use calendar years 2012 and 2013 for the HAC Reduction Program. As noted above, 

we codified the definition of “applicable time period” in the FY 2014 IPPS/LTCH PPS 

final rule at § 412.170. 

d. Criteria for Applicable Hospitals and Performance Scoring Policy 

 The HAC Reduction Program does not contain specific statutory directives on 

scoring methods, as found with other programs. Therefore, our main concern when 

establishing scoring methods for the HAC Reduction Program was to align with existing 

scoring methodologies in similar hospital programs. Accordingly, in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50721), we finalized a scoring methodology that 

aligns with the achievement scoring methodology currently used under the Hospital VBP 

Program (78 FR 27629). We believe aligning the scoring methodologies reduces 

confusion associated with multiple scoring methodologies. Additionally, we note that 

alignment benefits the hospital stakeholders who have prior experience with the Hospital 

VBP Program. 
 678 

 In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27629), we proposed to 

implement a methodology for assessing the top quartile of applicable hospitals for HACs 

based on performance standards, where we would score each hospital based on whether 

they fall in the top quartile for each applicable measure and where in the top quartile they 

fall. In addition, we proposed to calculate a Total HAC Score for each hospital by 

summing the hospital’s performance score on each measure within a domain to determine 

a score for each domain, then multiplying each domain score by a proposed weight 

(Domain 1 – AHRQ Patient Safety Indicators 50 percent, Domain 2 – CDC NHSN 

Measures 50 percent), and adding together the weighted domain scores to determine the 

Total HAC Score. 

 We reviewed the public input on the proposed 75th percentile benchmark. 

Several commenters requested that a change to the proposed minimum benchmark for 

scoring each measure was necessary. We agreed with these commenters, and in the 

FY 2014 IPPS/LTCH PPS final rule (78 FR 50722), we modified our proposal and 

established that the scoring will begin at the minimum value for each measure rather than 

the 75th percentile. The methodology finalized in the FY 2014 IPPS/LTCH PPS final rule 

will assess the top quartile of applicable hospitals for HACs based on the Total HAC 

Score. The support for Domain 2 measures in general, coupled with multiple 

recommendations, and specifically those from MedPAC, to provide more weight to 

Domain 2 measures led us to conclude that such scoring changes are necessary. 

Therefore, we finalized a different weight for each Domain than originally proposed 

(78 FR 50721). 
 679 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50722), we further specified 

that we will calculate a Total HAC Score for each hospital by using the hospital’s 

performance score on each measure within a domain to determine a score for each 

domain, then multiply each domain score by the following weights: Domain 1 – (AHRQ 

PSI–90 composite measure), 35 percent; and Domain 2 – (CDC NHSN measures), 65 

percent; and combine the weighted domain scores to determine the Total HAC Score 

(§ 412.172(e)(3)). We use each hospital’s Total HAC Score to determine the top quartile 

of subsection (d) hospitals (applicable hospitals) that are subject to the payment 

adjustment beginning with discharges on or after October 1, 2014. With respect to a 

subsection (d) hospital, we identify the top quartile of all hospitals that are subsection (d) 

hospitals with respect to their rate of HACs during the applicable period 

(§ 412.172(e)(1)). We use a Total HAC Score to identify applicable hospitals and 

identify the 25 percent of hospitals with the highest Total HAC Scores as applicable 

hospitals (§ 412.172(e)(2)). 

 We finalized the PSI-90 composite measure for Domain 1. Because hospitals 

may not have complete data for every AHRQ indicator in the composite measure for this 

Domain 1 measure, we finalized the same methodology used for the Hospital VBP 

Program to determine the minimum number of indicators with complete data to be 

included in the calculation of the Domain measure. 

 Additionally, we finalized the following rules to determine the number of AHRQ 

indicators to be included in the calculation for a hospital’s Domain 1 score. In this 

discussion, “complete data” refers to whether a hospital has enough eligible discharges to 
 680 

calculate a rate for a measure. Complete data for the AHRQ PSI-90 composite measure 

means the hospital has three or more eligible discharges for at least one component 

indicator. Specifically-- 

 If a hospital does not have “complete data” for the PSI-90 composite, we will not 

calculate a Domain 1 score for that hospital. 

 If a hospital has “complete data” for at least one indicator for the AHRQ PSI-90 

composite, we will calculate a Domain 1 score. 

 The calculation of the SIR for the CDC measures requires that the facility have a 

≥1 predicted HAI event. The predicted number of events is calculated using the national 

HAI rate and the denominator counts (that is, number of device days, procedure days, or 

patient days depending on the HAI). In the event an SIR cannot be calculated because 

the facility has <1 predicted infection, Domain 1 scores exclusively will be used to 

calculate a HAC score. In other words, we will exclude from the overall HAC score 

calculation any measure for which an SIR cannot be calculated for the reason set out 

above. 

 Because of the differences among the measures for the HAC Reduction Program 

and the distribution of measure results, simply adding up the measure results to calculate 

the domain or Total HAC Score will make the scores less meaningful to hospitals and the 

general public. As a result, as we indicated in the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50720 through 50725), points will be assigned to hospitals’ performance for each 

measure. This approach aligns with the Hospital VBP Program for measuring hospital 

achievement. In particular, the Hospital VBP Program assigns up to 10 points for each 
 681 

measure based on a hospital’s performance result for that measure for a given time 

period. We note that, for the HAC Reduction Program, unlike the Hospital VBP Program 

where a higher score means better performance, the more points a hospital receives on a 

measure corresponds with a poorer score performance. For the HAC Reduction Program, 

we finalized use of a slightly different methodology for scoring points, depending on the 

specific measure (Table C in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50723), 

which is also included below). Specifically— 

● For the AHRQ Patient Safety for Selected Condition (PSI-90) composite in 

Domain 1, point assignment will be based on a hospital’s score for the composite 

measure. 

● For the PSI-90 composite measure, 1 to 10 points will be assigned to the 

hospital. 

● For the CDC NHSN measures in Domain 2, point assignment for each measure 

will be based on the SIR for that measure. 

● For each SIR, 1 to 10 points will be assigned to the hospital for each measure 

(CAUTI and CLABSI for FY 2015). 

● The Domain 2 score will consist of the average of points assigned to the SIR 

(CAUTI and CLABSI for FY 2015). 

 
 682 

Table C.--Calculation of Domain 1 and 2 Measures for FY 2015 

Measure 

Name 

Measure Result Scenario Individual Measure 

Score (Points) 

Domain 1 

AHRQ PSI-90 

*** 

Weighted average of 

rates of component 

indicators 

Composite value 1 – 10 

Domain 2 

CDC NHSN 

CAUTI 

CLABSI 

Standard Infection 

Ratio (SIR) 

SIR 1 – 10 (refer to Figure 

A) 

***These measure rates are risk-adjusted and reliability-adjusted. 

 For all measures finalized for the HAC Reduction Program, we will use the 

following rules to determine the number of points assigned to a measure (78 FR 50723 

through 50725). Based on the distribution for PSI-90 rates for all the hospitals, we will 

divide the results into percentiles in increments of 10 with the lowest percentile ranges 

meaning better performance. Hospitals with PSI-90 rates within the lowest tenth 

percentile will be given one point; those with PSI-90 rates within the second lowest 

percentile range (between the 11th and 20th percentile) will be given 2 points, and so forth. 

Figure A.--Point Assignment for Hospital A’s PSI-90 Score 

If Hospital A’s PSI-90 rate falls into this percentile Then assign this number of 

points 

1st – 10th 1 

11th – 20th 2 

21st - 30th 3 

31st - 40th 4 

41st - 50th 5 

51st - 60th 6 

61st - 70th 7 

71st - 80th 8 

81st - 90th 9 

91st - 100th 10 
 683 

 For Domain 2, we will obtain measure results that hospitals submitted to the CDC 

NHSN for the Hospital IQR Program. The CDC NHSN HAI measures capture adverse 

events that occurred within intensive care units (ICUs), including pediatric and neonatal 

units. For the Hospital IQR Program, hospitals that elected to participate in the reporting 

program (that is, had an active IQR pledge), but did not have ICUs, can apply for an ICU 

waiver so that they will not be subject to the 2-percent payment reduction for 

nonsubmission of quality reporting data. 

 In the FY 2014 IPPS/LTCH PPS final rule, we noted in the second quarter of 

2012, among the 3,321 IPPS hospitals with an active IQR pledge for data submission, 

377 (or 10.1 percent) applied and received an ICU waiver. At the same time, 2,939 

hospitals (88.5 percent) of the IPPS hospitals did not have an ICU waiver and submitted 

data for the CDC HAI CLABSI measure, while 4 hospitals (0.1 percent) that had no ICU 

waiver failed to submit data to the NHSN. For the same quarter, of the 3,321 IPPS 

hospitals with an active IQR pledge, 2,935 (88.4 percent) that did not have an ICU waiver 

submitted data for the CDC HAI CAUTI measure, whereas 8 hospitals (0.2 percent) did 

not submit data. Because data availability for the two CDC HAI measures impact the 

score for Domain 2 and eventually the Total HAC Score, we aim to encourage hospitals 

with an ICU that did not submit data to begin data submission, and to reward hospitals 

that have already submitted data to continue data submission for all the CDC HAI 

measures. To this end, we finalized the following rules (Figure B in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50724), which is included below): 
 684 

● If a hospital has an ICU waiver for the CDC HAI measures, we will use only 

the Domain 1 score to calculate its Total HAC Score. 

● If a hospital does not have an ICU waiver for a CDC HAI measure: 

○ If the hospital does not submit data for the CDC HAI measures, we will assign 

10 points to that measure for that hospital. 

○ If the hospital does submit data for at least one CDC NHSN measure: 

▪ If there are “complete data” (that is, enough adverse events to calculate the SIR) 

for at least one measure, we will use those data to calculate a Domain 2 score and use the 

hospital’s Domain 1 and Domain 2 scores to calculate the Total HAC Score. 

▪ If there are not enough adverse events to calculate the SIR for any of the 

measures, we will use only the hospital’s Domain 1 score to calculate its Total HAC 

Score. 
 685 

Figure B. Calculation of Total HAC Score for Domain 2 CDC NHSN Measures for 

FY 2015 

 

 Yes 

 

 

 

 No 

 

 

 

 No No 

 

 Yes 

 No 

 

 Yes 

 Yes Yes 

Key: 

Domain 1 = AHRQ Patient Safety Indicators 

Domain 2 = CDC NHSN measures 

 

Total HAC Score =Domain 1 Score 

(weight=35%) + Domain 2 Score 

(weight=65%) 

Total HAC Score = 

Domain 1 score (weight = 35%) + 

10 points for Domain 2 (weight = 65%) 

Total HAC Score = 

Domain 1 score (weight = 100%) Hospital has 

ICU or other 

waiver? 

Submitte

d CDC 

NHSN 

data?

Enough 

cases to 

calculate 

SIR? 
 686 

(1) Clarification of Finalized Measure Result Scoring for FY 2015 and Subsequent Years 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50723), we finalized for the 

HAC Reduction Program a scoring methodology that divides the measure results into 

percentiles in increments of 10 and assigns points (1 to 10) in accordance with the 

percentile into which the hospital’s measure result falls. Our preliminary analysis of the 

measures showed that multiple hospitals had the same measure results, and that in certain 

instances, the number of hospitals with the same measure results exceeded the number of 

hospitals for their appropriate percentile. Consequently a few hospitals with the same 

measure results fall into the next higher percentile. In these instances, we will assign the 

same point for all hospitals with the same measure results, and that point will be based on 

the prior or the lowest appropriate percentile. 

 For example, if, for the CAUTI measure, 13 percent of hospitals have an SIR of 0, 

we will assign a point of 1 to all 13 percent of hospitals, even though, arguably, 10 

percent of them fall into the first percentile, and 3 percent of the 13 percent fall into the 

second percentile. Because each percentile range ideally represents 10 percent of 

hospitals, we will assign a point of 2 to the remaining 7 percent of hospitals in the second 

percentile because their SIR is larger than 0. We believe this is the most favorable 

method for scoring measure results for hospitals. We note that randomly assigning some 

hospitals with the same SIR a higher (for example, less favorable) score would be both 

arbitrary and capricious, which are prohibited by the Administrative Procedure Act. 

(2) Proposed Clarification of FY 2015 Finalized Narrative of Rules to Calculate the 

Total HAC Score 
 687 

 In the FY 2014 IPPS/LTCH PPS final rule, we finalized a series of rules to 

determine how to calculate the Domain 2 score and ultimately the Total HAC Score when 

there were waivers for the collection of CDC NHSN HAI measures (78 FR 50723). We 

also illustrated and finalized these rules in Figure B of the final rule (78 FR 50724). We 

are proposing to clarify that the narrative for Figure B should also include “other 

waivers” that waive hospitals from collecting CDC HAI measure data. The clarified 

rules that we are proposing are as follows for the collection of CDC HAI measures: 

● If a hospital has an ICU waiver or other waiver for the CDC NHSN HAI 

measures, we will use only the Domain 1 score to calculate its Total HAC Score. 

● If a hospital does not have an ICU waiver or other waiver for the CDC HAI 

measures: 

○ If the hospital does not submit data for the CDC HAI measures, we will assign 

10 points to that measure for that hospital. 

○ If the hospital does submit data for at least one CDC NHSN measure: 

▪ If there are “complete data” (that is, enough adverse events to calculate the SIR) 

for at least one measure, we will use those data to calculate a Domain 2 score and use the 

hospital’s Domain 1 and Domain 2 scores to calculate the Total HAC Score. 

▪ If there are not enough adverse events to calculate the SIR for any of the 

measures, we will use only the hospital’s Domain 1 score to calculate its Total HAC 

Score. 

 As discussed earlier, if a hospital has enough data to calculate the PSI-90 

composite score for Domain 1 and “complete data” for at least one measure in Domain 2, 
 688 

the scores of the two domains will contribute to the Total HAC Score at 35 percent for 

Domain 1 and 65 percent for Domain 2. However, if a hospital does not have enough 

data to calculate the PSI-90 composite score for Domain 1 but it has “complete data” for 

at least one measure in Domain 2, its Total HAC Score will depend entirely on its 

Domain 2 score. Similarly, if a hospital has “complete data” to calculate the PSI-90 

composite score in Domain 1 but none of the measures in Domain 2, its Total HAC Score 

will be based entirely on its Domain 1 score. If the hospital does not have “complete 

data” to calculate the PSI-90 composite score for Domain 1 or any of the measures in 

Domain 2, we will not calculate a Total HAC Score for this hospital. 

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

Information 

(1) Confidential Reports to Applicable Hospitals 

 Section 1886(p)(5) of the Act requires the Secretary to provide confidential 

reports to the applicable hospitals with respect to HACs. To meet the requirements under 

section 1886(p)(5) of the Act, in the FY 2014 IPPS/LTCH PPS final rule, we finalized 

the provision of confidential reports for the HAC Reduction Program to include 

information related to claims-based measure data for the PSI measures, the domain score 

for each domain, and the Total HAC Score (78 FR 50725). We noted that we use 

chart-abstracted measures in the HAC Reduction Program, and such information will be 

contained in the reports hospitals currently receive as part of the Hospital IQR Program 

and can be reviewed and corrected through the process specified for that program. We 
 689 

stated that we believe that this method would reduce the burden on hospitals, by 

alleviating the need to correct data present in two different programs. 

(2) Availability of Information to the Public 

 Section 1886(p)(6)(A) of the Act requires the Secretary to “make information 

available to the public regarding HAC rates of each subsection (d) hospital” under the 

HAC Reduction Program. Section 1886(p)(6)(C) of the Act requires the Secretary to post 

the HAC information for each applicable hospital on the Hospital Compare Web site in 

an easily understood format. Section 1886(p)(6)(B) of the Act also requires the Secretary 

to “ensure that an applicable hospital has the opportunity to review, and submit 

corrections for, the HAC information to be made public for each hospital.” 

 To meet the requirements under section 1886(p)(6)(C) of the Act, in the FY 2014 

IPPS/LTCH PPS final rule, we finalized policies that the following information will be 

made public on the Hospital Compare Web site relating to the HAC Reduction Program: 

(1) hospital scores with respect to each measure; (2) each hospital’s domain specific 

score; and (3) the hospital’s Total HAC Score (78 FR 50725). 

(3) Review and Correction of Information 

 Section 1886(p)(6)(B) of the Act requires the Secretary to ensure that each 

hospital has the opportunity to review and submit corrections for the information to be 

made available to the public with respect to each hospital under section 1886(p)(6)(A) of 

the Act prior to such information being made available to the public. 

 In the FY 2014 IPPS/LTCH PPS final rule, we codified the reporting of 

hospital-specific information at § 412.172(f) (78 FR 50968), in which CMS will make 
 690 

information available to the public regarding HAC rates of all hospitals described in 

section 1886(d)(1)(B) of the Act, including hospitals in Maryland paid under section 

1814(b)(3) of the Act, under the HAC Reduction Program (paragraph (f)). As noted in 

section IV.J.3.b.(2) of the preamble of this proposed rule, in order to implement the new 

Maryland All-Payer Model, Maryland elected to no longer have Medicare pay Maryland 

hospitals in accordance with section 1814(b)(3) of the Act, effective January 1, 2014. 

 In summary, we established that CMS will provide each hospital with confidential 

hospital-specific reports and discharge level information used in the calculation of its 

Total HAC Score (paragraph (f)(1) of § 412.172). Hospitals will have a period of 30 

days after receipt of the information provided under paragraph (f)(1) to review and 

submit corrections for the hospital-acquired conditions domain score for each condition 

that is used to calculate the Total HAC Score for the fiscal year. The administrative 

claims data used to calculate a hospital's Total HAC Score for those conditions for a 

fiscal year will not be subject to review and correction (paragraph (f)(2)). CMS will post 

the Total HAC Score for the applicable conditions for a fiscal year for each applicable 

hospital on the Hospital Compare Web site. We refer readers to the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50725 through 50728) for detailed discussions of the 

above provisions. 
 691 

(4) Preliminary Analysis of the HAC Reduction Program 

 In order to model estimated payment changes for this FY 2015 IPPS/LTCH PPS 

proposed rule, we conducted a preliminary analysis of the HAC Reduction Program using 

currently available historical data as a proxy for the actual data that will be used to 

determine hospital performance under the program. The results of this preliminary 

analysis can be found on the CMS web site at: http://www.cms.gov/Medicare/MedicareFee-for-Service-Payment/AcuteInpatientPPS/index.html under the FY 2015 IPPS 

Proposed Rule Home Page link as Table 17.--FY 2015 Preliminary Analysis of the 

Hospital-Acquired Condition Reduction Program. When the actual data for the 

performance periods finalized in the FY 2014 IPPS/LTCH PPS rule for each measure are 

available, hospitals will have an opportunity to review and submit corrections as 

discussed in section IV.J.3.e.(3) of the preamble of this proposed rule. 

f. Limitation on Administrative and Judicial Review 

 Section 1886(p)(7) of the Act provides that there will be no administrative or 

judicial review under Section 1869 of the Act, under Section 1878 of the Act, or 

otherwise for any of the following: 

● The criteria describing an applicable hospital under section 1886(p)(2)(A) of 

the Act. 

● The specification of hospital acquired conditions under section 1886(p)(3) of 

the Act. 

● The specification of the applicable period under section 1886(p)(4) of the Act. 
 692 

● The provision of reports to applicable hospitals under section 1886(p)(5) of the 

Act. 

● The information made available to the public under section 1886(p)(6) of the 

Act. 

 In the FY 2014 IPPS/LTCH PPS final rule, we included these statutory provisions 

under § 412.172(g) of the regulations (78 FR 50729 and 50968). We note that section 

1886(p)(6) of the Act requires the Secretary to make information available to the public 

regarding HAC scores of each applicable hospital under the HAC Reduction Program. 

Section 1886(p)(6)(B) of the Act also requires the Secretary to ensure that an applicable 

hospital has the opportunity to review, and submit corrections for, the information to be 

made available to the public, prior to that information being made public. We believe 

that the review and correction process explained above in section IV.I.3.e. of the 

preamble of this proposed rule will provide hospitals with the opportunity to correct data 

prior to its release on the Hospital Compare Web site. 

4. Proposed Maintenance of Technical Specifications for Quality Measures 

 Technical specifications of the HAC measures for the Agency for Health 

Research and Quality (AHRQ) Patient Safety Indicator 90 (PSI-90) in Domain 1 can be 

found at AHRQ’s Web site at: 

http://qualityindicators.ahrq.gov/Modules/PSI_TechSpec.aspx. Technical specifications 

for the CDC NHSN’s HAI measures in Domain 2 can be found at CDC’s NHSN Web 

site at: http://www.cdc.gov/nhsn/acute-care-hospital/index.html. Both Web sites provide 

measure updates and other information necessary to guide hospitals participating in the 

collection of HAC Reduction Program data. 
 693 

 Many of the quality measures used in different Medicare and Medicaid reporting 

programs are NQF-endorsed. As part of its regular maintenance process for 

NQF-endorsed performance measures, the NQF requires measure stewards to submit 

annual measure maintenance updates and undergo maintenance of endorsement review 

every 3 years. In the measure maintenance process, the measure steward 

(owner/developer) is responsible for updating and maintaining the currency and relevance 

of the measure and will confirm existing or minor specification changes with NQF on an 

annual basis. NQF solicits information from measure stewards for annual reviews, and it 

reviews measures for continued endorsement in a specific 3-year cycle. 

 We note that NQF’s annual or triennial maintenance processes for endorsed 

measures may result in the NQF requiring updates to the measures. We believe that it is 

important to have in place a subregulatory process to incorporate nonsubstantive updates 

required by the NQF into the measure specifications we have adopted for the HAC 

Reduction Program, so that these measures remain up-to-date. 

 For the HAC Reduction Program, we are proposing to follow the finalized 

processes outlined for addressing changes to adopted measures in the Hospital IQR 

Program “Maintenance of Technical Specifications for Quality Measures” section found 

in section IX.A.1.b. of the preamble of this proposed rule. 

 We believe this proposal adequately balances our need to incorporate updates to 

HAC Reduction Program measures in the most expeditious manner possible while 

preserving the public’s ability to comment on updates that so fundamentally change an 
 694 

endorsed measure that it is no longer the same measure that we originally adopted. We 

invite public comments on this proposal. 

5. Extraordinary Circumstances Exceptions/Exemptions 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50711), we indicated that we 

had received public comments requesting a potential waiver or exemption process for 

hospitals located in areas that experience disasters or other extraordinary circumstances 

(EC), even though we did not propose an extraordinary circumstance 

exceptions/exemptions (ECE) policy for the HAC Reduction Program. We stated in the 

FY 2014 IPPS/LTCH PPS final rule that we were reviewing this issue and might consider 

such a proposal in future rulemaking. We also noted that should we consider a policy we 

intend to focus on several policy and operational considerations in developing a disaster 

exemption process for the HAC Reduction Program. We welcome public comments on 

whether an exemption process should be implemented and the policy and operational 

considerations for a potential HAC Reduction Program ECE policy. 

6. Implementation of the HAC Reduction Program for FY 2016 

a. Measure Selection and Conditions, Including a Risk-Adjustment Scoring 

Methodology 

(1) General Selection of Measures 

 In the FY 2014 IPPS/LTCH PPS final rule, we finalized measures for FY 2015 

and onwards, but only finalized a scoring methodology for FY 2015 for the HAC 

Reduction Program (78 FR 50712 through 50713). We are not proposing any new 

additional measures for the HAC Reduction Program for FY 2016 in this proposed rule. 
 695 

We note that AHRQ’s PSI-90 Composite measure and CDC’s NHSN CLABSI (NQF 

#0138) and CAUTI (NQF #0139) measures were submitted in January 2014 and 

December 2013, respectively, as part of the NQF maintenance endorsement process. As 

noted in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50719), should changes to the 

risk-adjustment models for the measures be adopted during NQF endorsement 

maintenance processes, CMS will adopt these changes as soon as possible. Finally, 

although we are not required under section 1886(p) of the Act to address specific measure 

scoring methodologies regarding the HAC Reduction Program in notice-and-comment 

rulemaking, as required under the Hospital VBP Program, we believe that it is important 

to set forth such scoring methodologies for each individual HAC measure, in order for 

the public to understand how the measures discussed and finalized in this year’s 

rulemaking relate to the performance methodology used to determine the applicable 

hospitals subject to the payment adjustment under the HAC Reduction Program. 

(2) Measure Selection and Scoring Methodology for FY 2016 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50713), we finalized for 

FY 2016 and onwards CDC’s NHSN Surgical Site Infection measure (NQF #0753) and 

its measure methodology. The SSI and other measure specifications are available at: 

http://www.qualityforum.org/QPS/QPSTool.aspx. To locate a specific measure, search 

by the NQF number: (1) for the SSI measure use NQF #0753; (2) for the CLABSI 

measure use NQF #0139; and (3) for the CAUTI measure use NQF #0138. For SSI 

updates related to CMS programs and the use of CDC’s NHSN measures, we refer 

readers to the Web site at: http://www.cdc.gov/nhsn/acute-care-hospital/ssi. The SSI 
 696 

measure explanation of SIR in the NHSN e-newsletter is available at: 

http://www.cdc.gov/nhsn/PDFs/Newsletters/NHSN_NL_OCT_2010SE_final.pdf. 

 CDC’s SSI measure was finalized as a Domain 2 measure in the calculation of the 

Total HAC Score. We are not proposing to change CDC’s measure methodology for the 

SSI measure. 

b. Measure Risk-Adjustment 

 In the FY 2014 IPPS/LTCH PPS final rule, we finalized the measure 

risk-adjustment for AHRQ’s PSI-90 Composite for Domain 1 and the risk-adjustment for 

CDC’s NHSN measures for Domain 2. In this proposed rule, we are not proposing any 

risk-adjustment changes for any of the measures finalized in the FY 2014 IPPS/LTCH 

PPS final rule (78 FR 50718 through 50719). 

c. Measure Calculations 

 In the FY 2014 IPPS/LTCH PPS final rule, we finalized the measure calculations 

for AHRQ’s PSI-90 Composite measure for Domain 1 and the measure calculations for 

CDC’s NHSN measures for Domain 2. In this proposed rule, we are not proposing any 

measure calculation changes for any of the measures finalized in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50718 through 50719). 

d. Applicable Time Period 

 In the FY 2014 IPPS/LTCH PPS final rule, we finalized and codified policy at 

§ 412.170 that there will be a 2-year applicable time period to collect data used to 

calculate the Total HAC Score (78 FR 50717). 
 697 

 For the Domain 1 AHRQ PSI-90 Composite measure, we are proposing for 

FY 2016 a 24-month period from July 1, 2012 through June 30, 2014 as the applicable 

time period. The claims for all Medicare FFS beneficiaries discharged during this period 

would be included in the calculation of measure results for FY 2016. This includes 

claims data from the 2012, 2013, and 2014 Inpatient Standard Analytic Files (SAFs). 

 The Domain 2 CDC NHSN measures (CAUTI, CLABSI, and SSI) are currently 

collected and calculated on a quarterly basis. However, for the purpose of the HAC 

Reduction Program, we will use 2 years of data to calculate the Domain 2 score. For 

FY 2016, we are proposing to use calendar years 2013 and 2014 for all three Domain 2 

measures in the HAC Reduction Program. 
 698 

e. Criteria for Applicable Hospitals and Performance Scoring 

 For FY 2016, we are proposing a change to the scoring methodology of the Total 

HAC Score. This proposal is intended to address the implementation of CDC’s NHSN 

SSI measure in Domain 2 finalized for implementation in FY 2016. 

(1) Finalized Scoring Methodology for Domains 1 and 2 for FY 2015 

 We finalized a scoring methodology for the Total HAC Score in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50722). This finalized scoring methodology is similar 

to the achievement scoring methodology currently used under the Hospital VBP Program. 

With respect to an applicable hospital, we finalized that CMS will identify the top 

quartile of all hospitals with respect to their Total HAC Score during the applicable 

period (§ 412.170). In addition, we finalized that the Total HAC Score will be 

determined by the following three steps: (1) each measure result will be scored as 

outlined in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50723); (2) Domain scores 

will be determined by the scores assigned to the measures within the domain; and (3) the 

Total HAC Score will be determined by the sum of the weighted domains. For FY 2015, 

the Total HAC Score is the sum of the Domain 1 score multiplied by 35 percent plus the 

Domain 2 score multiplied by 65 percent. For further details of the general scoring 

methodology finalized for the HAC Reduction Program, we refer readers to the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50719 through 50725). 
 699 

(2) Proposed Scoring Methodology of Domain 2 and New Weighting of Domains 1 and 

2 for FY 2016 

 We are proposing to adjust the scoring methodology of Domain 2 and the 

weighting of Domains 1 and 2 beginning in FY 2016 due to the addition of CDC’s NHSN 

SSI measure. For the scoring of CDC’s NHSN SSI measure, we are proposing an 

identical process of assigning points to the SSI measure results. We note that the SSI 

measure, reported via CDC’s NHSN, is currently specified under the Hospital IQR 

program and is restricted to colon procedures (including incision, resection or 

anastomosis of the large intestine and large-to-small and small-to-large bowel 

anastomosis), and abdominal hysterectomy procedures including those performed by 

laparoscope. The SSI measure assesses SSIs based on the type of surgery procedures 

(that is, the SSI measure is stratified into infections that occur with colonic procedures 

and those that occur in abdominal hysterectomy procedures). We also note that patient 

age and a preoperative health score are risk factors taken into account using the 

Standardized Infection Ratio (SIR) (78 FR 20625). Use of an SIR is consistent with 

CDC’s NHSN CLABSI and CAUTI measures that also report SIRs. In order to calculate 

an SSI measure score for Domain 2, we are proposing to calculate an abdominal 

hysterectomy procedure SSI SIR and a colonic procedure SSI SIR and pool both SIRs for 

each hospital. We are proposing pooling the abdominal hysterectomy SSI SIR and 

colonic procedure SSI SIR as this would provide a single SSI SIR, which is consistent 

with reporting a single SSI SIR as meant by design of the NQF endorsed measure (NQF 

#0753), and would allow a risk-adjusted weighting of the surgical volume among the two 
 700 

procedures. We are proposing that a pooled SSI SIR for an applicable hospital is the sum 

of all observed infections among abdominal hysterectomy and colonic procedures divided 

by the sum of all predicted infections among abdominal hysterectomy and colonic 

procedures performed at the applicable hospital. The pooled SSI SIR would be scored in 

the same manner as all measures finalized for the HAC Reduction Program (refer to 

Figure A in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50723), which is also 

included above in this proposed rule). To determine a Domain 2 score, we are proposing 

taking the average of the three CDC HAI SIR scores. We noted in the FY 2014 

IPPS/LTCH PPS final rule that there will be instances in which applicable hospitals may 

not have data on all four measures and therefore a set of rules was finalized to determine 

how to score each Domain. We are proposing to follow the same finalized rules used to 

determine scoring of Domains 1 and 2 (FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50723 through 50725)0 and the proposed changes in section IV.I.6.b. of this 

proposed rule. We invite public comments on this proposal. 

 In addition, for FY 2016 we are proposing to weight Domain 1 at 25 percent, and 

Domain 2 at 75 percent. We are proposing to decrease Domain 1’s weight from 35 

percent to 25 percent for two reasons. First, with the implementation of CDC’s SSI 

measure, we believe the weighting of both domains needs to be adjusted to reflect the 

addition of a fourth measure; and second, in keeping with public comments from the 

FY 2014 IPPS/LTCH PPS final rule, MedPAC and others stated that Domain 2 should be 

weighted more than Domain 1. Finally, the Total HAC Score for applicable hospitals 
 701 

would be the sum of the weighted scores from Domain 1 (weighted at 25 percent) and 

Domain 2 (weighted at 75 percent). We invite public comments on this proposal. 

f. Proposed Rules to Calculate the Total HAC Score for FY 2016 

 We are proposing to adopt the “Proposed Clarification of FY 2015 Finalized 

Narrative of Rules to Calculate the Total HAC Score” as discussed in section IV.I.3.e. of 

the preamble of this proposed rule. We invite public comments on this proposal. 

7. Future Considerations for the Use of Electronically Specified Measures 

 We believe that collection and reporting of data through health information 

technology will greatly simplify and streamline reporting for many CMS quality 

reporting programs. Through electronic reporting, hospitals will be able to leverage 

EHRs to capture, calculate, and electronically submit quality data submitted to CMS for 

the Hospital IQR Program. CMS has become aware of some hospitals and health 

systems that have developed or adopted a methodology to identify and measure all-cause 

harm through their electronic health record (EHR) systems. Some hospitals and health 

systems are able to use the results of these electronic measures to address adverse events 

at the point of care and to track improvement over time. Many of these measures capture 

a broad range of common hospital-acquired conditions that may not be captured by 

existing national measures (examples include measures of adverse drug events and 

hypoglycemia). Given that these measures are captured using clinical data from EHR 

systems, collection of HAC data will allow CMS to align measures across multiple 

settings. 
 702 

 We are seeking comment as to whether the use of a standardized electronic 

composite measure of all-cause harm should be used in the HAC reduction program in 

future years in addition to, or in place of, claims-based measures assessing HACs. We 

welcome any suggestions of specific all-cause harm electronic measures, including 

detailed measure specifications. Specifically, we invite public comments on the 

feasibility and the perceived value of such a measure, and what would be the most 

appropriate weighting of this measure in the Total HAC Performance Score. In addition, 

we are requesting suggestions on the timeframe for which such standardized electronic 

composite measure of all-cause harm should be proposed. 

 We intend for the future direction of electronic quality measure reporting to 

significantly enhance the tracking of HACs under the HAC Reduction Program. We will 

continue to work with measure stewards and developers to develop new measure 

concepts, and conduct pilot, reliability and validity testing as part of efforts to promote 

the adoption of Certified Electronic Health Record Technology in hospitals.
 703 

K. Payments for Indirect and Direct Graduate Medical Education (GME) Costs 

(§§412.105 and 413.75 through 413.83) 

1. Background 

 Section 1886(h) of the Act, as added by section 9202 of the Consolidated 

Omnibus Budget Reconciliation Act (COBRA) of 1985 (Pub. L. 99–272) and as currently 

implemented in the regulations at 42 CFR 413.75 through 413.83, establishes a 

methodology for determining payments to hospitals for the direct costs of approved 

graduate medical education (GME) programs. Section 1886(h)(2) of the Act sets forth a 

methodology for the determination of a hospital-specific base-period per resident amount 

(PRA) that is calculated by dividing a hospital’s allowable direct costs of GME in a base 

period by its number of full-time equivalent (FTE) residents in the base period. The base 

period is, for most hospitals, the hospital’s cost reporting period beginning in FY 1984 

(that is, October 1, 1983 through September 30, 1984). The base year PRA is updated 

annually for inflation. In general, Medicare direct GME payments are calculated by 

multiplying the hospital's updated PRA by the weighted number of FTE residents 

working in all areas of the hospital complex (and at nonprovider sites, when applicable), 

and the hospital’s Medicare share of total inpatient days. 

 Section 1886(d)(5)(B) of the Act provides for a payment adjustment known as 

the indirect medical education (IME) adjustment under the hospital inpatient prospective 

payment system (IPPS) for hospitals that have residents in an approved GME program, in 

order to account for the higher indirect patient care costs of teaching hospitals relative to 

nonteaching hospitals. The regulations regarding the calculation of this additional 
 704 

payment are located at 42 CFR 412.105. The hospital’s IME adjustment applied to the 

DRG payments is calculated based on the ratio of the hospital’s number of FTE residents 

training in either the inpatient or outpatient departments of the IPPS hospital to the 

number of inpatient hospital beds. 

 The calculation of both direct GME and IME payments is affected by the number 

of FTE residents that a hospital is allowed to count. Generally, the greater the number of 

FTE residents a hospital counts, the greater the amount of Medicare direct GME and IME 

payments the hospital will receive. Therefore, Congress, through the Balanced Budget 

Act of 1997 (Pub. L. 105–33), established a limit on the number of allopathic and 

osteopathic residents that a hospital may include in its FTE resident count for direct GME 

and IME payment purposes. Under section 1886(h)(4)(F) of the Act, for cost reporting 

periods beginning on or after October 1, 1997, a hospital’s unweighted FTE count of 

residents for purposes of direct GME may not exceed the hospital’s unweighted FTE 

count for direct GME in its most recent cost reporting period ending on or before 

December 31, 1996. Under section 1886(d)(5)(B)(v) of the Act, a similar limit based on 

the FTE count for IME during that cost reporting period is applied effective for 

discharges occurring on or after October 1, 1997. Dental and podiatric residents are not 

included in this statutorily mandated cap. 

 The Affordable Care Act made a number of statutory changes relating to the 

determination of a hospital’s FTE resident count for direct GME and IME payment 

purposes and the manner in which FTE resident limits are calculated and applied to 

hospitals under certain circumstances. Regulations implementing these changes are 
 705 

discussed in the November 24, 2010 final rule (75 FR 72133) and the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53416). 

2. Proposed Changes in the Effective Date of the FTE Resident Cap, 3-Year Rolling 

Average, and Intern- and Resident-to-Bed (IRB) Ratio Cap for New Programs in 

Teaching Hospitals 

 Section 1886(h)(4)(H)(i) of the Act requires the Secretary to establish rules for 

calculating the direct GME caps for new teaching hospitals that are training residents in 

new medical residency training programs established on or after January 1, 1995. Under 

section 1886(d)(5)(B)(viii) of the Act, such rules also apply to the establishment of a 

hospital’s IME cap on the number of FTE residents training in new programs. We 

implemented these statutory requirements in rules published in the August 29, 1997 

Federal Register (62 FR 46002 through 46008) and in the May 12, 1998 Federal 

Register (63 FR 26323 through 26325 and 26327 through 26336). Generally, under 

existing regulations at 42 CFR 413.79(e)(1) (for direct GME) and 42 CFR 

412.105(f)(1)(vii) (for IME), if a hospital did not train any allopathic or osteopathic 

residents in its most recent cost reporting period ending on or before December 31, 1996, 

and it begins to participate in training residents in a new medical residency training 

program (allopathic or osteopathic) on or after January 1, 1995, the hospital’s unweighted 

FTE resident cap (which would otherwise be zero) may be adjusted based on the sum of 

the product of the highest number of FTE residents in any program year during the third 

year of the first new program’s existence, for each new residency training programs 

established during that 3-year period, and the minimum accredited length for each type of 
 706 

program. The number of FTE resident cap slots that a teaching hospital receives for each 

new program may not exceed the number of accredited slots that are available for each 

new program. Once a hospital’s FTE resident cap is established, no subsequent cap 

adjustments may be made for new programs, unless the teaching hospital is a rural 

hospital. A rural hospital’s FTE resident caps may be adjusted for participation in 

subsequent new residency training programs. A hospital that did not train any allopathic 

or osteopathic residents in its most recent cost reporting period ending on or before 

December 31, 1996, may only receive a permanent FTE resident cap adjustment for 

training residents in a truly “new” residency training program; no permanent cap 

adjustment would be given for training residents associated with an existing program. 

That is, if a hospital that did not train any allopathic or osteopathic residents in its most 

recent cost reporting period ending on or before December 31, 1996, serves as a training 

site for residents in a program that exists or existed previously at another teaching 

hospital that remains open, that “new” teaching hospital does not receive a “new 

program” cap adjustment because it is not participating in training residents in a truly 

“new” program. However, it may be possible for that “new” teaching hospital to receive 

a temporary cap adjustment if it enters into a Medicare GME affiliation agreement with 

the existing teaching hospital as specified at § 413.79(f) (for direct GME) and 

§ 412.105(f)(1)(vi) (for IME). (For a detailed discussion of the distinctions between a 

new medical residency training program and an existing medical residency training 

program, we refer readers to the August 27, 2009 final rule (74 FR 43908 through 
 707 

43920). For a detailed discussion regarding participation in Medicare GME affiliation 

agreements, we refer readers to 74 FR 43574.) 

 For new programs started prior to October 1, 2012, hospitals that did not yet have 

an FTE resident cap established had a “3-year window” in which to participate in and 

“grow” new programs, before the FTE resident caps for IME and direct GME were 

permanently set for the hospital beginning with the fourth program year of the first new 

program start. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53415 through 53425), 

we revised the regulations at § 413.79(e) to increase the cap-building period for new 

programs from 3 years to 5 years. That is, for a hospital that did not yet have an FTE 

resident cap established, the hospital’s FTE resident cap is effective beginning with the 

sixth program year of the first new program’s existence. This revised policy is effective 

for urban hospitals that first begin to participate in training residents in their first new 

program on or after October 1, 2012, and for rural hospitals that start a new program on 

or after October 1, 2012. In that final rule, we also finalized a methodology used to 

calculate a cap adjustment for an individual hospital if residents in a new program rotate 

to more than one hospital (or hospitals). The methodology is based on the sum of the 

products of the following three factors: (1) the highest total number of FTE residents 

trained in any program year, during the fifth year of the first new program’s existence at 

all of the hospitals to which the residents in that program rotate; (2) the number of years 

in which residents are expected to complete the program, based on the minimum 

accredited length for each type of program; and (3) the ratio of the number of FTE 

residents in the new program that trained at the hospital over the entire 5-year period to 
 708 

the total number of FTE residents that trained at all hospitals over the entire 5-year 

period. Finally, we made minor revisions to the regulation text at §§ 413.79(e)(2) 

through (e)(4) for purposes of maintaining consistency throughout § 413.79(e). We refer 

readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53415 through 53425) for 

further details regarding the methodology for calculating the FTE resident caps. 

While the FY 2013 IPPS/LTCH PPS final rule discussed the methodology for 

calculating the FTE resident caps to be effective beginning with the sixth program year of 

the first new program’s existence, for hospitals that do not yet have FTE resident caps 

established, that final rule did not discuss when the 3-year rolling average for IME and 

direct GME or the intern- and resident-to-bed (IRB) ratio cap for IME is effective for 

FTE residents training in new programs. The regulations regarding the 3-year rolling 

average and the IRB ratio cap with respect to new medical residency training programs 

were established in the following Federal Register rules: the FY 1998 IPPS final rule 

with comment period (62 FR 46002 through 46008); the May 12, 1998 final rule 

(63 FR 26323 through 26325 and 26327 through 26336); FY 2000 IPPS final rule 

(64 FR 41518 through 41523); and the FY 2002 IPPS final rule (66 FR 39878 through 

39883). Specifically, the regulations at § 412.105(f)(1)(v) regarding the 3-year rolling 

average and new medical residency training programs for IME state: “If a hospital 

qualified for an adjustment to the limit established under paragraph (f)(1)(iv) of this 

section for new medical residency programs created under paragraph (f)(1)(vii) of this 

section, the count of residents participating in new medical residency training programs 

above the number included in the hospital’s FTE count for the cost reporting period 
 709 

ending during calendar year 1996 is added after applying the averaging rules in this 

paragraph (f)(l)(v) for a period of years. Residents participating in new medical 

residency training programs are included in the hospital’s FTE count before applying the 

averaging rules after the period of years has expired. For purposes of this paragraph, for 

each new program started, the period of years equals the minimum accredited length for 

each new program. The period of years for each new program begins when the first 

resident begins training in each new program.” In addition, the regulations for the 

interaction of the IRB ratio cap and new medical residency training programs for IME at 

§ 412.105(a)(1)(ii) state: “The exception for new programs described in paragraph 

(f)(1)(vii) of this section applies to each new program individually for which the full-time 

equivalent cap may be adjusted based on the period of years equal to the minimum 

accredited length of each new program.” 

 The regulations at § 413.79(d)(5) regarding the interplay of the 3-year rolling 

average with new medical residency training programs for direct GME similarly state: 

“If a hospital qualifies for an adjustment to the limit established under paragraph (c)(2) of 

this section for new medical residency programs created under paragraph (e) of this 

section, the count of the residents participating in new medical residency training 

programs above the number included in the hospital's FTE count for the cost reporting 

period ending during calendar year 1996 is added after applying the averaging rules in 

this paragraph (d), for a period of years. Residents participating in new medical 

residency training programs are included in the hospital’s FTE count before applying the 

averaging rules after the period of years has expired. For purposes of this paragraph (d), 
 710 

for each new program started, the period of years equals the minimum accredited length 

for each new program. The period of years begins when the first resident begins training 

in each new program.” 

 Therefore, the FTE resident caps for IME and direct GME are always effective 

beginning with the start of the sixth program year of the first new program started for 

urban hospitals that do not yet have FTE resident caps established (§ 413.79(e)(1)(iii)), 

and for rural hospitals, beginning with the start of the sixth program year of each new 

individual program started (§ 413.79(e)(3)), regardless of the fact that other new 

programs may have started after the start of the first new program. However, the timing 

of when the 3-year rolling average for IME and direct GME and the IRB ratio cap for 

IME are first applied is dependent upon the minimum accredited length of each new 

program started within the 5-year window. For example, new teaching Hospital A 

participates in training residents in new medical residency training programs for the first 

time beginning on July 1, 2013. On July 1, 2013, Hospital A participates in training 

residents in a new family medicine program (minimum accredited length is 3 years), on 

July 1, 2014, it also participates in training residents in a new sports medicine fellowship 

(minimum accredited length is 1 year), and on July 1, 2015, it also participates in training 

residents in a new general surgery program (minimum accredited length is 5 years). For 

the purpose of establishing Hospital A’s FTE resident caps, the 5-year growth window 

for Hospital A closes on June 30, 2018, and the IME and direct GME FTE resident caps 

for Hospital A are effective on July 1, 2018, the beginning of the sixth program year of 

the first new program’s existence; that is, family medicine. However, the 3-year rolling 
 711 

average and the IRB ratio cap are effective at different points in time. Because the family 

medicine residency is 3 years in length, FTE residents in the new family medicine 

program are subject to the 3-year rolling average and the IRB ratio cap beginning on 

July 1, 2016. Because the sports medicine fellowship is a 1-year program, and it started 

on July 1, 2014, the number of sports medicine FTE residents must be included in the 

3-year rolling average and is subject to the IRB ratio cap effective on July 1, 2015. 

Lastly, the FTE residents in the new general surgery program would only be subject to 

the rolling average and the IRB ratio cap effective July 1, 2020. The Medicare cost 

report worksheets on CMS Form 2552-10 for IME (Worksheet E, Part A) and for direct 

GME (Worksheet E-4) currently can accommodate reporting of FTE residents separately 

based on whether those FTE residents are in new medical residency training programs 

and are not subject to the FTE resident cap (line 16 of Worksheet E, Part A, and line 15 

of Worksheet E-4). However, these cost report worksheets are not designed to 

accommodate reporting of FTE residents that are exempt from the FTE resident cap, but 

are subject to the rolling average and IRB ratio cap, because the “period of years” equal 

to the minimum accredited length of each new program started has already expired. The 

reverse also may occur, as in the example above with the new general surgery program 

started by Hospital A, where the FTE resident caps are effective July 1, 2018, but the 

number of FTE residents in the general surgery program would not be subject to the 

rolling average or the IRB ratio cap until July 1, 2020. Complicating matters further is 

the fact that, while the effective dates of these policies associated with new medical 

residency training program FTE residents are effective on a program year basis (that is, 
 712 

July 1), many teaching hospitals do not have a fiscal year that begins on July 1. 

Therefore, under the existing policy, the number of FTE residents needs to be prorated, 

and special accommodations need to be made to calculate the portion of FTE residents 

that are subject to the FTE resident cap, the 3-year rolling average, and the IRB ratio cap 

for the respective portions of the hospital’s cost reporting period occurring on and after 

July 1. Integrating the rolling average, the IRB ratio cap, and the FTE resident caps for 

residents in new medical residency training programs in an accurate manner on the 

Medicare cost report has proved challenging to the point where we have had to deal with 

each instance brought to our attention by the new teaching hospital or by a Medicare 

contractor on an individual and manual basis (in order to ensure application of a 

consistent methodology). In fact, the Medicare cost report instructions direct the hospital 

to do the following: for CMS Form 2552-10, Worksheet E, Part A, line 10 – “. . . 

Contact your contractor for instructions on how to complete this line if you have a new 

program for which the period of years is less than or more than three years. . . .”; for 

CMS Form 2552-10, Worksheet E-4, line 6 – “. . . Contact your contractor for 

instructions on how to complete this line if you have a new program for which the period 

of years is less than or greater than 3 years . . . .” 

 The Medicare contractors, in turn, have been instructed to contact CMS for 

instructions on how to report the number of FTE residents that are still within the “period 

of years” of the new program. The “three years” referenced in the Form 2552-10 cost 

report instructions are based on the 3-year growth window for new medical residency 

training programs that is in effect for new programs started prior to October 1, 2012, 
 713 

when, within the 3-year growth window, new teaching hospitals also may have started 

new medical residency training programs with different minimum accredited lengths. 

(We note that while the previous Form 2552-96 cost report did not include the same 

instructions, CMS did deal with the reporting of the number of FTE residents in new 

medical residency training programs on an individual basis when requests for assistance 

were brought to its attention.) However, these instructions also apply for new medical 

residency training programs started with different minimum accredited lengths on and 

after October 1, 2012. 

 In this proposed rule, we are proposing to simplify and streamline the timing of 

when FTE residents in new medical residency training programs are subject to the FTE 

resident cap, the 3-year rolling average, and the IRB ratio cap, both for urban teaching 

hospitals that have not yet had FTE resident caps established under § 413.79(e)(1) and for 

rural teaching hospitals that may or may not have FTE resident caps established under 

§ 413.79(e)(3). That is, we are proposing that the methodology for calculating the FTE 

resident caps for hospitals that participate in training residents in new medical residency 

training programs would continue to be the same methodology instituted in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53415 through 53425) for new medical residency 

training programs started on or after October 1, 2012, specified at § 413.79(e)(1). 

However, once the FTE resident caps are calculated, we are proposing to change the 

timing of when the FTE resident caps would be effective, to synchronize the effective 

dates and the application of the 3-year rolling average and the IRB ratio cap with each 

applicable hospital’s fiscal year begin date. Specifically, we are proposing that the FTE 
 714 

resident caps would continue to be calculated as finalized in the FY 2013 IPPS/LTCH 

PPS final rule--the methodology is based on the sum of the products of the following 

three factors: (1) the highest total number of FTE residents trained in any program year, 

during the fifth year of the first new program’s existence at all of the hospitals to which 

the residents in that program rotate; (2) the number of years in which residents are 

expected to complete the program, based on the minimum accredited length for each type 

of program; and (3) the ratio of the number of FTE residents in the new program that 

trained at the hospital over the entire 5-year period to the total number of FTE residents 

that trained at all hospitals over the entire 5-year period. However, once calculated in 

this manner, we are proposing that, instead of the FTE resident caps being effective 

beginning with the sixth program year of the first new program start, those FTE resident 

caps, rolling average, and IRB ratio cap would be effective beginning with the applicable 

hospital’s cost reporting period that precedes the start of the sixth program year of the 

first new program started. Using the example of Hospital A that we presented earlier, 

assume Hospital A has a January 1 to December 31 cost reporting year. The first new 

program started, family medicine, was started on July 1, 2013. A sports medicine 

fellowship and a general surgery program also were started timely within the 5-year 

growth window. Hospital A has 5 program years to grow its FTE resident caps, from 

July 1, 2013 through June 30, 2018. The FTE resident caps would be calculated based on 

the 5 program years in accordance with the methodology established at § 413.79(e)(1) in 

the FY 2013 IPPS/LTCH PPS final rule; therefore, the hospital would wait until after 

June 30, 2018 to obtain the FTE counts to calculate the FTE resident caps. However, we 
 715 

are proposing that those IME and direct GME FTE resident caps, once calculated after 

June 30, 2018, instead of being effective on July 1, 2018, would be effective at the 

beginning of Hospital A’s cost reporting period that precedes July 1, 2018; that is, the 

FTE resident caps for Hospital A would be effective permanently on January 1, 2018, the 

start of Hospital A’s cost reporting period that precedes the start of the sixth program 

year of the first new program started. The hospital could file its fiscal year end 

December 31, 2018 cost report including the FTE resident caps applicable to the entire 

cost reporting period accordingly. 

 As noted earlier, we are proposing that, for all new medical residency training 

programs in which the hospital participates during the 5-year growth window, the FTEs 

in those new programs also would be subject to the 3-year rolling average and the IRB 

ratio cap simultaneously with the effective date of the FTE resident caps, at the beginning 

of the applicable hospital’s cost reporting period that precedes the beginning of the sixth 

program year of the first new program started. Again, using the example of Hospital A 

that we presented earlier, the FTE residents in the family medicine program, the sports 

medicine fellowship, and the general surgery program would all be subject to the 3-year 

rolling average and IRB ratio cap beginning on January 1, 2018. With regard to reporting 

on the Medicare cost report, for Hospital A’s fiscal year end dates of December 31, 2013 

through and including December 31, 2017, we are proposing that the number of FTE 

residents in the family medicine program, the sports medicine fellowship, and the general 

surgery program would be reported so as not to be included in the IME rolling average or 

the IRB ratio cap, and so as not to be included in the direct GME rolling average. (On 
 716 

the CMS Form 2552-10, for Hospital A’s fiscal year end dates of December 31, 2013 

through and including December 31, 2017, this means that the number of FTE residents 

in the family medicine program, the sports medicine fellowship, and the general surgery 

program would be reported on Worksheet E, Part A, line 16, and on Worksheet E-4, line 

15). However, on Hospital A’s cost report for fiscal year ending December 31, 2018, the 

number of FTE residents in these three programs would be subject to the FTE resident 

cap, the 3-year rolling average, and the IRB ratio cap, and would be reported accordingly. 

(On the CMS Form 2552-10, for Hospital A’s cost report for fiscal year ending 

December 31, 2018, this means that none of the FTE residents in these three programs 

would be reported on Worksheet E, Part A, line 16 for IME, and Worksheet E-4, line 15 

for direct GME. Instead, all of the FTE residents would be reported on Worksheet E, 

Part A, line 10 for IME, and Worksheet E-4, line 6 for direct GME, in order to be subject 

to the FTE resident cap, the 3-year rolling average, and the IRB ratio cap.) We note that 

once the 3-year rolling average is effective in that cost reporting period that includes the 

sixth program year of the first new program started, the number of FTE residents in the 

new programs also must be reported both as part of the prior year FTE resident counts 

and the penultimate FTE resident counts, in order to effectuate the 3-year rolling average 

calculation on the IME Worksheet E, Part A, and the direct GME Worksheet E-4, 

respectively. 

 In the example that we presented earlier, Hospital A has a fiscal year that begins 

on January 1. If Hospital A’s fiscal year begin date would have been October 1, then, as 

proposed, while the sixth program year of the first new program started would still be 
 717 

July 1, 2018, the FTE residents caps, the 3-year rolling average, and the IRB ratio cap 

would be effective on October 1, 2017, the fiscal year begin date that precedes 

July 1, 2018, the sixth program year. If Hospital A’s fiscal year begin date would have 

been July 1, the FTE residents caps, the 3-year rolling average, and the IRB ratio cap 

would instead be effective on July 1, 2017, the fiscal year begin date that precedes 

July 1, 2018, the sixth program year. 

 We understand that this proposal, if finalized, would reduce the amount of time 

that the new medical residency training programs would be exempt from the FTE 

resident caps. However, even though we are proposing to make the effective date of the 

FTE resident caps earlier than under current policy, because we also are proposing that 

the calculation of the FTE resident caps would still be based on the highest total number 

of FTE residents trained in any program year, during the fifth year of the first new 

program’s existence at all of the hospitals to which the residents in that program rotate, a 

new teaching hospital would still have the full 5 program years to grow its program(s), 

and its FTE resident caps would reflect a full 5 years of growth. Therefore, because, by 

the fifth program year, a program should, in most typical circumstances, have grown to 

its full capacity, barring unusual circumstances, the FTE resident caps that would take 

effect under the proposed policy at the beginning of the fiscal year that precedes the sixth 

program year should accommodate the FTE resident count training in the fifth and 

subsequent program years. Therefore, we believe that this proposal to streamline and 

synchronize the effective dates of the FTE resident caps, the 3-year rolling average, and 

the IRB ratio cap not only is easier to comprehend and to implement, but also is 
 718 

reasonable and equitable in its effect on the IME and direct GME payments of hospitals 

establishing FTE resident caps. Specifically, if this proposal is finalized, there would no 

longer be a need for CMS Form 2552-10, Worksheet E, Part A, line 10 and Worksheet 

E-4, line 6 to instruct hospitals to contact their contractor for instructions on how to 

complete those lines, as both hospitals and Medicare contractors would understand how 

to report the number of FTE residents in new programs, even when those programs have 

different accredited lengths. Instead, hospitals and Medicare contractors would follow 

the methodology instituted in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53415 

through 53425) to calculate the FTE resident caps for new medical residency training 

programs started on or after October 1, 2012, and once the FTE resident caps are 

calculated, hospitals and Medicare contractors would implement the FTE resident caps, 

the 3-year rolling average, and the IRB ratio cap effective beginning with the applicable 

hospital’s cost reporting period that precedes the start of the sixth program year of the 

first new program started. Under this proposed methodology, FTE residents and FTE 

resident caps would no longer need to be prorated, and we would no longer need to make 

special accommodations to calculate the portion of FTE residents that are subject to the 

FTE resident cap, the 3-year rolling average, and the IRB ratio cap for the respective 

portions of the hospital’s cost reporting period occurring on and after July 1. The 

existing CMS Form 2552-10 already accommodates this proposed methodology, unlike 

the complicated process currently in place. Thus, clarity, efficiency, and payment 

accuracy would be improved for hospitals, contractors, and CMS. 
 719 

 With regard to rural hospitals that, under § 413.79(e)(3) of the regulations, may 

receive FTE resident cap adjustments at any time for participating in training residents in 

new programs, we are proposing a similar policy, with modifications reflecting the fact 

that each new program in which the rural hospital participates receives its own 5-year 

growth window before the rural hospital’s FTE resident cap is adjusted based on that new 

program. That is, we are proposing that, for rural hospitals, the FTE resident caps, the 

3-year rolling average, and the IRB ratio cap for each new program started would be 

effective beginning with the applicable hospital’s cost reporting period that precedes the 

start of the sixth program year of each new program started. For example, rural Hospital 

B has a fiscal year that begins on January 1. It starts a family medicine program on 

July 1, 2013, and a general surgery program on July 1, 2016. The sixth program year for 

the family medicine program begins on July 1, 2018. The sixth program year for the 

general surgery program begins on July 1, 2021. With regard to Medicare cost reporting, 

during Hospital B’s fiscal years end dates of December 31, 2013 through and including 

December 31, 2017, the number of family medicine FTE residents would be reported so 

as not to be included in the IME 3-year rolling average or the IRB ratio cap, and so as not 

to be included in the direct GME 3-year rolling average. (This means that on CMS Form 

2552-10, during Hospital B’s fiscal year end dates of December 31, 2013 through and 

including December 31, 2017, the number of family medicine FTE residents would be 

reported on Worksheet E, Part A, line 16 for IME, and on Worksheet E-4, line 15, for 

direct GME. Instead, the number of family medicine FTE residents would be reported on 

Worksheet E, Part A, line 16, and Worksheet E-4, line 15.) Then, beginning with 
 720 

Hospital B’s cost report for fiscal year ending December 31, 2018, the number of FTE 

residents in only the family medicine program would be subject to the FTE residents 

caps, the 3-year rolling average, and the IRB ratio cap, and would be reported 

accordingly in order to be subject to the FTE resident cap, the 3-year rolling average, and 

the IRB ratio cap. (This means that on CMS Form 2552-10, beginning with Hospital B’s 

cost report ending December 31, 2018, the number of family medicine FTE residents 

would be reported on Worksheet E, Part A, line 10 for IME, and Worksheet E-4, line 6 

for direct GME.) Because the general surgery program started on July 1, 2016, for 

Hospital B’s fiscal year end dates of December 31, 2016 through and including fiscal 

year end date of December 31, 2020, the number of general surgery FTE residents would 

be reported (on Worksheet E, Part A, line 16) so as not to be included in the IME 3-year 

rolling average or the IRB ratio cap, and (on Worksheet E-4, line 15), so as not to be 

included in the direct GME 3-year rolling average. Then, beginning with Hospital B’s 

cost report for fiscal year ending December 31, 2021, the number of FTE residents in the 

general surgery program would be subject to the FTE resident caps, the 3-year rolling 

average, and the IRB ratio cap, and would be reported accordingly (on Worksheet E, Part 

A, line 10 for IME, and Worksheet E-4, line 6 for direct GME), in order to be subject to 

the FTE resident cap, the 3-year rolling average, and the IRB ratio cap. We note that 

once the 3-year rolling average is effective in that cost reporting period that includes the 

sixth program year of each new program started, the number of FTE residents in the new 

programs also must be reported as part of the prior year FTE resident counts, and the 

penultimate FTE resident counts, in order to effectuate the 3-year rolling average 
 721 

calculation on the IME Worksheet E, Part A, and the direct GME Worksheet E-4, 

respectively. 

 We are proposing that this policy regarding the effective dates of the FTE 

residency caps, the 3-year rolling average, and the IRB ratio cap for FTE residents in new 

medical residency training programs would be consistent with the methodology for 

calculation of the FTE resident caps as described in the FY 2013 IPPS/LTCH PPS final 

rule, and implemented in the regulations at §§ 413.79(e)(1) and (e)(3). That is, because 

the policy providing a 5-year growth period for establishing the FTE resident caps 

(§§ 413.79(e)(1) and (e)(3)) is effective for new programs started on or after 

October 1, 2012, this proposal is effective for urban hospitals that first begin to 

participate in training residents in their first new medical residency training program, and 

for rural hospitals, on or after October 1, 2012. We also are proposing to revise the 

regulations for IME and direct GME, respectively, at § 412.105(a)(1)(ii) for the IME IRB 

ratio cap, at § 412.105(f)(1)(v) for the IME 3-year rolling average, and at § 413.79(d)(5) 

for the direct GME 3-year rolling average to reflect that the exception from the IRB ratio 

cap and the 3-year rolling average for new programs applies to each new program 

individually during the cost reporting periods prior to the beginning of the applicable 

hospital’s cost reporting period that precedes the start of the sixth program year of the 

first new program started, for hospitals for which the FTE cap may be adjusted in 

accordance with § 413.79(e)(1), and prior to the beginning of the applicable hospital’s 

cost reporting period that precedes the start of the sixth program year of each individual 

new program started, for hospitals for which the FTE cap may be adjusted in accordance 
 722 

with § 413.79(e)(3). After the applicable hospital’s cost reporting period that precedes 

the start of the sixth program year of the first new program started for hospitals for which 

the FTE cap may be adjusted in accordance with § 413.79(e)(1), and after the applicable 

hospital’s cost reporting period that precedes the start of the sixth program year of each 

individual new program started for hospitals for which the FTE cap may be adjusted in 

accordance with § 413.79(e)(3), FTE residents participating in new medical residency 

training programs are included in the hospital’s IRB ratio cap and the 3-year rolling 

average. 

3. Proposed Changes to IME and Direct GME Policies as a Result of New OMB Labor 

Market Area Delineations 

a. New Program FTE Resident Cap Adjustment for Rural Hospitals Redesignated as 

Urban 

 As stated earlier in this proposed rule, under existing regulations, a new teaching 

hospital that starts training residents for the first time on or after October 1, 2012, has 

5 years from when it first begins training residents in its first new program to build its 

FTE resident cap. If the teaching hospital is a rural teaching hospital, it can continue to 

receive permanent cap adjustments for training residents in new programs after the initial 

5-year cap-building period that applies to new teaching hospitals ends. (We refer readers 

to section IV.K.2. of the preamble of this proposed rule for a discussion of our proposal 

to change the effective dates for when the FTE resident cap, the 3-year rolling average, 

and the IRB ratio cap are applied to new teaching hospitals and to new programs at rural 

teaching hospitals.) 
 723 

 In section III.B. of the preamble of this proposed rule, we discuss the policies we 

are proposing to implement as a result of the new OMB labor market area delineations 

announced in the February 28, 2013 OMB Bulletin No. 13-01. As a result of the new 

OMB delineations, some teaching hospitals may be redesignated from being located in a 

rural area to an urban area, thereby losing their ability to increase their FTE resident caps 

for new programs started after their initial 5-year cap-building period ends. We have 

been asked whether a rural teaching hospital that already has a cap and is redesignated as 

urban while it is in the process of establishing another new program(s) can still receive a 

permanent cap adjustment for that new program(s). We believe that because the hospital 

had already started training residents in the new program(s) while it was rural, the former 

rural hospital should be permitted to continue building its new program(s) and receive a 

permanent FTE resident cap adjustment for that new program(s). Therefore, we are 

proposing to revise the regulations to allow a hospital that was rural as of the time it 

started training residents in a new program(s) and is redesignated as urban for Medicare 

payment purposes during its cap-building period for that program(s) to be able to 

continue building that program(s) for the remainder of the cap-building period and 

receive a permanent FTE resident cap adjustment for that new program(s). Once the 

cap-building period for the new program(s) that was started while the hospital was still 

rural expires, the teaching hospital that has been redesignated as urban would no longer 

be able to receive any additional permanent cap adjustments. We are proposing that the 

teaching hospital must be actively training residents in the new program while it is still 

rural, that is, prior to the redesignation taking effect, in order for the hospital to continue 
 724 

receiving a cap adjustment for the new program. For example, if a rural hospital begins 

training residents in a new internal medicine program on July 1, 2013, and begins training 

residents in a new general surgery program on July 1, 2014, and the rural hospital is 

redesignated as urban effective on October 1, 2014, the teaching hospital would be able 

to continue receiving a cap adjustment for both the new internal medicine program and 

the new general surgery program after it has been redesignated as urban. However, if the 

rural hospital is redesignated as urban effective on October 1, 2014, and started training 

residents in a new internal medicine program on July 1, 2013, but did not start training 

residents in a new general surgery program while it was still rural, that is, prior to 

October 1, 2014, the teaching hospital would receive a permanent cap adjustment for the 

new internal medicine program, but would not receive a cap adjustment for the new 

general surgery program. We are proposing to revise the regulations at 

§ 412.105(f)(1)(iv)(D) for IME and § 413.79(c)(6) for direct GME to implement this 

proposed change. We are proposing that these regulatory revisions be effective for cost 

reporting periods beginning on or after October 1, 2014. The proposed regulations at 

§ 412.105(f)(1)(iv)(D) read as follows: “A rural hospital redesignated as urban after 

September 30, 2004, as a result of the most recent census data and implementation of the 

new labor market area definitions announced by OMB on June 6, 2003, may retain the 

increases to its FTE resident cap that it received under paragraphs (f)(1)(iv)(A) and 

(f)(1)(vii) of this section while it was located in a rural area. Effective for cost reporting 

periods beginning on or after October 1, 2014, if a rural hospital is redesignated as urban 

due to the most recent OMB standards for delineating statistical areas adopted by CMS 
 725 

and was training residents in a new program prior to the redesignation becoming 

effective, the redesignated urban hospital may retain any existing increases to its FTE 

resident cap and receive an increase to its FTE resident cap for the new program in which 

it was training residents when the redesignation became effective, in accordance with 

paragraph (f)(1)(vii) of this section.” The proposed regulations at § 413.79(c)(6) read as 

follows: “A rural hospital redesignated as urban after September 30, 2004, as a result of 

the most recent census data and implementation of the new MSA definitions announced 

by OMB on June 6, 2003, may retain the increases to its FTE resident cap that it received 

under paragraphs (c)(2)(i), (e)(1)(iii), and (e)(3) of this section while it was located in a 

rural area. Effective for cost reporting periods beginning on or after October 1, 2014, if a 

rural hospital is redesignated as urban due to the most recent OMB standards for 

delineating statistical areas adopted by CMS, and was training residents in a new program 

prior to the redesignation becoming effective, the redesignated urban hospital may retain 

any existing increases to its FTE resident cap, and receive an increase to its FTE resident 

cap for the new program in which it was training residents when the redesignation 

became effective, in accordance with paragraph (e) of this section.” 

b. Participation of Redesignated Hospital in Rural Training Track 

 To encourage the training of residents in rural areas, section 407(c) of Pub. L. 

106-113 amended section1886(h)(4)(H) of the Act to add a provision that, in the case of a 

hospital that is not located in a rural area (an urban hospital) that establishes separately 

accredited approved medical residency training programs (or rural tracks) in a rural area 

or has an accredited training program with an integrated rural track, the Secretary shall 
 726 

adjust the urban hospital’s cap on the number of FTE residents under subparagraph (F), 

in an appropriate manner in order to encourage training of physicians in rural areas. 

Section 407(c) of Pub. L. 106-113 was made effective for direct GME payments to 

hospitals for cost reporting periods beginning on or after April 1, 2000, and for IME 

payments applicable to discharges occurring on or after April 1, 2000. We refer readers 

to the August 1, 2000 interim final rule with comment period (65 FR 47033 through 

47037) and the FY 2002 IPPS final rule (66 FR 39902 through 39909) where we 

implemented section 407(c) of Pub. L. 106-113. 

 The regulations at § 413.79(k) specify that, subject to certain criteria, an urban 

hospital may count the FTE residents in the rural track in addition to those FTE residents 

subject to its cap up to a “rural track FTE limitation” for that hospital. In the FY 2006 

IPPS final rule, we revised the regulations at § 413.79(k) to add a new paragraph (7) to 

state that if an urban hospital had established a rural track program with a rural hospital 

and that hospital subsequently becomes urban due to the implementation of the new labor 

market area definitions announced by OMB on June 6, 2003, the urban hospital may 

continue to adjust its FTE resident limit for rural track programs established before the 

implementation of the new labor market area definitions. We also stated that, in order for 

the urban hospital to receive a cap adjustment for a new rural track program, the urban 

hospital must establish a rural track program with hospitals that are designated rural 

based on the most recent geographical location designations adopted by CMS 

(70 FR 47456;47489). 
 727 

 As discussed earlier in this section, we are proposing to implement, effective 

October 1, 2014, the new OMB labor market area delineations announced in the 

February 28, 2013 OMB Bulletin No. 13-01. As a result of the new delineations, certain 

areas can be redesignated from urban to rural or from rural to urban, which may, in turn, 

affect GME policies that require the participation of rural teaching hospitals. For 

example, as noted above, in order for an urban teaching hospital to receive a FTE resident 

cap adjustment for training residents in a rural track, the residents must rotate for more 

than one-half of the duration of the program to a rural hospital(s) or rural nonprovider(s) 

site. We have received a question as to what happens to a rural track when a rural 

hospital that is participating as the rural site is redesignated as urban, while the rural track 

for the urban hospital is in the process of being established. That is, what happens to the 

rural track when the rural hospital is redesignated as urban during the period that is used 

to establish the urban hospital’s rural track FTE limitation, prior to the effective date of 

the urban hospital’s rural track FTE limitation being established? 

 Existing regulations at § 413.79(k)(7) address the scenario where a rural hospital 

that is participating as the rural site is redesignated as urban, after the rural track FTE 

limitation for the urban hospital has already become effective. Specifically, the 

regulations at § 413.79(k)(7) state that if an urban hospital had established a rural track 

with a hospital located in a rural area and that rural area subsequently becomes an urban 

area due to the most recent census data and implementation of new labor market area 

definitions announced by OMB June 6, 2003, the urban hospital may continue to adjust 

its FTE resident limit for the rural track programs established prior to the adoption of the 
 728 

new labor market area definitions. Therefore, consistent with the existing regulations at 

§ 413.79(k)(7) and with our proposal to allow rural hospitals redesignated as urban to 

continue receiving a FTE resident cap adjustment for new programs that started while the 

redesignated hospital was still rural, we are proposing to revise the existing regulations 

applicable to urban hospitals generally. Specifically, we are proposing to address the 

status of the “original” urban hospital’s rural track FTE limitation, in the situation where 

a rural hospital that is participating in the original urban hospital’s rural track is located in 

an area redesignated by OMB as urban during the 3-year period that is used to calculate 

the urban hospital’s rural track FTE limitation. We are proposing that, in these situations, 

the original urban hospital’s opportunity to receive a rural track FTE limitation would not 

be negatively impacted by the fact that the rural hospital with which it has partnered to be 

the rural site for its rural training track is located in an area redesignated by OMB as 

urban during the 3-year period that is used to calculate the urban hospital’s rural track 

FTE limitation. That is, we are proposing that the original urban hospital may receive a 

rural track FTE limitation for that new rural track program. 

 With regard to the status of the rural hospital that is partnered with the urban 

hospital to serve as a rural training site for the rural training track program, as mentioned 

earlier, existing regulations at § 413.79(k)(7) address the scenario where a rural hospital 

that is participating as the rural site is redesignated as urban, after the rural track FTE 

limitation for the urban hospital has already become effective. (We note that we are 

proposing to apply the existing policy at § 413.79(k)(7), which applies to redesignations 

that occurred on June 6, 2003, in a similar manner, to redesignations announced by OMB 
 729 

after June 6, 2003, as well.) In addition, we are proposing that once the rural hospital is 

redesignated as located in an urban area due to the implementation of the new OMB labor 

market area delineations, regardless of whether that redesignation occurs during the 

3-year period that is used to establish the rural track FTE limitation for the urban hospital, 

or after the 3-year period that is used to establish the rural track FTE limitation for the 

urban hospital, the redesignated urban hospital can no longer qualify as the rural site and 

the “original” urban hospital would not be able to count those residents under its rural 

track FTE limitation if it continues to use the redesignated urban hospital as the rural site 

for purposes of the rural track. However, because the redesignated urban hospital was 

rural when residents started training in the rural track, we are proposing to provide for a 

2-year transition period during which either of the following two conditions must be met 

in order for the “original” urban hospital to be able to count the residents under its rural 

track FTE limitation when the 2-year transition period ends: (1) the redesignated newly 

urban hospital must reclassify back to rural under § 412.103 of the regulations; or (2) the 

“original” urban hospital must find a new geographically rural site to participate as the 

rural site for purposes of the rural track. We note that we are proposing to apply these 

two criteria both in the case where the rural hospital is redesignated as urban after the 

urban hospital already has its rural track FTE limit established, and also in the case where 

the rural hospital is redesignated as urban during the 3-year period when the rural track 

program is still growing, prior to the rural track FTE limit being established. This 2-year 

transition period would begin when new OMB labor market area delineations take effect 

for Medicare payment purposes and would end exactly 2 years from that date. During 
 730 

this 2-year transition period, we would hold the “original” urban hospital harmless and 

would pay the “original” urban hospital for the FTE residents in the rural track. At the 

end of the 2-year transition period, in order for the urban hospital to receive payment for 

a rural track program under § 413.79(k)(1) or (k)(2), either the redesignated urban 

hospital must be granted reclassification as rural under § 412.103 or the “original” urban 

hospital must already be training FTE residents at a geographically rural site. We note 

that, because the rural reclassification provision of § 412.103 only applies to IPPS 

hospitals and for purposes of section 1886(d) of the Act, it only applies to IPPS hospitals 

for IME payment purposes and not for direct GME payment purposes because direct 

GME is authorized under section 1886(h) of the Act. Therefore, if the redesignated 

hospital reclassifies as rural under § 412.103, the “original” urban hospital would only be 

able to count FTE residents towards its rural track FTE limitation for IME payment 

purposes, but not for direct GME payment purposes. In addition, we note that this 

discussion has centered on the scenario where a rural hospital that is the rural site for 

purposes of the rural track has been redesignated as urban. Under such a scenario, the 

redesignated urban hospital does have an option to reclassify as rural. However, as noted 

above, the reclassification only applies to IPPS hospitals for IME payment purposes. If a 

nonprovider site is functioning as the rural site under § 413.79(k)(2) for purposes of the 

rural track and the area where that nonprovider site is located is redesignated as urban, 

the nonprovider site would not have the option of reclassifying as rural and, therefore, the 

“original” urban hospital would be required to find a new geographically rural site within 
 731 

the 2-year transition period in order for the “original” urban hospital to receive payment 

for a rural track program under § 413.79(k)(1) or (k)(2). 

 The following examples illustrate how the proposed policy would be applied to a 

rural track in which the rural site is a hospital and the rural hospital has been redesignated 

as urban: 

● An urban teaching hospital and a rural teaching hospital are participating in 

training residents in a new rural track program that begins July 1, 2014. Effective 

October 1, 2014, the rural hospital is redesignated as urban. We are proposing that the 

timeframe for the urban hospital to build the rural track program for purposes of 

calculating its rural track FTE limitation would continue to be through June 30, 2017. 

During the time period of October 1, 2014 to September 30, 2016, the redesignated urban 

hospital would continue participating as a rural hospital and the urban hospital would 

count FTE residents it is training that are in the rural track for IME and direct GME. 

However, in order for the “original” urban hospital to continue to get paid for its rural 

track program after September 30, 2016, then, by September 30, 2016, the redesignated 

urban hospital must either reclassify as rural under § 412.103 of the regulations for 

purposes of IME payment only, or the urban hospital must find a new geographically 

rural hospital or nonprovider site to train the residents in the rural track for more than 

one-half of their training. If neither of these conditions is met, by September 30, 2016, 

the “original” urban hospital would not able to receive payment for that specific program 

as a rural training track under § 413.79(k)(1) or (k)(2) because it would no longer meet 
 732 

the requirement that more than one-half of the training must be provided in a rural 

setting. 

● Another scenario could be one in which the rural hospital is redesignated as 

urban after the 3-year cap-building period for the rural track has passed. For example, 

the rural track program began July 1, 2007, but effective October 1, 2014, the rural 

hospital is redesignated as urban. We are proposing in this scenario that, by 

September 30, 2016, either the redesignated urban hospital must reclassify to rural under 

§ 412.103 for purposes of IME payment only, or the “original” urban hospital must find a 

new geographically rural site that can participate as the rural site for purposes of the rural 

track. If neither of these conditions is met by September 30, 2016, the “original” urban 

hospital would not be able to receive payment for that specific program as a rural track 

under § 413.79(k)(1) or (k)(2) because it would no longer meet the requirement that more 

than one-half of the training must be provided in a rural setting. 

 We note that if the “original” urban hospital was not able to meet one of the two 

proposed conditions noted earlier in this section by the end of the 2-year transition 

period, but at some point later is able to meet one of the two proposed conditions, we are 

proposing that the “original” urban hospital would be able to “revive” and use its already 

established rural track FTE limitation from that point forward. In the instance where the 

“original” urban hospital’s rural track FTE limitation was not set because the hospital 

was not able to meet one of the two proposed conditions by the end of the 2-year 

transition period, which fell within the 3-year cap-building timeframe, but at some point 

later is able to meet one of the two proposed conditions, we are proposing that the 
 733 

“original” urban hospital would be able to have a rural track FTE limitation calculated 

and established based on the highest number of FTE residents in any program year 

training in the rural track in the third year of the program, even if during the third year of 

the program, the “original” urban hospital was not in compliance with the two proposed 

conditions. Consistent with similar policy discussed in the FY 2002 IPPS final rule 

(66 FR 39905), it would be the responsibility of the hospitals involved to provide the 

necessary information regarding the rotations of the residents in the third program year to 

the Medicare contractor in order for the calculation to be completed and the rural track 

FTE limit to be set. 

 In summary, we are proposing that any time a rural hospital participating in a 

rural track is in an area redesignated by OMB as urban after residents started training in 

the rural track and during the 3-year period that is used to calculate the urban hospital’s 

rural track FTE limitation, the urban hospital may receive a cap adjustment for that rural 

track after it has been redesignated as urban. Furthermore, we are proposing that, 

regardless of whether the redesignation of the rural hospital occurs during the 3-year 

period that is used to calculate the urban hospital’s rural track FTE limitation, or after the 

3-year period used to calculate the urban hospital’s rural track FTE limitation, the 

redesignated urban hospital can continue to be considered a rural hospital for purposes of 

the rural track for up to 2 years. However, by the end of those 2 years, either the 

redesignated urban hospital must reclassify as rural under § 412.103 for purposes of IME 

payment only (in addition, this reclassification option only applies to IPPS hospitals, not 

nonprovider sites) or the “original” urban hospital must have found a new site in a 
 734 

geographically rural area that will serve as the rural site for purposes of the rural track in 

order for the “original” urban hospital to receive payment under § 413.79(k)(1) or (k)(2). 

 We are proposing to revise the regulations at § 413.79(k)(7) to implement these 

provisions and to establish that these changes would be effective for cost reporting 

periods beginning on or after October 1, 2014. The proposed regulations at 

§ 413.79(k)(7) read as follows: “ (i) Effective for cost reporting periods beginning prior 

to October 1, 2014, if an urban hospital had established a rural track training program 

under the provisions of this paragraph (k) with a hospital located in a rural area and that 

rural area subsequently becomes an urban area due to the most recent census data and 

implementation of the new labor market area definitions announced by OMB on 

June 6, 2003, the urban hospital may continue to adjust its FTE resident limit in 

accordance with this paragraph (k) for the rural track programs established prior to the 

adoption of such new labor market area definitions. In order to receive an adjustment to 

its FTE resident cap for a new rural track residency program, the urban hospital must 

establish a rural track program with hospitals that are designated rural based on the most 

recent geographical location designations adopted by CMS. (ii) Effective for cost 

reporting periods beginning on or after October 1, 2014, if an urban hospital had started a 

rural track training program under the provisions of this paragraph (k) with a hospital 

located in a rural area and, during the 3-year period that is used to calculate the urban 

hospital’s rural track FTE limit, that rural area subsequently becomes an urban area due 

to the most recent OMB standards for delineating statistical areas adopted by CMS and 

the most recent Census Bureau data, the urban hospital may continue to adjust its FTE 
 735 

resident limit in accordance with this paragraph (k) and subject to paragraph (k)(7)(iii) 

for the rural track programs established prior to the adoption of such new OMB standards 

for delineating statistical areas. (iii) Effective for cost reporting periods beginning on or 

after October 1, 2014, if an urban hospital had established a rural track training program 

under the provisions of this paragraph (k) with a hospital located in a rural area and that 

rural area subsequently becomes an urban area due to the most recent OMB standards for 

delineating statistical areas adopted by CMS and the most recent Census Bureau data, 

regardless of whether the redesignation of the rural hospital occurs during the 3-year 

period that is used to calculate the urban hospital’s rural track FTE limit, or after the 3-

year period used to calculate the urban hospital’s rural track FTE limit, the urban hospital 

may continue to adjust its FTE resident limit in accordance with this paragraph (k) based 

on the rural track programs established prior to the change in the hospital’s geographic 

designation. In order for the urban hospital to receive or use the adjustment to its FTE 

resident cap for training FTE residents in the rural track residency program that was 

established prior to the most recent OMB standards for delineating statistical areas 

adopted by CMS, one of the following two conditions must be met by the end of a 2-year 

period that begins when the most recent OMB standards for delineating statistical areas 

are adopted by CMS: the hospital that has been redesignated from rural to urban must 

reclassify as rural under § 412.103 of this chapter, for purposes of IME only; or the urban 

hospital must find a new site that is geographically rural consistent with the most recent 

geographical location delineations adopted by CMS. In order to receive an adjustment to 

its FTE resident cap for an additional new rural track residency program, the urban 
 736 

hospital must establish a rural track program with sites that are geographically rural based 

on the most recent geographical location delineations adopted by CMS.” 

 We also have determined that there is an outdated, incorrect reference included in 

the definition of “Rural track FTE limitation” under § 413.75(b). The reference included 

in the definition is “§ 413.79(l)”. The correct reference is “§ 413.79(k)”. Therefore, we 

are proposing to make a technical correction to the definition of “Rural track FTE 

limitation” so that it reads “means the maximum number of residents (as specified in 

§ 413.79(k)) training in a rural track residency program that an urban hospital may 

include in its FTE count and that is in addition to the number of FTE residents already 

included in the hospital’s FTE cap.” 

4. Proposed Clarification of Policies on Counting Resident Time in Nonprovider Settings 

under Section 5504 of the Affordable Care Act 

 In the November 24, 2010 final rule with comment period (75 FR 71808, 72134 

through 72141, and 72153), we implemented section 5504 of the Affordable Care Act 

regarding counting resident time in nonprovider settings. We also mentioned the scope 

of section 5504 of the Affordable Care Act in the FY 2014 IPPS/LTCH PPS proposed 

rule (78 FR 27638) and final rule (78 FR 50735). Section 5504(a) of the Affordable Care 

Act made changes to section 1886(h)(4)(E) of the Act to reduce the costs that hospitals 

must incur for residents training in nonprovider sites in order to count the FTE residents 

for purposes of Medicare direct GME payments on a prospective basis. Notably, section 

5504(a)(3) of the Affordable Care Act amended the Act effective for “cost reporting 

periods beginning on or after July 1, 2010,” for direct GME, to permit hospitals to count 
 737 

the time that a resident trains in activities related to patient care in a nonprovider site in 

its FTE count if the hospital incurs the costs of the residents’ salaries and fringe benefits 

for the time that the resident spends training in the nonprovider site. Section 5504(b)(2) 

of the Affordable Care Act made similar changes to section 1886(d)(5)(B)(iv) of the Act 

for IME payment purposes, with the provision being effective for discharges occurring on 

or after July 1, 2010, for IME. In connection with those periods and discharges, if more 

than one hospital incurs the residency training costs in a nonprovider setting, under 

certain circumstances, sections 5504(a)(3) and (b)(2) of the Affordable Care Act allow 

each hospital to count a proportional share of the training time that a resident spends 

training in that setting, as determined by a written agreement between the hospitals. 

When Congress enacted section 5504 of the Affordable Care Act, it retained the statutory 

language which provides that a hospital can only count the time so spent by a resident 

under an approved medical residency training program in its FTE count if that one single 

hospital by itself “incurs all, or substantially all, of the costs for the training program in 

that setting.” In doing so, Congress also revised the statutory language in sections 

5504(a)(1) and (b)(1) to explicitly make this longstanding substantive standard and 

requirement applicable to “cost reporting periods beginning before July 1, 2010” for 

direct GME, and to “discharges occurring on or after October 1, 1997, and before 

July 1, 2010,’’ for IME (sections 1886(d)(5)(B)(iv)(I) and 1886(h)(4)(E)(i) of the Act). 

Beginning at least as early as 1988, the Secretary consistently noted in the preamble of 

various rules that the statute only allowed a hospital to count the time that its residents 

spent training in a nonprovider site in the FTE resident count for direct GME and IME 
 738 

purposes if that single hospital incurred “all of substantially all” of the costs of the 

training program in that setting. For a full discussion of the longstanding substantive 

standard and requirement that a hospital can only count residents training if that one 

single hospital incurs all or substantially all of the costs for the training, we refer readers 

to the discussion in the November 24, 2010 final rule with comment period (75 FR 72134 

through 72141), in the May 11, 2007 final rule (72 FR 26953 and 26969), and in the 

August 1, 2003 final rule (68 FR 45439). 

 Section 5504(c) of the Affordable Care Act specifies that the amendments made 

by the provisions of sections 5504(a) and (b) “shall not be applied in a manner that 

requires reopening of any settled hospital cost reports as to which there is not a 

jurisdictionally proper appeal pending as of the date of the enactment of this Act on the 

issue of payment for indirect costs of medical education...or for direct graduate medical 

education costs....” The date of enactment of the Affordable Care Act was 

March 23, 2010. 

 In the November 24, 2010 final rule with comment period, we revised the 

regulations at § 412.105(f)(1)(ii)(E) for IME and §§ 413.78(f) and (g) for direct GME to 

reflect the changes made by section 5504 of the Affordable Care Act. Section 413.78(g) 

is the implementing regulation that corresponds to the statutory amendments set forth in 

sections 5504(a)(3) and (b)(2) of the Affordable Care Act. The introductory regulatory 

language of § 413.78(g) explicitly states that paragraph (g) governs only “cost reporting 

periods beginning on or after July 1, 2010.” Paragraph (g)(5) of § 413.78 also expressly 

states that the paragraph is limited to “cost reporting periods beginning on or after 
 739 

July 1, 2010.” Accordingly, we have repeatedly stated, and we believe that the existing 

regulation makes plain, that paragraph (g) of § 413.78 “is explicitly made applicable only 

to ‘cost reporting periods beginning on or after July l, 2010,’ whereas earlier cost 

reporting periods are governed by other preceding paragraphs of § 413.78” 

(78 FR 50735). In addition, we also revised the definition of “all or substantially all of 

the costs for the training program in the nonhospital setting” in the regulations at 

§ 413.75(b) to reflect that both the statute and regulations require that, for cost reporting 

periods beginning on and after July 1, 2007 and before July 1, 2010, one hospital must by 

itself incur “all or substantially all of the costs” of the residents training in the 

nonprovider site in order for the hospital to receive Medicare IME and direct GME 

payment for that training. Finally, we also revised the IME regulations at § 412.105 to 

reflect these statutory amendments, by incorporating by reference § 413.78(g). 

 Despite the fact that sections 5504(a) and (b) of the Affordable Care Act provide 

clear effective dates with respect to the amendments provided therein to sections 

1886(h)(4)(E) and 1886(d)(5)(B)(iv) of the Act, and that the preamble discussion of the 

implementation of these provisions and further discussion of the statutory amendments in 

the November 24, 2010 final rule with comment period and in the August 19, 2013 final 

rule provide further explanation that, specifically, nothing in section 5504(c) overrides 

those effective date (75 FR 72136), we have received questions about the applicability of 

section 5504(c) and the associated regulation text at § 413.78(g)(6). Specifically, 

questions have been raised with respect to the applicability of sections 5504(c) of the 

Affordable Care Act and § 413.78(g)(6) of the regulations to periods prior to 
 740 

July 1, 2010, particularly if a hospital had, as of March 23, 2010, appealed an IME or 

direct GME issue for a settled cost reporting period occurring prior to July 1, 2010. As 

noted earlier, section 5504(c) of the Affordable Care Act provides that the amendments 

made by the provisions of sections 5504(a) and (b) “shall not be applied in a manner that 

requires reopening of any settled hospital cost reports as to which there is not a 

jurisdictionally proper appeal pending as of . . . [March 23, 2010] on the issue of payment 

for indirect costs of medical education . . . or for direct graduate medical education 

costs . . . .” 

 Upon revisiting the existing regulation text, we determined that § 413.78(g)(6) 

was not written in a manner that is as consistent with section 5504(c) of the Affordable 

Care Act and reflective of our reading of that provision and our policy as it could be. 

Specifically, § 413.78(g)(6) states, “The provisions of paragraphs (g)(1)(ii), (g)(2), (g)(3), 

and (g)(5) of this section cannot be applied in a manner that would require the reopening 

of settled cost reports, except those cost reports on which there is a jurisdictionally proper 

appeal pending on direct GME or IME payments as of March 23, 2010.” In this proposed 

rule, we are reiterating our existing interpretation of the statutory amendments made by 

sections 5504(a), (b), and (c) of the Affordable Care Act and also proposing to clarify the 

regulation text implementing these provisions by revising the language at § 413.78(g)(6) 

to read more consistently with the language in section 5504(c) of the Affordable Care Act 

and to ensure no further confusion with respect to the applicability of section 5504(c) of 

the Affordable Care Act and § 413.78(g)(6) of the regulations. 
 741 

 We believe that sections 5504(a) and (b) of the Affordable Care Act contained 

three primary directives (a fourth regarding recordkeeping requirement is tangential to 

this discussion): (1) under sections 5504(a)(1) and (b)(1) of the Affordable Care Act 

(sections 1886(h)(4)(E)(i) and 1886(d)(5)(B)(iv)(I) of the Act), for “cost reporting 

periods beginning before July 1, 2010” for direct GME, and for “discharges occurring on 

or after October 1, 1997, and before July 1, 2010” for IME, these sections explicitly 

retained the statutory language that provides that a hospital can only count the time so 

spent by a resident under an approved medical residency training program in its FTE 

count if a hospital by itself “incurs all, or substantially all, of the costs for the training 

program in that setting”; (2) under sections 5504(a)(3) and (b)(2) of the Affordable Care 

Act (sections 1886(h)(4)(E)(ii) and 1886(d)(5)(B)(iv)(II) of the Act), for “cost reporting 

periods beginning on or after July 1, 2010” for direct GME, and for “discharges occurring 

on or after July 1, 2010” for IME, these sections eliminated the “all or substantially all” 

requirement, instead requiring a hospital to incur the residents’ salaries and fringe 

benefits for the time spent at the nonprovider site; and (3) under sections 5504(a)(3) and 

(b)(2) of the Affordable Care Act (sections 1886(h)(4)(E)(ii) and 1886(d)(5)(B)(iv)(II) of 

the Act), for “cost reporting periods beginning on or after July 1, 2010” for direct GME, 

and for “discharges occurring on or after July 1, 2010” for IME, these sections created a 

new provision with regard to allowing more than one hospital to share the costs of 

residents training in a nonprovider setting under certain circumstances, in order for each 

hospital to count a proportional share of the FTE training time in the nonprovider setting. 
 742 

 Separately from sections 5504(a) and (b) of the Affordable Care Act, section 

5504(c) of the Affordable Care Act, as mentioned earlier, specifies that the amendments 

made by the provisions of sections 5504(a) and (b) “shall not be applied in a manner that 

requires reopening of any settled hospital cost reports as to which there is not a 

jurisdictionally proper appeal pending as of” March 23, 2010, the date of the enactment 

of the Affordable Care Act, on the issue of payment for IME and direct GME. When we 

proposed to implement section 5504(c) in the August 3, 2010 proposed rule 

(75 FR 46385) and when we implemented section 5504(c) in the November 24, 2010 

final rule with comment period (75 FR 72136), we had to consider what new meaning it 

was adding to sections 5504(a) and (b) of the Affordable Care Act because unlike, for 

example, section 5505 of the Affordable Care Act which has an effective date prior to 

enactment of the Affordable Care Act and, therefore, would apply to prior cost reporting 

periods, section 5504’s applicable effective date for the new standards it creates was 

July 1, 2010, a date that came after enactment of the Affordable Care Act and was fully 

prospective. As we stated in the November 24, 2010 final rule with comment period 

(75 FR 72136), “Section 5504(c) is fully prospective with an explicit effective date of 

July 1, 2010, for the new standards it creates. Nothing in section 5504(c) overrides that 

effective date. Section 5504(c) merely notes that the usual discretionary authority of 

Medicare contractors to reopen cost reports is not changed by the provisions of section 

5504; it simply makes clear that Medicare contractors are not required by reason of 

section 5504 to reopen any settled cost report as to which a provider does not have a 

jurisdictionally proper appeal pending. It does not require reopening in any 
 743 

circumstance; and the new substantive standard is, in any event, explicitly prospective. 

We believe if Congress had wanted to require such action or to apply the new standards 

to cost years or discharges prior to July 1, 2010, it would have done so in far more 

explicit terms.” We also noted in that rule (75 FR 72139) that “[the] statute does not 

provide CMS discretion to allow the counting of resident time spent in shared 

nonprovider site rotations for cost reporting periods beginning prior to July l, 2010.” We 

continue to believe that Congress was clear in amending sections 1886(h)(4)(E) and 

1886(d)(5)(B)(iv) of the Act to provide for new standards to be applied only 

prospectively, effective for cost reporting periods beginning on or after, and discharges 

occurring on or after, July 1, 2010. We also continue to believe that the plain meaning of 

section 5504(c) of the Affordable Care Act is that the Secretary is not required to reopen 

a cost report when there is no jurisdictionally proper appeal pending as of 

March 23, 2010, the date of the enactment of the Affordable Care Act, on the issue of 

payment for IME and direct GME. Therefore, we believe that section 5504(c) of the 

Affordable Care Act is merely a confirmation of the Secretary’s existing discretionary 

authority in one particular context, and that sections 5504(a) and (b) of the Affordable 

Care Act and their effective dates become all the more prominent, and are not affected by 

section 5504(c). 

 As noted earlier, we revised the regulations at § 412.105(f)(1)(ii)(E) for IME, and 

§ 413.78(g) for direct GME, to reflect the changes made by section 5504 of the 

Affordable Care Act in the November 24, 2010 final rule with comment period. We 

reiterate here that the introductory language of § 413.78(g) explicitly states that 
 744 

paragraph (g) governs only “cost reporting periods beginning on or after July 1, 2010” 

and paragraph (g)(5) also expressly states that the paragraph is limited to “cost reporting 

periods beginning on or after July 1, 2010” (78 FR 50735 and 78 FR 27639). As we 

noted before, we believe that the paragraphs of the regulations which precede paragraph 

(g), particularly paragraphs (c) through(f), consistent with the statute, make clear that a 

hospital may only count the time so spent by a resident under an approved medical 

residency training program in its FTE count, in connection with its pre-July l, 2010 cost 

reporting periods and pre-July l, 2010 patient discharges, if that one single hospital by 

itself “incurs all, or substantially all, of the costs for the training program in that setting.” 

Separately, we believe that the new standards set forth in sections 5504(a)(3) and (b)(2) 

of the Affordable Care Act and implemented by regulation at §§ 413.78(g) and 

412.105(f)(1)(ii)(E), allowing cost sharing under certain circumstances do not ever apply 

to pre-July 1, 2010 cost reporting periods and pre-July l, 2010 patient discharges. 

Moreover, we continue to believe the language in paragraph (g)(6) (along with the 

remainder of paragraph (g)) only applies to cost reporting periods beginning on or after 

July 1, 2010 and does not apply retroactively to cost reporting periods beginning before 

July 1, 2010. We had intended that the language under § 413.78(g) do no more than 

simply paraphrase the language in section 5504(c) of the Affordable Care Act. 

 Accordingly, we believe that it is apparent that the provisions of sections 

5504(a)(3) and (b)(2) of the Affordable Care Act are not to be applied prior to 

July l, 2010, irrespectively of whether a hospital may have had a jurisdictionally proper 
 745 

appeal pending as of March 23, 2010, on an IME or direct GME issue from a cost 

reporting period occurring prior to July 1, 2010. 

 In this proposed rule, we are reiterating our existing interpretation of the statutory 

amendments made by sections 5504(a) and (b) of the Affordable Care Act and also are 

proposing to clarify the regulatory text that implements these provisions by revising the 

§ 413.78(g)(6) to be more consistent with the language at section 5504(c) of the 

Affordable Care Act. We are proposing to revise the regulatory language to read as 

follows: “The provisions of paragraphs (g)(1)(ii), (g)(2), (g)(3), and (g)(5) of this section 

shall not be applied in a manner that requires reopening of any settled cost reports as to 

which there is not a jurisdictionally proper appeal pending as of March 23, 2010, on 

direct GME or IME payments. Cost reporting periods beginning before July 1, 2010 are 

not governed by paragraph (g) of this section.” The IME regulations at 

§ 412.105(f)(1)(ii)(E) include a reference to § 413.78(g)(6); therefore, no proposed 

change is needed to this section. 

5. Proposed Changes to the Review and Award Process for Resident Slots under Section 

5506 of the Affordable Care Act 

 In the past, if a teaching hospital closed, its direct GME and IME FTE resident 

cap slots would be “lost” because those cap slots are associated with a specific hospital’s 

Medicare provider agreement, which would be retired upon the hospital’s closure. Under 

existing regulations at § 413.79(h) for direct GME and § 412.105(f)(1)(ix) for IME, a 

hospital that is training FTE residents at or in excess of its FTE resident caps and takes in 

residents displaced by the closure of another teaching hospital may receive a temporary 
 746 

increase to its FTE resident caps so that it may receive direct GME and IME payment 

associated with those displaced FTE residents. However, those temporary FTE resident 

caps are tied to those specific displaced FTE residents, and the temporary caps expire 

when those displaced residents complete their training program. 

 Section 5506 of the Affordable Care Act amended section 1886(h)(4)(H) of the 

Act to add a new clause (vi) that instructs the Secretary to establish a process by 

regulation under which, in the event a teaching hospital closes, the Secretary will 

permanently increase the FTE resident caps for hospitals that meet certain criteria up to 

the number of the closed hospital’s FTE resident caps. The Secretary is directed to 

ensure that the aggregate number of FTE resident cap slots distributed shall be equal to 

the aggregate number of slots in the closed hospital’s direct GME and IME FTE resident 

caps, respectively. For a detailed discussion of the regulations implementing section 

5506 of the Affordable Care Act, we refer readers to the November 24, 2010 final rule 

with comment period (75 FR 72212 through 72238) and the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53434 through 53448). 

a. Effective Date of Slots Awarded under Section 5506 of the Affordable Care Act 

 In distributing slots permanently under the provisions of section 5506 of the 

Affordable Care Act, section 5506(d) provides that “the Secretary shall give 

consideration to the effect of the amendments made by this section on any temporary 

adjustment to a hospital’s FTE cap under § 413.79(h)...(as in effect on the date of 

enactment of this Act) in order to ensure that there is no duplication of FTE slots...” In 

consideration of this statutory language, in the FY 2013 IPPS/LTCH PPS final rule 
 747 

(77 FR 53437), we stated that in distributing slots permanently under section 5506, we 

would be cognizant of the number of FTE residents for whom a temporary FTE cap 

adjustment was provided under existing regulations at § 413.79(h), and when those 

residents will complete their training, at which point the temporary slots associated with 

those displaced residents would then be available for permanent redistribution. 

Therefore, in initially developing ranking criteria and application materials that we would 

use to award available slots, we considered how to interpret this statutory language at 

section 5506(d) of the Affordable Care Act within the context of our existing GME 

regulations and section 5506’s amendment to section 1886(h) of the Act generally. 

 In the November 24, 2010 final rule with comment period and the FY 2013 

IPPS/LTCH PPS final rule (75 FR 72216 and 77 FR 53436, respectively), we discussed 

the various ranking criteria that we would use for hospitals applying for slots from closed 

hospitals. Currently, if after distributing the slots from a closed hospital to increase the 

FTE caps for applying hospitals that fall within Ranking Criteria One, Two, and Three, 

there are still excess slots available and any of those excess slots are associated with 

displaced residents for whom temporary cap adjustments under § 413.79(h) are in place, 

any slots awarded to hospitals that fall within Ranking Criteria Four through Eight are 

permanently assigned only once the displaced residents have completed their training and 

the temporary cap adjustments associated with those residents have expired. That is, in 

applying the requirement for “no duplication of FTE slots” set forth in section 5506(d), 

we currently consider all temporary cap adjustments received by hospitals on a national 

basis and not specifically the hospital that is applying for cap slots under section 5506, 
 748 

when deciding the effective date for slots permanently awarded to hospitals applying 

under Ranking Criteria Four through Eight. Specifically, in the November 24, 2010 final 

rule with comment period, we stated that we believe the “no duplication of FTE slots” 

requirement applies across all hospitals. Therefore, although a hospital may not have 

received a temporary cap adjustment under § 413.79(h), other hospitals may have taken 

in residents and received temporary cap adjustments for the same program, and we 

believed that the appropriate policy was to delay the slots associated with that program 

from being permanently distributed until it is known that any and all temporary cap 

adjustments for those slots have expired (75 FR 72227) Applying this policy to an 

example, if Hospital A is training displaced residents and is receiving a temporary cap 

adjustment under § 413.79(h) for training those residents and Hospital B, which is not 

receiving a temporary cap adjustment for training any displaced residents, has applied 

under Ranking Criterion Five to expand its internal medicine program, as explained in the 

November 24, 2010 final rule with comment period, we would only award permanent 

slots under section 5506 to Hospital B on a flow basis; that is, effective after each 

displaced resident completes his/her training, and, therefore, the temporary cap 

adjustments associated with that resident expire at Hospital A. 

 However, the policy of applying the “no duplication of FTE slot” requirement at 

section 5506(d) of the Affordable Care Act to all hospitals rather than simply to each 

specific hospital that is applying for slots has thus far proven to be a very complex 

process due to the number of displaced residents and the timing of multiple graduation 

dates which must be tracked and considered when awarding slots on a permanent basis. 
 749 

We believe this practice has delayed the awarding of slots and is also unnecessarily 

burdensome for hospitals applying under Ranking Criteria Four through Eight that are not 

receiving any cap adjustments for training displaced residents under § 413.79(h). We 

believe the current policy that we apply for “no duplication of FTE slots” is unnecessarily 

burdensome for these hospitals because, instead of receiving their permanent slots under 

section 5506 as soon as possible, the hospitals may receive their section 5506 awards 

with staggered effective dates due to the graduation dates of displaced FTE residents 

training at other hospitals that did receive temporary adjustments under§ 413.79(h). 

While we believe that awarding permanent slots to a hospital that is simultaneously 

receiving a temporary cap adjustment for training displaced FTE residents under 

§ 413.79(h) would clearly be a duplication of FTE slots and contrary to the statutory 

directive, we believe there is flexibility in interpreting this statutory language and that the 

statute does not require such a policy to be applied to hospitals that are not receiving 

temporary cap adjustments under § 413.79(h). Furthermore, in considering the specific 

statutory language regarding “no duplication of FTE slots,” section 5506(d) in part 

provides that “The Secretary of Health and Human Services shall give consideration to 

the effect of the amendments made by this section on any temporary adjustment to a 

hospital’s FTE cap under section 413.79(h) of title 42, Code of Federal Regulations (as in 

effect on the date of enactment of this Act) in order to ensure that there is no duplication 

of FTE slots.” Because this language refers to “a hospital,” we believe the statute 

provides us with the flexibility to apply the “no duplication of FTE slots” requirement on 

a hospital-specific basis, considering separately whether each hospital did or did not 
 750 

receive a temporary cap adjustment under § 413.79(h), rather than on a national 

all-hospital basis. Bearing in mind the statutory language and our experience to date in 

awarding slots as well as the unnecessary burden placed on hospitals that are receiving 

section 5506 slots, but are not receiving temporary cap adjustments under § 413.79(h), 

we believe it is appropriate to propose a policy that would provide for a more efficient 

and faster method for awarding of slots to hospitals applying under Ranking Criteria Four 

through Eight. Therefore, we are proposing that, effective for section 5506 application 

rounds announced on or after October 1, 2014, for purposes of applying the requirement 

for “no duplication of FTE slots,” we would only require that there be no duplication of 

FTE slots on a hospital-specific basis. That is, in determining the effective date for slots 

awarded permanently under section 5506, we would only be concerned with whether the 

hospital that is applying for slots is also receiving a temporary cap adjustment under 

§ 413.79(h) for training displaced residents. When awarding slots to the applying 

hospital, we would not be concerned whether any other hospital is receiving a temporary 

cap adjustment for training displaced residents under § 413.79(h). For example, if 

Hospital A is receiving a temporary cap adjustment under § 413.79(h) for training 

displaced residents in its general surgery program but is applying under Ranking 

Criterion Five to start a pediatrics program and Hospital B is not receiving a temporary 

cap adjustment for training displaced residents and is applying under Ranking Criterion 

Eight to expand a cardiology program, in awarding section 5506 slots, we would only 

allow Hospital A to receive a permanent adjustment to its FTE cap for training residents 

in its pediatrics program once its temporary adjustments for the displaced residents 
 751 

training in the general surgery program have expired. We would not consider displaced 

residents when awarding section 5506 slots to Hospital B. 

 In conjunction with our proposal to interpret the “no duplication of FTE slots” 

requirement to apply on a hospital-specific basis to hospitals that are receiving temporary 

cap adjustments under § 413.79(h), we are proposing to amend the effective dates of 

section 5506 slots received under Ranking Criteria Four through Eight for those hospitals 

that are not receiving temporary cap adjustments under § 413.79(h). (We refer readers to 

section IV.K.5.c. of the preamble of this proposed rule where we discuss our proposal to 

amend Ranking Criteria Seven and Eight.) Existing policy requires that slots awarded 

under Ranking Criteria Four through Eight for expanding an existing residency training 

program or starting a new residency training program are effective the later of when a 

hospital can demonstrate to the MAC that the slots associated with a new program or 

program expansion are actually filled and, therefore, are needed as of a particular date 

(usually July 1, possibly retroactive), or the July 1 after displaced residents complete their 

training. If a hospital is awarded slots under Ranking Criterion Eight for cap relief, slots 

are effective the date of CMS’ award announcement, or the July 1 after displaced 

residents complete their training, whichever is later. However, because we are proposing 

an alternative approach to interpreting section 5506(d) that would permit us to apply the 

“no duplication of FTE slots” requirement on a hospital-specific basis, we are proposing 

to change the effective date for slots received under Ranking Criteria Four through Eight 

so that if a hospital is not receiving a temporary cap adjustment under § 413.79(h), the 

slots awarded under section 5506 would be effective when the hospital can demonstrate 
 752 

to its MAC that the slots needed for a new program or program expansion are actually 

filled and, therefore, are needed as of a particular date (usually July 1, possibly 

retroactive ). If a hospital is awarded slots under Ranking Criteria Four through Eight 

and is receiving a temporary cap adjustment to train displaced residents under 

§ 413.79(h), the current policy would apply such that the slots are awarded on a 

permanent basis, the later of when a hospital can demonstrate to the MAC that the slots 

associated with a new program or program expansion are actually filled and, therefore, 

are needed as of a particular date (usually July 1, possibly retroactive), or the July 1 after 

an equivalent amount of a displaced FTE resident(s) complete their training. For 

example, assume in a hypothetical situation that there is a closed teaching hospital, and 

that another hospital takes in two displaced FTE residents, for which the hospital is 

receiving a temporary cap adjustment under § 413.79(h). One resident is graduating on 

June 30, 2016, and the second resident is graduating on June 30, 2018. Assume that 

when the section 5506 Round is announced, the hospital also applies for two slots to 

expand an internal medicine program under Ranking Criterion Five. In January of 2017, 

CMS awards two permanent slots to the hospital under Ranking Criterion Five. For the 

program year starting July 1, 2017, the hospital successfully demonstrates to the MAC 

that it filled the two additional internal medicine positions. Because one displaced FTE 

resident already graduated on June 30, 2016, the MAC may approve one slot on a 

permanent basis effective July 1, 2017. However, the hospital would have to wait until 

July 1, 2018, to receive from the MAC the permanent slot for the second displaced 
 753 

internal medicine resident because the second displaced FTE resident is not graduating 

until June 30, 2018. 

 We are not proposing any changes to the effective date for slots awarded under 

Ranking Criterion One, Ranking Criterion Two, or Ranking Criterion Three. Consistent 

with existing policy, if a hospital is applying under Ranking Criterion One or Ranking 

Criterion Three and is not receiving a temporary cap adjustment for training displaced 

residents under § 413.79(h), the effective date of the section 5506 slots is the date of the 

hospital closure. If a hospital is applying under Ranking Criterion One or Ranking 

Criterion Three and is receiving a temporary cap for training displaced residents under 

§ 413.79(h), the effective date of the section 5506 slots is after the displaced resident(s) 

graduate. If a hospital is receiving a temporary cap for training displaced residents under 

§ 413.79(h), and is applying under Ranking Criterion One or Ranking Criterion Three 

and is also separately applying under Ranking Criterion Four or subsequent Ranking 

Criteria, for slots awarded under Ranking Criteria One or Three, the effective date of the 

section 5506 slots is after the displaced resident(s) graduate. For slots awarded under 

Ranking Criteria Four or subsequent Ranking Criteria, the slots are awarded the later of 

when a hospital can demonstrate to the MAC that the slots associated with a new 

program or program expansion are actually filled and, therefore, are needed as of a 

particular date (usually July 1, possibly retroactive), or the July 1 after an equivalent 

amount of a displaced FTE resident(s) at the hospital complete their training. Therefore, 

for such a hospital, the effective dates of slots awarded under Ranking Criteria 

One/Three, and Ranking Criteria Four through Eight might coincide. Also, consistent 
 754 

with existing policy, if a hospital is applying under Ranking Criterion Two, the effective 

date of the permanent award of section 5506 slots is the date of the hospital closure. We 

discuss these existing policies in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53437 

through 53445). 

 The following list includes the current and proposed ranking criteria along with 

the current and proposed effective dates. 

● Current Ranking Criterion One: The applying hospital is requesting the 

increase in its FTE resident cap(s) because it is assuming (or assumed) an entire program 

(or programs) from the hospital that closed, and the applying hospital is continuing to 

operate the program(s) exactly as it had been operated by the hospital that closed (that is, 

same residents, possibly the same program director, and possibly the same (or many of 

the same) teaching staff). 

● Proposed Ranking Criterion One: The applying hospital is requesting the 

increase in its FTE resident cap(s) because it is assuming (or assumed) an entire program 

(or programs) from the hospital that closed, and the applying hospital is continuing to 

operate the program(s) exactly as it had been operated by the hospital that closed (that is, 

same residents, possibly the same program director, and possibly the same (or many of 

the same) teaching staff). The applying hospital’s FTE resident caps were erroneously 

reduced by CMS under section 1886(h)(8)(A)(i) of the Act, contrary to the statutory 

exception at section 1886(h)(8)(A)(ii)(I) of the Act, and CMS Central Office was made 

aware of the error prior to posting of the FY 2015 IPPS proposed rule on the CMS Web 

site. (This language reflects the proposed modification of Ranking Criterion One. We 
 755 

refer readers to section IV.K.5.c. of the preamble of this proposed rule where we discuss 

this proposed modification.) 

◦ Current Policy: If the hospital is receiving a temporary cap adjustment, slots 

are effective the day after the graduation date(s) of actual displaced resident(s). If the 

hospital is not receiving a temporary cap adjustment, slots are effective with the date of 

the hospital closure. 

◦ Proposed Policy: No change. 

● Current Ranking Criterion Two: The applying hospital was listed as a 

participant of a Medicare GME affiliated group on the most recent Medicare GME 

affiliation agreement of which the closed hospital was a member before the hospital 

closed, and under the terms of that Medicare GME affiliation agreement, the applying 

hospital received slots from the hospital that closed, and the applying hospital will use the 

additional slots to continue to train at least the number of FTE residents it had trained 

under the terms of the Medicare GME affiliation agreement. If the most recent Medicare 

GME affiliation agreement of which the closed hospital was a member before the 

hospital closed was with a hospital that itself has closed or is closing, preference would 

be given to an applying hospital that was listed as a participant in the next most recent 

Medicare GME affiliation agreement (but not one which was entered into more than 5 

years prior to the hospital's closure) of which the first closed hospital was a member 

before the hospital closed, and that applying hospital received slots from the closed 

hospital under the terms of that affiliation agreement. 
 756 

● Clarified Ranking Criterion Two: The applying hospital was listed as a 

participant of a Medicare GME affiliated group on the most recent Medicare GME 

affiliation agreement or emergency Medicare GME affiliation agreement of which the 

closed hospital was a member before the hospital closed, and under the terms of that 

Medicare GME affiliation agreement or emergency Medicare GME affiliation agreement, 

the applying hospital received slots from the hospital that closed, and the applying 

hospital will use the additional slots to continue to train at least the number of FTE 

residents it had trained under the terms of the Medicare GME affiliation agreement, or 

emergency Medicare GME affiliation agreement. If the most recent Medicare GME 

affiliation agreement or emergency Medicare GME affiliation agreement of which the 

closed hospital was a member before the hospital closed was with a hospital that itself 

has closed or is closing, preference would be given to an applying hospital that was listed 

as a participant in the next most recent Medicare GME affiliation agreement or 

emergency Medicare GME affiliation agreement (but not one which was entered into 

more than 5 years prior to the hospital’s closure) of which the first closed hospital was a 

member before the hospital closed, and that applying hospital received slots from the 

closed hospital under the terms of that affiliation agreement. (This language reflects our 

clarification in this proposed rule regarding inclusion of emergency Medicare GME 

affiliation agreements in Ranking Criterion Two. We refer readers to section IV.K.5.d. of 

the preamble of this proposed rule where we discuss this clarification.) 

◦ Current Policy: Slots are effective with the date of the hospital closure. 

◦ Proposed Policy: No change. 
 757 

● Ranking Criterion Three: The applying hospital took in residents displaced by 

the closure of the hospital, but is not assuming an entire program or programs, and will 

use the additional slots to continue training residents in the same programs as the 

displaced residents, even after those displaced residents complete their training (that is, 

the applying hospital is permanently expanding its own existing programs). 

◦ Current Policy: If the hospital is receiving temporary cap adjustment, slots are 

effective the day after the graduation date(s) of actual displaced resident(s). If the 

hospital is not receiving a temporary cap adjustment, slots are effective with the date of 

the hospital closure. 

◦ Proposed Policy: No change. 

● Ranking Criterion Four: The program does not meet Ranking Criteria 1, 2, or 

3, and the applying hospital will use additional slots to establish a new or expand an 

existing geriatrics residency program. 

● Ranking Criterion Five: The program does not meet Ranking Criteria 1 

through 4, the applying hospital is located in a HPSA, and will use all the additional slots 

to establish or expand a primary care or general surgery residency program. 

● Ranking Criterion Six: The program does not meet Ranking Criteria 1 through 

5, and the applying hospital is not located in a HPSA, and will use all the additional slots 

to establish or expand a primary care or general surgery residency program. 

● Current Ranking Criterion Seven: The applying hospital will use additional 

slots to establish or expand a primary care or general surgery program, but the program 

does not meet Ranking Criterion 5 or 6 because the hospital is also separately applying 
 758 

under Ranking Criterion 8 for slots to establish or expand a nonprimary care or 

nongeneral surgery program and/or for cap relief. 

● Proposed Ranking Criterion Seven: The applying hospital will use additional 

slots to establish or expand a primary care or general surgery program, but the program 

does not meet Ranking Criterion 5 or 6 because the hospital is also separately applying 

under Ranking Criterion 8 for slots to establish or expand a nonprimary care or 

nongeneral surgery program. (This language reflects our proposal in this proposed rule to 

revise Ranking Criteria Seven and Eight. We refer readers to section IV.K.5.c. of the 

preamble of this proposed rule where we discuss our proposals to amend Ranking 

Criteria Seven and Eight.) 

◦ Current Policy for Ranking Criteria Four through Seven: The later of when the 

hospital can demonstrate to the MAC that the slots associated with a new program or 

program expansion are actually filled, and therefore, are needed as of a particular date 

(usually July 1, possibly retroactive), or the July 1 after displaced residents complete 

their training. 

◦ Proposed Policy for Ranking Criterion Four through Proposed Ranking 

Criterion Seven: If the hospital is receiving a temporary cap adjustment for training 

displaced residents, the later of when the hospital can demonstrate to the MAC that the 

slots associated with a new program or program expansion are actually filled, and 

therefore, are needed as of a particular date (usually July 1, possibly retroactive), or the 

July 1 after displaced residents complete their training. If the hospital is not receiving a 

temporary cap adjustment, when the hospital can demonstrate to the MAC that the slots 
 759 

needed for a new program or program expansion are actually filled, and therefore, are 

needed as of a particular date (usually July 1, possibly retroactive). 

● Current Ranking Criterion Eight: The program does not meet Ranking Criteria 

1 through 7, and the applying hospital will use additional slots to establish or expand a 

nonprimary care or a nongeneral surgery program or for cap relief. 

● Proposed Ranking Criterion Eight: The program does not meet Ranking 

Criteria 1 through 7, and the applying hospital will use additional slots to establish or 

expand a nonprimary care or a nongeneral surgery program. (This language reflects our 

proposal in this proposed rule to revise Ranking Criterion Eight. We refer readers to 

section IV.K.5.c. of the preamble of this proposed rule where we discuss our proposals to 

amend Ranking Criterion Eight.) 

◦ Current Policy: If slots are for starting or expanding a nonprimary care or 

nongeneral surgery program, the effective date is same as that for Ranking Criteria Four 

through Seven. If slots are for cap relief (under current policy), the effective date is the 

effective date of CMS’ award announcement, or after displaced residents complete their 

training, whichever is later. 

◦ Proposed Policy for Proposed Ranking Criterion Eight: If the hospital is 

receiving a temporary cap adjustment for training displaced residents, the later of when 

the hospital can demonstrate to the MAC that the slots associated with a new program or 

program expansion are actually filled and, therefore, are needed as of a particular date 

(usually July 1, possibly retroactive), or the July 1 after displaced residents complete 

their training. If the hospital is not receiving a temporary cap adjustment, when the 
 760 

hospital can demonstrate to the MAC that the slots needed for a new program or program 

expansion are actually filled, and therefore, are needed as of a particular date (usually 

July 1, possibly retroactive). 

 In summary, we are proposing that, effective for section 5506 application rounds 

announced on or after October 1, 2014, the statutory provision at section 5506(d) 

requiring the Secretary to consider temporary cap adjustments under § 413.79(h) and to 

ensure no duplication of FTE slots, be interpreted in a manner such that the requirement 

for “no duplication of FTE slots” is applied on a hospital-specific basis rather than across 

all hospitals receiving temporary cap adjustments under § 413.79(h). Consistent with this 

proposed change, we are proposing to amend the effective date for slots received under 

Ranking Criteria Four through Eight so that if a hospital is not receiving a temporary cap 

adjustment under § 413.79(h), the slots awarded under section 5506 would be effective 

when the hospital can demonstrate to its MAC that the slots needed for a new program or 

program expansion are actually filled and, therefore, are needed as of a particular date 

(usually July 1, possibly retroactive ). 

b. Proposal to Remove Seamless Requirement 

 Under current policy, if a hospital is applying under Ranking Criterion One or 

Three, the hospital must show that it is seamlessly replacing displaced FTE residents with 

new FTE residents once the displaced residents graduate (75 FR 72219 and 72221 

through 72222). We have stated that in instances where a hospital seamlessly operates an 

entire program or part of a program from the closed hospital (or takes over an entire 

program prior to the hospital’s closure), such a hospital is demonstrating a strong 
 761 

commitment to maintain GME programs in the community for the long term and should 

we awarded slots under higher ranking criteria (75 FR 72216). Therefore, we required 

that, in order to receive slots under Ranking Criterion One and Three, the applying 

hospital must demonstrate that upon graduation of the displaced FTE residents that it is 

training, the slots held by those displaced FTEs are seamlessly replaced with new FTE 

residents (75 FR 72219 and 72221 through 72222). In the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53441), in response to concerns associated with the seamless 

requirement and timeline used by the National Resident Match Program or other resident 

match services, we revised the seamless requirement. We stated that in the instance 

where a teaching hospital closed after December 31 of an academic year, in order for a 

hospital to qualify under Ranking Criterion One or Three for cap slots associated with 

displaced FTE residents who will graduate June 30 of the academic year in which the 

applying hospital took in the displaced FTE residents, the applying hospital must be able 

to demonstrate that it will fill slots vacated by displaced FTE residents by July 1 of the 

second academic year following the hospital closure. However, in the instance where a 

teaching hospital closed before December 31 of an academic year, in order for a hospital 

to qualify under Ranking Criterion One or Three for cap slots associated with displaced 

FTE residents who will graduate June 30 of the academic year in which the applying 

hospital took in the displaced FTE residents, the applying hospital must be able to 

demonstrate that it will seamlessly fill slots vacated by displaced FTE residents by that 

July 1; that is, the day immediately after the June 30 that the displaced FTE residents 

graduate (77 FR 53441 through 53442). We also revised the CMS Application Form to 
 762 

instruct a hospital applying under Ranking Criterion One or Three to list the names and 

graduation dates of specific displaced residents who, upon their graduation, have been or 

will be seamlessly replaced by new residents (77 FR 53446). Because Ranking Criteria 

One and Three fall under Demonstrated Likelihood Criterion 2, the hospital is taking over 

all of part of an existing residency program from the closed hospital, or expanding an 

existing residency training program, the requirement to include a list with the names and 

graduation dates of specific displaced residents who have been or will be seamlessly 

replaced was added under Demonstrated Likelihood Criterion 2 on the CMS Application 

Form. 

 In addition to the match deadlines associated with the National Resident Matching 

Program and match deadlines associated with matching into osteopathic programs, we 

have recently been made aware of other match deadlines associated with certain 

fellowship programs. From the experience we have had so far in reviewing section 5506 

applications, where we have observed the complexity of tracking various match deadlines 

as well as the intersection between these deadlines and when the section 5506 awards are 

announced by CMS, we are proposing to remove the seamless requirement for slots 

awarded under Ranking Criterion One and Three effective for section 5506 application 

rounds announced on or after October 1, 2014. We are not proposing to make any other 

additional changes to Ranking Criterion One or Three; that is, the hospital must still be 

training displaced residents and must either take over or have taken over an entire 

program from the closed hospital and continue operating that program in the same 

manner in which it was operated by the closed hospital or the hospital must take over part 
 763 

of a closed hospital’s program and permanently expand its own program as a result of 

training displaced residents. Hospitals would continue to be required to submit 

supporting documentation when applying under Ranking Criterion One or Three that 

indicates that they have made a commitment to take over the closed hospital’s program or 

that they have made the commitment to permanently expand their own residency training 

program resulting from taking over part of a closed hospital’s program. 

 In determining the effective date of slots awarded under Ranking Criterion One or 

Three where the hospital has been training residents that were displaced by the closed 

hospital and receiving a temporary cap adjustment under § 413.79(h), the hospital would 

work with its MAC to determine when it could be permanently awarded the slots based 

on the graduation dates of the displaced residents it is training. Consistent with our 

proposal, we are proposing to remove the following requirement under Demonstrated 

Likelihood Criterion 2 on the CMS Application Form: “Hospitals applying for slots 

under option (a) which correlates to Ranking Criterion 1 or (b) which correlates to 

Ranking Criterion 3 must list the names and graduation dates of specific displaced 

residents who, upon their graduation, have been or will be seamlessly replaced by new 

residents. The list may be added as an attachment to this application.” We are proposing 

to replace this requirement with the following requirement under Demonstrated 

Likelihood Criteria 1 and 2” “Please indicate Y or N: As of the time of submitting this 

application, are you receiving a temporary cap adjustment for IME and/or direct GME 

under 42 CFR 413.79(h) for residents displaced by the closure of the hospital subject to 

this Round of section 5506? (Y/N)” so that we are aware which hospitals are receiving 
 764 

temporary cap adjustments for training displaced residents under § 413.79(h), and when 

we award slots, we would know which hospitals to instruct to work with their MACs to 

determine when the slots could be permanently awarded to them based on the graduation 

dates of the displaced residents they are training. 

 In summary, we are proposing to remove the seamless requirement currently 

included as part of Ranking Criterion One or Three. We also are proposing to remove 

from the CMS Application Form, the following requirement: “Hospitals applying for 

slots under option a) which correlates to Ranking Criterion 1 or b) which correlates to 

Ranking Criterion 3 must list the names and graduation dates of specific displaced 

residents who, upon their graduation, have been or will be seamlessly replaced by new 

residents. This list may be added as an attachment to this application.” 

c. Proposed Revisions to Ranking Criteria One, Seven, and Eight for Applications under 

Section 5506 

 In the November 24, 2010 final rule with comment period (75 FR 72223), we 

finalized the Ranking Criteria within each of the three first statutory priority categories 

(that is, same or contiguous CBSAs, same State, and same region) to be used to rank 

applications for assignment of slots under section 5506 of the Affordable Care Act. For 

each application, we assigned slots based on Ranking Criteria, with Ranking Criterion 

One being the highest ranking and Ranking Criterion Seven being the lowest. For a 

detailed discussion of the ranking categories, we refer readers to the November 24, 2010 

final rule with comment period (75 FR 72212 through 72240). 
 765 

 After reviewing applications submitted during the first section 5506 application 

process (those applications that were due to CMS on April 1, 2011), we observed that the 

overwhelming majority of applications fell under Ranking Criterion Seven; that is, the 

applying hospital seeks the slots for purposes that do not fit into any of Ranking Criterion 

One through Ranking Criterion Six. These applications included applications from 

hospitals that applied for FTE cap slots for both primary care and/or general surgery and 

for nonprimary care specialties as well as applications for general cap relief. The sheer 

number of applications we received under Ranking Criterion Seven indicate a need to 

further prioritize among the applicants that would have qualified under Ranking Criterion 

Seven. Therefore, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53434 through 

53437), we finalized changes to the Ranking Criteria, replacing Ranking Criterion Seven 

with two separate Ranking Criteria (Ranking Criterion Seven and Ranking Criterion 

Eight) resulting in a total of eight Ranking Criteria. Under the Ranking Criteria, as 

modified by the FY 2013 IPPS/LTCH PPS final rule, a hospital that is applying both for 

the purpose of establishing or expanding primary care or general surgery programs, and 

in addition is requesting slots for the purpose of establishing or expanding nonprimary 

care or nongeneral surgery programs and/or for cap relief must submit an application 

requesting additional FTE slots for its primary care or general surgery programs under 

Ranking Criterion Seven. The hospital’s request for additional FTE slots to establish or 

expand a nonprimary care or nongeneral surgery program and/or for additional FTE slots 

for cap relief would then be made under Ranking Criterion Eight. Prior to this change, if 

a hospital applied for additional FTE slots to establish or expand both a primary care or 
 766 

general surgery program in addition to a nonprimary care or nongeneral surgery program 

and/or for additional FTE slots for cap relief, all of its applications (with the exception of 

Ranking Criteria One through Three) would fall under Ranking Criteria Seven. For a 

complete list of the Ranking Criteria, we refer readers to section IV.K.5.a. of the 

preamble of this proposed rule, which discusses the background for preservation of 

resident cap positions from closed hospitals under section 5506 of the Affordable Care 

Act. 

 After reviewing applications and making awards under several more rounds of 

section 5506 applications, we have observed that, as hospital closings continue to occur, 

there has been a significant increase in the time between a hospital’s closure and the 

announcement of section 5506 awards by CMS. We believe that this delay is partly due 

to the administratively burdensome task of processing, reviewing, and responding to such 

a large number of applications for each hospital closure, or each round of section 5506 

awards. When implementing section 5506 in the November 24, 2010 final rule with 

comment period (75 FR 72212 through 72249), we initially envisioned the reviewing of 

applications and awarding of section 5506 FTE slots as being a more streamlined and 

expedient process. However, as a practical matter, we have found that process has been 

much more resource and time intensive than we had originally anticipated. This is partly 

due to the time and resources needed to properly apply the process established by CMS in 

reviewing section 5506 applications and awarding FTE cap slots. Since the initial 

implementation of section 5506, we have attempted to be responsive to these unexpected 

delays by refining the ranking criteria to make the review process less administratively 
 767 

burdensome. However, these changes did not alleviate the process to the desired extent. 

Furthermore, we have observed that, while many of the applications submitted to CMS 

are applications requesting FTE slots for purposes of general cap relief, we have more 

often than not awarded no slots at all for cap relief. This is due in large part to the limited 

number of slots available (many of the closed teaching hospitals did not have large FTE 

resident caps) and an overwhelming demand for those slots from applicants who apply 

for FTE slots for reasons other than cap relief. Since we finalized the modified Ranking 

Criterion Seven and added Ranking Criterion Eight in the FY 2013 IPPS/LTCH PPS final 

rule, we have announced three new rounds of section 5506 applications due to the 

closures of six hospitals. We have received a total of 424 applications from hospitals 

seeking cap relief. Of those 424 applications, only 6 applications were ultimately 

awarded FTE slots, which is only 1.42 percent of the total cap relief applications. We 

believe that the ratio of cap relief awardees to cap relief applications does not warrant the 

administrative burden and the delay in announcements of section 5506 awards that result 

from the large number of cap relief applications submitted to CMS that are invariably 

denied. Therefore, in an effort to streamline the review process and to facilitate 

publishing section 5506 awards in a more timely manner, we are proposing to modify 

Ranking Criterion Eight so that Ranking Criterion Eight would only apply to hospitals 

seeking FTE slots to establish or expand a nonprimary care or nongeneral surgery 

program. Ranking Criterion Eight would no longer be applicable to hospitals seeking 

FTE cap slots for cap relief. Our proposal to eliminate section 5506 awards of FTE slots 

for cap relief is consistent with current policy goals to increase training in primary care 
 768 

and general surgery. By proposing to eliminate awarding of FTE slots for residents that 

are already being trained by a hospital, there will be more FTE resident slots available to 

award to other hospitals seeking to establish or expand a primary care or general surgery 

program under Ranking Criteria Four through Seven. 

 Accordingly, we are proposing to revise Ranking Criterion Eight so that it reads 

as follows: 

Proposed Ranking Criterion Eight: The program does not meet Ranking Criteria 

1 through 7, and the applying hospital will use additional slots to establish or expand a 

nonprimary care or a nongeneral surgery program. 

 In light of the modifications we are proposing to Ranking Criterion Eight, we 

believe it is also necessary to modify the language of proposed Ranking Criterion Seven 

to specify the types of applications that would properly be made under this Ranking 

Criterion; that is, we are proposing to remove the reference to cap relief from Ranking 

Criterion Seven so that it read as follows: 

Proposed Ranking Criterion Seven: The applying hospital will use additional 

slots to establish or expand a primary care or general surgery program, but the program 

does not meet Ranking Criterion 5 or 6 because the hospital is also separately applying 

under Ranking Criterion 8 for slots to establish or expand a nonprimary care or 

nongeneral surgery program. 

 Separately, we also are proposing a change related to Ranking Criterion One. 

Current ranking Criterion One is for an applying hospital that assumed an entire program 

or programs from the hospital that closed. We are proposing to revise Ranking Criterion 
 769 

One to provide priority to hospitals in one scenario. Section 5503 of the Affordable Care 

Act amended section 1886(h) of the Act by adding new paragraph (8), which provided 

for the permanent reduction and distribution of residency slots. Section 1886(h)(8)(A)(ii) 

of the Act provides specific exceptions to the application of the reduction at section 

1886(h)(8)(A)(i) of the Act, and expressly states: “Exceptions—This subparagraph shall 

not apply to (I) a hospital located in a rural area (as defined in subsection (d)(2)(D)(ii)) 

with fewer than 250 acute care inpatient beds.” The November 24, 2010 final rule with 

comment period (75 FR 72147) describes the agency’s interpretation of this statutory 

provision. As of the time that this proposed rule is posted on the CMS Web site, we are 

aware of one instance in which CMS erroneously reduced a hospital’s FTE resident cap 

contrary to this statutory exception. We are proposing to amend Ranking Criterion One 

under section 5506 to provide priority to a hospital which had FTE resident cap slots 

erroneously removed under section 5503 contrary to the statutory exception at section 

1886(h)(8)(A)(ii)(I) of the Act. We are proposing to revise Ranking Criterion One as 

follows: 

□ Ranking Criterion One. The applying hospital is requesting the increase in its 

FTE resident cap(s) because it is assuming (or assumed) an entire program (or programs) 

from the hospital that closed, and the applying hospital is continuing to operate the 

program(s) exactly as it had been operated by the hospital that closed (that is, same 

residents, possibly the same program director, and possibly the same (or many of the 

same) teaching staff). The applying hospital’s FTE resident caps were erroneously 

reduced by CMS under section 1886(h)(8)(A)(i) of the Act, contrary to the statutory 
 770 

exception at section 1886(h)(8)(A)(ii)(I) of the Act, and CMS Central Office was made 

aware of the error prior to posting of the FY 2015 IPPS proposed rule on the CMS Web 

site. 

d. Clarification to Ranking Criterion Two Regarding Emergency Medicare GME 

Affiliation Agreements 

 Ranking Criterion Two gives preference to applying hospitals that received slots 

under the terms of a Medicare GME affiliation agreement from the closed hospital. 

Under section 1886(h)(4)(H)(ii) of the Act, hospitals may form a Medicare GME 

affiliated group and elect to aggregate their respective FTE resident caps and apply them 

on an aggregate basis. The regulations at 42 CFR 413.75(b) and 413.79(f) implemented 

this statutory provision, providing specific rules for sharing FTE resident cap slots among 

members of the Medicare GME affiliated group, one such rule being that member 

hospitals must have a “shared rotational arrangement.” A “shared rotational 

arrangement” is defined at 42 CFR 413.75(b) as a residency training program under 

which a resident(s) participates in training at two or more hospitals in that program. 

Specifically, Ranking Criterion Two states the following: 

 Ranking Criterion Two. The applying hospital was listed as a participant of a 

Medicare GME affiliated group on the most recent Medicare GME affiliation agreement 

of which the closed hospital was a member before the hospital closed, and under the 

terms of that Medicare GME affiliation agreement, the applying hospital received slots 

from the hospital that closed, and the applying hospital will use the additional slots to 

continue to train at least the number of FTE residents it had trained under the terms of 
 771 

the Medicare GME affiliation agreement. If the most recent Medicare GME affiliation 

agreement of which the closed hospital was a member before the hospital closed was with 

a hospital that itself has closed or is closing, preference would be given to an applying 

hospital that was listed as a participant in the next most recent Medicare GME affiliation 

agreement (but not one which was entered into more than 5 years prior to the hospital's 

closure) of which the first closed hospital was a member before the hospital closed, and 

that applying hospital received slots from the closed hospital under the terms of that 

affiliation agreement.

A question has been raised as to whether hospitals that were members of an 

emergency Medicare GME affiliation agreement with the closed hospital prior to its 

closure may be considered under Ranking Criterion Two as well. The regulations at 

42 CFR 413.79(f)(7) govern emergency Medicare GME affiliation agreements, which are 

applicable in the instance where a statutory section 1135 waiver is invoked. In this 

situation, due to emergency conditions, the “home” hospital is unable to continue to train 

its residents. Therefore, under the terms of the emergency Medicare GME affiliation 

agreement, the “home” hospital may agree to temporarily transfer FTE resident cap slots 

to “host” hospitals that would train the displaced residents during the emergency period. 

 In the November 24, 2010 final rule with comment period (75 FR 72216), we 

stated that “section 1886(h)(4)(H)(vi) of the Act, as added by section 5506(a) of the 

Affordable Care Act, directs the Secretary to give preference to hospitals that are 

members of the same affiliated group as the hospital that closed. We believe that, 

generally, if the applying hospital was affiliated to receive slots from the hospital that 
 772 

closed, then the applying hospital was relying on that number of FTE resident slots that it 

received in order to maintain its fair share of the cross-training of the residents in the 

jointly operated programs. In the absence of those slots received from the closed 

hospital, the applying hospital may not be able to continue training that number of FTE 

residents, and those same residents would not only be displaced from the closed hospital, 

but might essentially become ‘displaced’ from the affiliated hospitals in which they were 

used to doing a portion of their training. Accordingly, we proposed this ranking criterion 

to allow hospitals that were affiliated with the closed hospitals to at least maintain their 

fair share of the training of the residents in the programs that they had jointly operated 

with the closed hospital.” 

 In determining whether Ranking Criterion Two may encompass emergency 

Medicare GME affiliation agreements, we considered the key differences and similarities 

between regular Medicare GME affiliation agreements and emergency Medicare GME 

affiliation agreements. Regarding the differences, in the case of emergency affiliations, 

there may not have been historical cross-training or jointly operated programs between 

the applicant hospital and the hospital that closed. Furthermore, after the natural disaster 

that precipitates the section 1135 waiver, the “home” hospital would be in no condition to 

train its share of residents, which is why the “shared rotational arrangement” 

requirements at 42 CFR 413.79(f)(2) for regular Medicare GME affiliation agreements 

are waived for emergency Medicare GME affiliation agreements. However, it is often 

true with emergency affiliations that a hospital agrees to take over the training of the 

hospital in need, “receiving” FTE cap slots and residents from the “home” hospital, 
 773 

thereby creating the training relationship. In the event where, following the disaster that 

triggers the section 1135 waiver, a hospital should actually close, the “host” hospital that 

accepted the residents perhaps might even continue to train its share of the residents in 

the program after the hospital closes. Therefore, emergency affiliation agreements are 

similar to regular affiliation agreements in that the “host” hospital received FTE cap slots 

from the “home” hospital to train the “home” hospital’s residents. Further, in the event 

that the “home” hospital closes, triggering a Round of section 5506, the “host” hospital 

also would need those FTE cap slots in order to continue training the share of its program 

for which it had taken responsibility under the emergency Medicare GME affiliation 

agreement before the “home” hospital closed. 

 As we stated in the November 24, 2010 final rule with comment period 

(75 FR 72219 through 72220), “we believe the intent of section 5506 is to promote 

continuity and limit disruption in residency training. In that light, we believe it is logical 

to give preference to a hospital that received slots under the terms of the Medicare GME 

affiliation agreement so that the hospital could continue to train at least the number of 

FTE residents it had trained under the terms of the Medicare GME affiliation agreement, 

avoiding the displacement of even more residents. . . .” We further stated that we “ . . . 

are only giving preference to hospitals that received slots from the closed hospital under 

the terms of the Medicare GME affiliation agreement, so that the hospital could continue 

to train at least the number of FTE residents it had trained under the terms of the 

Medicare GME affiliation agreement. . . .” Finally, we stated “that the hospital or 

hospitals that were most recently affiliated with and received slots from the closed 
 774 

hospital would have the most immediate need for those slots.” 

 While the circumstances may vary, we believe that “host” hospitals under 

emergency Medicare GME affiliation agreements could fulfill much of the same role as 

hospitals that received slots from the hospital that closed under regular Medicare GME 

affiliation agreements. That is, continuity of training would be encouraged and 

disruption would be mitigated, to the extent that the “host” hospital could document to 

CMS that it would continue to “train at least the number of FTE residents it had trained 

under the terms of the” emergency Medicare GME affiliation agreement, and in doing so, 

would demonstrate it has the “most immediate need for those slots” as compared to 

another hospital. Given these similarities between regular Medicare GME affiliation 

agreements and emergency Medicare GME affiliation agreements, we believe that the 

existing Ranking Criterion Two may be read to already encompass emergency Medicare 

GME affiliation agreements. Accordingly, we are clarifying the existing Ranking 

Criterion Two to include emergency Medicare GME affiliation agreements, to read as 

follows: 

□ Ranking Criterion Two. The applying hospital was listed as a participant of a 

Medicare GME affiliated group on the most recent Medicare GME affiliation agreement 

or emergency Medicare GME affiliation agreement of which the closed hospital was a 

member before the hospital closed, and under the terms of that Medicare GME affiliation 

agreement or emergency Medicare GME affiliation agreement, the applying hospital 

received slots from the hospital that closed, and the applying hospital will use the 

additional slots to continue to train at least the number of FTE residents it had trained 
 775 

under the terms of the Medicare GME affiliation agreement, or emergency Medicare 

GME affiliation agreement. If the most recent Medicare GME affiliation agreement or 

emergency Medicare GME affiliation agreement of which the closed hospital was a 

member before the hospital closed was with a hospital that itself has closed or is closing, 

preference would be given to an applying hospital that was listed as a participant in the 

next most recent Medicare GME affiliation agreement or emergency Medicare GME 

affiliation agreement (but not one which was entered into more than 5 years prior to the 

hospital's closure) of which the first closed hospital was a member before the hospital 

closed, and that applying hospital received slots from the closed hospital under the terms 

of that affiliation agreement.

 We are making these changes to Ranking Criterion Two in the Section 5506 

Application Form. 

 We are including below a revised Section 5506 Application Form that reflects all 

of the proposed changes discussed above. 
 776 

CMS Application Form

As Part of the Application for the Increase in a Hospital's FTE Cap(s) under 

Section 5506 of the Affordable Care Act: Preservation of FTE Cap Slots from 

Teaching Hospitals that Close

Directions: Please fill out the information below for each residency program for 

which the applicant hospital intends to use the increase in its FTE cap(s). If the 

hospital is applying for slots for a particular program, but the requested slots in that 

program qualify under two different ranking criteria, submit two separate 

application forms accordingly. If the hospital is applying for slots associated with a 

Medicare GME affiliation agreement with a hospital that closed, that application 

must be submitted separately from an individual program request. 

NAME OF HOSPITAL:

MEDICARE PROVIDER NUMBER (CCN):_________________________________

NAME OF MEDICARE CONTRACTOR:___________________________________

CORE-BASED STATISTICAL AREA (CBSA in which the hospital is physically 

located--write the 5 digit code here): _______________________________________ 

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

Complete the following, as applicable: 

1. Name of Specialty Training Program: ___________________________________ 

 2. Medicare GME Affiliated Group:________________________________

(Check one): □ Allopathic Program □ Osteopathic Program 

NUMBER OF FTE SLOTS REQUESTED FOR SPECIFIC PROGRAM (OR 

OVERALL IF SEEKING SLOTS ASSOCIATED WITH A MEDICARE GME 

AFFILIATED GROUP) AT YOUR HOSPITAL: 

Direct GME:_______________ IME: ________________ 

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

The applicant hospital must provide documentation to demonstrate the likelihood of 

filling requested slots under section 5506 within the 3 academic years immediately 

following the application deadline to receive slots after a particular hospital closes. Please 

indicate the specific use for which you are requesting an increase in your hospital’s FTE 

cap(s). If you are requesting an increase in the hospital’s FTE cap(s) for a combination of 
 777 

DLC1, DLC2, or DLC3, you must complete a separate CMS Application Form for each 

DLC and specify the distinct criterion from the list below within each Form. 

Demonstrated Likelihood Criterion 1: Establishing a New Residency Program 

The hospital does not have sufficient room under its direct GME FTE cap or IME FTE 

cap, or both, and will establish a new residency program in the specialty. 

Please indicate Y or N: As of the time of submitting this application, are you 

receiving a temporary cap adjustment for IME and/or direct GME under 42 CFR 

413.79(h) for residents displaced by the closure of the hospital subject to this Round 

of section 5506? (Y/N) ___________ 

The hospital must check at least one of the following: 

Application for approval of the new residency program has been submitted to the 

ACGME, AOA or the ABMS (The hospital must attach a copy.)

The hospital has submitted an institutional review document or program information 

form concerning the new program in an application for approval of the new program. 

(The hospital must attach a copy.)

The hospital has received written correspondence from the ACGME, AOA or ABMS 

acknowledging receipt of the application for the new program, or other types of 

communication from the accrediting bodies concerning the new program approval 

process (such as notification of site visit). (The hospital must attach a copy.)

The hospital has other documentation demonstrating that it has made a commitment to 

start a new program (The hospital must attach a copy.)

Demonstrated Likelihood Criterion 2: Taking Over All or Part of an Existing Residency 

Program from the Closed Hospital, or Expanding an Existing Residency Program 

The hospital does not have sufficient room under its direct GME FTE cap or IME FTE 

cap, or both, and (a) has permanently taken over the closed hospital's entire residency 

program, or (b) is permanently expanding its own previously established and approved 

residency program resulting from taking over part of a residency program from the 

closed hospital, or (c) is permanently expanding its own existing residency program. 

Please indicate Y or N: As of the time of submitting this application, are you 

receiving a temporary cap adjustment for IME and/or direct GME under 42 CFR 

413.79(h) for residents displaced by the closure of the hospital subject to this Round 

of section 5506? (Y/N) ___________ 

The hospital must check at least one of the following: 
 778 

Application for approval to take over the closed hospital's residency program has been 

submitted to the ACGME, AOA, or the ABMS, or approval has been received from the 

ACGME, AOA, or the ABMS. (The hospital must attach a copy.)

Application for approval of an expansion of the number of approved positions in its 

residency program resulting from taking over part of a residency program from the closed 

hospital has been submitted to the ACGME, AOA or the ABMS, or approval has been 

received from the ACGME, AOA, or the ABMS. (The hospital must attach a copy.)

Application for approval of an expansion of the number of approved positions in its 

residency program has been submitted to the ACGME, AOA or the ABMS, or approval 

has been received from the ACGME, AOA, or the ABMS. (The hospital must attach a 

copy.)

The hospital currently has unfilled positions in its residency program that have previously 

been approved by the ACGME, AOA, or the ABMS, and is now seeking to fill those 

positions. (The hospital must attach documentation clearly showing its current 

number of approved positions, and its current number of filled positions). 

The hospital has submitted an institutional review document or program information form 

concerning the program in an application for approval of an expansion to the program 

(The hospital must attach a copy).

Demonstrated Likelihood Criterion 3: Receiving Slots by Virtue of Medicare GME Affiliated 

Group Agreement or Emergency Medicare GME Affiliated Group Agreement with Closed 

Hospital 

The hospital was listed as a participant of a Medicare GME affiliated group on the most 

recent Medicare GME affiliation agreement or emergency Medicare GME affiliation 

agreement of which the closed hospital was a member before the hospital closed, and 

under the terms of that Medicare GME affiliation agreement or emergency Medicare 

GME affiliation agreement, the applying hospital received slots from the hospital that 

closed, and the applying hospital will use the additional slots to continue to train at least 

the number of FTE residents it had trained under the terms of the Medicare GME 

affiliation agreement or emergency Medicare GME affiliation agreement. If the most 

recent Medicare GME affiliation agreement or emergency Medicare GME affiliation 

agreement of which the closed hospital was a member before the hospital closed was 

with a hospital that itself has closed or is closing, the applying hospital was listed as a 

participant in the next most recent Medicare GME affiliation agreement or emergency 

Medicare GME affiliation agreement (but not one which was entered into more than 5 

years prior to the hospital's closure) of which the first closed hospital was a member 

before the hospital closed, and that applying hospital received slots from the closed 

hospital under the terms of that affiliation agreement. (Copies of EACH of the following 

must be attached.)

Copies of the recent Medicare GME affiliation agreement (or emergency Medicare GME 
 779 

affiliation agreement) of which the applying hospital and the closed hospital were a 

member of before the hospital closed. 

Copies of the most recent accreditation letters for all of the hospital's training programs in 

which the hospital had a shared rotational arrangement (as defined at §413.75(b)) with the 

closed hospital. 

Section B. Level Priority Category

(Place an "X" in the appropriate box that is applicable to the level priority category 

that describes the applicant hospital.)

First, to hospitals located in the same core-based statistical area (CBSA) as, or in a 

CBSA contiguous to, the hospital that closed. 

Second, to hospitals located in the same State as the closed hospital. 

Third, to hospitals located in the same region as the hospital that closed. 

Fourth, if the slots have not yet been fully distributed, to qualifying hospitals in 

accordance with the criteria established under section 5503, "Distribution of Additional 

Residency Positions" 

Section C. Ranking Criteria

(Place an "X" in the box for each criterion that is appropriate for the applicant 

hospital and for the program for which the increase in the FTE cap is requested.)

□ Ranking Criterion One. The applying hospital is requesting the increase in its FTE 

resident cap(s) because it is assuming (or assumed) an entire program (or programs) 

from the hospital that closed, and the applying hospital is continuing to operate the 

program (s) exactly as it had been operated by the hospital that closed (that is, same 

residents, possibly the same program director, and possibly the same (or many of the 

same) teaching staff). The applying hospital’s FTE resident caps were erroneously 

reduced by CMS under section 1886(h)(8)(A)(i) of the Act, contrary to the statutory 

exception at section 1886(h)(8)(A)(ii)(I) of the Act, and CMS Central Office was made 

aware of the error prior to posting of the FY 2015 IPPS proposed rule on the CMS Web 

site. 

Ranking Criterion Two. The applying hospital was listed as a participant of a Medicare 

GME affiliated group on the most recent Medicare GME affiliation agreement or 

emergency Medicare GME affiliation agreement of which the closed hospital was a 

member before the hospital closed, and under the terms of that Medicare GME affiliation 

agreement or emergency Medicare GME affiliation agreement, the applying hospital 

received slots from the hospital that closed, and the applying hospital will use the 
 780 

additional slots to continue to train at least the number of FTE residents it had trained 

under the terms of the Medicare GME affiliation agreement, or emergency Medicare 

GME affiliation agreement. If the most recent Medicare GME affiliation agreement or 

emergency Medicare GME affiliation agreement of which the closed hospital was a 

member before the hospital closed was with a hospital that itself has closed or is closing, 

preference would be given to an applying hospital that was listed as a participant in the 

next most recent Medicare GME affiliation agreement or emergency Medicare GME 

affiliation agreement (but not one which was entered into more than 5 years prior to the 

hospital's closure) of which the first closed hospital was a member before the hospital 

closed, and that applying hospital received slots from the closed hospital under the terms 

of that affiliation agreement.

Ranking Criterion Three. The applying hospital took in residents displaced by the closure 

of the hospital, but is not assuming an entire program or programs, and will use the 

additional slots to continue training residents in the same programs as the displaced 

residents, even after those displaced residents complete their training (that is, the 

applying hospital is permanently expanding its own existing programs).

Ranking Criterion Four. The program does not meet Ranking Criteria 1, 2, or 3, and 

the applying hospital will use additional slots to establish a new or expand an 

existing geriatrics residency program.

□ Ranking Criterion Five: The program does not meet Ranking Criteria 1 through 4, the 

applying hospital is located in a HPSA, and will use all the additional slots to establish or 

expand a primary care or general surgery residency program.

Ranking Criterion Six: The program does not meet Ranking Criteria 1 through 5, and the 

applying hospital is not located in a HPSA, and will use all the additional slots to 

establish or expand a primary care or general surgery residency program.

Ranking Criterion Seven: The applying hospital will use additional slots to establish or 

expand a primary care or general surgery program, but the program does not meet 

Ranking Criterion 5 or 6 because the hospital is also separately applying under Ranking 

Criterion 8 for slots to establish or expand a nonprimary care or non-general surgery 

program. 

Ranking Criterion Eight: The program does not meet Ranking Criteria 1 through 7, and 

the applying hospital will use additional slots to establish or expand a nonprimary care 

or a nongeneral surgery program.

Application Process and CMS Central Office Mailing Address for 

Receiving Increases in FTE Resident Caps
 781 

In order for hospitals to be considered for increases in their FTE resident caps, each 

qualifying hospital must submit a timely application. The following information must be 

submitted on applications to receive an increase in FTE resident caps: 

■ The name and Medicare provider number, and Medicare contractor (to which the 

hospital submits its cost report) of the hospital. 

The total number of requested FTE resident slots for direct GME or IME, or both. 

A completed copy of the CMS Application Form for each residency program for which 

the hospital intends to use the requested increase in FTE residents. 

Source documentation to support the assertions made by the hospital on the CMS 

Application Form. 

FTE resident counts for direct GME and IME and FTE resident caps for direct GME and 

IME reported by the hospital in the most recent as-filed cost report. Include copies of 

Worksheets E, Part A, and E-4. 

An attestation, signed and dated by an officer or administrator of the hospital who signs 

the hospital's Medicare cost report, with the following information: 

“I hereby certify that I understand that misrepresentation or falsification of any 

information contained in this application may be punishable by criminal, civil, and 

administrative action, fine and/or imprisonment under federal law. Furthermore, I 

understand that if services identified in this application were provided or procured 

through payment directly or indirectly of a kickback or were otherwise illegal, criminal, 

civil, and administrative action, fines and/or imprisonment may result. I also certify that, 

to the best of my knowledge and belief, it is a true, correct, and complete application 

prepared from the books and records of the hospital in accordance with applicable 

instructions, except as noted. I further certify that I am familiar with the laws and 

regulations regarding Medicare payment to hospitals for the training of interns and 

residents.” 

CMS Central Office Mailing Address 

Centers for Medicare & Medicaid Services (CMS) 

Director, Division of Acute Care 

7500 Security Boulevard 

Mailstop C4-08-06 

Baltimore, MD 21244-1850 
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6. Proposed Clarification and Policy Change Applicable to Direct GME Payments to 

Federally Qualified Health Centers (FQHCs) and Rural Health Clinics (RHCs) for 

Training Residents in Approved Programs 

 Under section 1886(k) of the Act, and as implemented in the regulations at 

42 CFR 405.2468(f), federally qualified health centers (FQHCs) and rural health clinics 

(RHCs) may receive payment for the costs of direct GME for training residents in an 

approved program under certain circumstances. Specifically, the regulations at 

§ 405.2468(f)(1) state: “Effective for that portion of cost reporting periods occurring on 

or after January 1, 1999, if an RHC or an FQHC incurs ‘all or substantially all’ of the 

costs for the training program in the nonhospital setting as defined in § 413.75(b) of this 

chapter, the RHC or FQHC may receive direct graduate medical education payment for 

those residents.” We refer readers to the July 31, 1998 final rule (63 FR 40986) for a 

detailed discussion of this longstanding policy. As noted earlier, the regulatory text of 

§ 405.2468(f)(1) incorporates the definition of “all or substantially all of the costs for the 

training program in a nonhospital setting” that is defined at § 413.75(b), as part of a 

number of definitions applicable generally to hospital direct GME payments and those 

regulations at § 413.76 through § 413.83. Section 413.75(b) is based on the statutory 

provision at section 1886(h)(4)(E) of the Act, which establishes the requirements that 

hospitals must meet in order to receive direct GME payment for residents training in 

nonprovider settings. 

 The statutory use of the phrase “all or substantially all of the costs for the training 

program in that setting” is located in section 1886(h)(4)(E) of the Act, as added by 
 783 

section 9314 of the Omnibus Budget Reconciliation Act of 1986 (Pub. L. 99-509) 

(OBRA ‘86). For a detailed discussion of the implementation of section 9314 of 

OBRA ‘86, we refer readers to the September 29, 1989 final rule (54 FR 40292). Section 

1886(h)(4)(E) of the Act, as added by OBRA ’86, established the requirements that 

hospitals must meet in order to receive direct GME payment for residents training in 

nonprovider settings. However, section 5504(a) of the Affordable Care Act made 

changes to section 1886(h)(4)(E) of the Act to reduce the costs that hospitals must incur 

for residents training in nonprovider sites in order to count the FTE residents for purposes 

of direct GME payments. In making these changes to section 1886(h)(4)(E) of the Act, 

section 5504(a) of the Affordable Care Act amended the Act prospectively, effective with 

“cost reporting periods beginning on or after July 1, 2010” for direct GME, by removing 

the phrase “all or substantially all of the costs for the training program in that setting” and 

instead permitting hospitals to count the time that residents train in activities related to 

patient care in a nonprovider site if the hospital incurs the costs of the residents’ salaries 

and fringe benefits for the time that the resident spends training in the nonprovider site. 

In effect, this amendment reduced the costs that hospitals must incur for residents training 

in nonprovider settings. 

 Based on this statutory amendment, in the November 24, 2010 final rule with 

comment period (75 FR 72134), we revised the regulations at § 412.105(f)(1)(ii)(E) for 

IME and §§ 413.78(f) and (g) for direct GME to reflect the changes made by section 

5504(a) of the Affordable Care Act. In addition, we revised the regulatory definition of 

“all or substantially all of the costs for the training program in the nonhospital setting” in 
 784 

order to implement the statutory amendment and apply the effective date as set forth in 

the statute to cost reporting periods beginning on or after July 1, 2010. Specifically, the 

regulations at § 413.75(b), which define “all or substantially all of the costs for the 

training program in the nonhospital setting” were revised as follows: 

 “(1) Effective on or after January 1, 1999 and for cost reporting periods 

beginning before July 1, 2007, the residents’ salaries and fringe benefits (including travel 

and lodging where applicable) and the portion of the cost of teaching physicians’ salaries 

and fringe benefits attributable to direct graduate medical education (GME); and 

 “(2) Effective for cost reporting periods beginning on or after July 1, 2007 and 

before July 1, 2010, at least 90 percent of the total of the costs of the residents’ salaries 

and fringe benefits (including travel and lodging where applicable) and the portion of the 

cost of teaching physicians’ salaries attributable to nonpatient care direct GME 

activities.” 

 Ultimately, with regard to the costs that hospitals must incur for residents training 

in nonprovider sites in order to count the FTE residents for purposes of direct GME 

payments, the phrase “all or substantially all of the costs for the training program in the 

nonhospital setting” no longer applies, effective for cost reporting periods beginning on 

and after July 1, 2010. 

 In the November 24, 2010 final rule with comment period (75 FR 72134), we 

amended the regulations applicable to direct GME payments to hospitals at §§ 413.75(b) 

and 413.78(g) to reflect the changes made by section 5504(a) of the Affordable Care Act. 

However, at that time, we inadvertently did not make conforming changes to the 
 785 

regulations at § 405.2468(f)(1) to clarify the requirements that FQHCs and RHCs must 

meet in order to receive direct GME payment for training residents in their facilities. 

Therefore, in compliance with our longstanding policy that FQHCs and RHCs must meet 

the same requirements applicable to teaching hospitals for direct GME payments with 

respect to training residents in nonprovider settings, in this proposed rule, we are 

providing clarification that, based on statutory amendments discussed earlier, the 

applicable policy cross-referenced in § 405.2468(f)(1) has changed for cost reporting 

periods beginning on or after July 1, 2010. In addition, to ensure statutory and regulatory 

consistency, we are proposing to revise the regulations at § 405.2468(f)(1) to add a 

sentence at the end of the paragraph as follows: “However, in connection with cost 

reporting periods for which ‘all or substantially all of the costs for the training program in 

the nonhospital setting’ is not defined in § 413.75(b) of this chapter, if an RHC or an 

FQHC incurs the salaries and fringe benefits (including travel and lodging where 

applicable) of residents training at the RHC or FQHC, the RHC or FQHC may receive 

direct graduate medical education payment for those residents.” 

L. Rural Community Hospital Demonstration Program 

1. Background 

 Section 410A(a) of Pub. L. 108-173 required the Secretary to establish a 

demonstration program to test the feasibility and advisability of establishing “rural 

community” hospitals to furnish covered inpatient hospital services to Medicare 

beneficiaries. The demonstration pays rural community hospitals under a reasonable 

cost-based methodology for Medicare payment purposes for covered inpatient hospital 
 786 

services furnished to Medicare beneficiaries. A rural community hospital, as defined in 

section 410A(f)(1), is a hospital that-- 

● Is located in a rural area (as defined in section 1886(d)(2)(D) of the Act) or is 

treated as being located in a rural area under section 1886(d)(8)(E) of the Act; 

● Has fewer than 51 beds (excluding beds in a distinct part psychiatric or 

rehabilitation unit) as reported in its most recent cost report; 

● Provides 24-hour emergency care services; and 

● Is not designated or eligible for designation as a CAH under section 1820 of 

the Act. 

 Section 410A(a)(4) of Pub. L. 108-173 specified that the Secretary was to select 

for participation no more than 15 rural community hospitals in rural areas of States that 

the Secretary identified as having low population densities. Using 2002 data from the 

U.S Census Bureau, we identified the 10 States with the lowest population density in 

which rural community hospitals were to be located in order to participate in the 

demonstration: Alaska, Idaho, Montana, Nebraska, Nevada, New Mexico, North Dakota, 

South Dakota, Utah, and Wyoming. (Source: U.S. Census Bureau, Statistical Abstract of 

the United States: 2003). 

 CMS originally solicited applicants for the demonstration in May 2004; 13 

hospitals began participation with cost reporting periods beginning on or after 

October 1, 2004. In 2005, 4 of these 13 hospitals withdrew from the program and 

converted to CAH status. This left nine hospitals participating at that time. In 2008, we 

announced a solicitation for up to six additional hospitals to participate in the 
 787 

demonstration program. Four additional hospitals were selected to participate under this 

solicitation. These four additional hospitals began under the demonstration payment 

methodology with the hospital’s first cost reporting period starting on or after 

July 1, 2008. At that time, 13 hospitals were participating in the demonstration. 

 Five hospitals (3 of the hospitals were among the 13 hospitals that were original 

participants in the demonstration program and 2 of the hospitals were among the 

4 hospitals that began the demonstration program in 2008) withdrew from the 

demonstration program during CYs 2009 and 2010. (Three of these hospitals indicated 

that they would be paid more for Medicare inpatient hospital services under the rebasing 

option allowed under the SCH methodology provided for under section 122 of the 

Medicare Improvements for Patients and Providers Act of 2008 (Pub. L. 110-275). One 

hospital restructured to become a CAH, and one hospital closed.) In CY 2011, one 

hospital that was among the original set of hospitals that participated in the demonstration 

withdrew from the demonstration. These actions left seven of the originally participating 

hospitals (that is, hospitals that were selected to participate in either 2004 or 2008) 

participating in the demonstration program as of June 1, 2011. 

 Sections 3123 and 10313 of the Affordable Care Act (Pub. L. 111-148) amended 

section 410A of Pub. L. 108-173, which established the rural community hospital 

demonstration program. Sections 3123 and 10313 of the Affordable Care Act changed 

the rural community hospital demonstration program in several ways. First, the Secretary 

is required to conduct the demonstration program for an additional 5-year period that 

begins on the date immediately following the last day of the initial 5-year period. 
 788 

Further, the Affordable Care Act requires, in the case of a rural community hospital that 

is participating in the demonstration program as of the last day of the initial 5-year 

period, the Secretary to provide for the continued participation of such rural hospital in 

the demonstration program during the 5-year extension, unless the hospital makes an 

election, in such form and manner as the Secretary may specify, to discontinue 

participation (section 410A(g)(4)(A) of Pub. L. 108-173, as added by section 3123(a) of 

the Affordable Care Act and further amended by section 10313 of such Act). 

 In addition, the Affordable Care Act provides that, during the 5-year extension 

period, the Secretary shall expand the number of States with low population densities 

determined by the Secretary to 20 (section 410A(g)(2) of Pub. L. 108-173, as added by 

section 3123(a) and amended by section 10313 of the Affordable Care Act). Further, the 

Secretary is required to use the same criteria and data that the Secretary used to determine 

the States under section 410A(a)(2) of Pub. L. 108-173 for purposes of the initial 5-year 

period. The Affordable Care Act also allows not more than 30 rural community hospitals 

in such States to participate in the demonstration program during the 5-year extension 

period (section 410A(g)(3) of Pub. L. 108-173, as added by section 3123(a) of the 

Affordable Care Act and as further amended by section 10313 of such Act). 

 We published a solicitation for applications for additional participants in the rural 

community hospital demonstration program in the Federal Register on August 30, 2010 

(75 FR 52960). Applications were due on October 14, 2010. The 20 States with the 

lowest population density that were eligible for the demonstration program are: Alaska, 

Arizona, Arkansas, Colorado, Idaho, Iowa, Kansas, Maine, Minnesota, Mississippi, 
 789 

Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South 

Dakota, Utah, and Wyoming (Source: U.S. Census Bureau, Statistical Abstract of the 

United States: 2003). We approved 19 new hospitals for participation in the 

demonstration program. We determined that each of these new hospitals would begin 

participating in the demonstration with its first cost reporting period beginning on or after 

April 1, 2011. 

 Three of these 19 hospitals declined participation prior to the start of the cost 

reporting periods for which they would have begun the demonstration. In addition to the 

7 hospitals that were selected in either 2004 or 2008, the new selection led to a total of 

23 hospitals in the demonstration. During CY 2013, one additional hospital among the 

set selected in 2011 withdrew from the demonstration, similarly citing a relative financial 

advantage to returning to the customary SCH payment methodology, which left 22 

hospitals participating in the demonstration. 

 In addition, section 410A(c)(2) of Pub. L. 108-173 required that, “[i]n conducting 

the demonstration program under this section, the Secretary shall ensure that the 

aggregate payments made by the Secretary do not exceed the amount which the Secretary 

would have paid if the demonstration program under this section was not implemented.” 

This requirement is commonly referred to as “budget neutrality.” Generally, when we 

implement a demonstration program on a budget neutral basis, the demonstration 

program is budget neutral in its own terms; in other words, the aggregate payments to the 

participating hospitals do not exceed the amount that would be paid to those same 

hospitals in the absence of the demonstration program. Typically, this form of budget 
 790 

neutrality is viable when, by changing payments or aligning incentives to improve overall 

efficiency, or both, a demonstration program may reduce the use of some services or 

eliminate the need for others, resulting in reduced expenditures for the demonstration 

program’s participants. These reduced expenditures offset increased payments elsewhere 

under the demonstration program, thus ensuring that the demonstration program as a 

whole is budget neutral or yields savings. However, the small scale of this demonstration 

program, in conjunction with the payment methodology, makes it extremely unlikely that 

this demonstration program could be viable under the usual form of budget neutrality. 

 Specifically, cost-based payments to participating small rural hospitals are likely 

to increase Medicare outlays without producing any offsetting reduction in Medicare 

expenditures elsewhere. Therefore, a rural community hospital’s participation in this 

demonstration program is unlikely to yield benefits to the participant if budget neutrality 

were to be implemented by reducing other payments for these same hospitals. 

 In the past 10 IPPS final regulations, spanning the period for which the 

demonstration program has been implemented, we have adjusted the national inpatient 

PPS rates by an amount sufficient to account for the added costs of this demonstration 

program, thus applying budget neutrality across the payment system as a whole rather 

than merely across the participants in the demonstration program. As we discussed in the 

FYs 2005 through 2014 IPPS final rules (69 FR 49183; 70 FR 47462; 71 FR 48100; 

72 FR 47392; 73 FR 48670; 74 FR 43922, 75 FR 50343, 76 FR 51698, 77 FR 53449, and 

78 FR 50740, respectively), we believe that the language of the statutory budget 

neutrality requirements permits the agency to implement the budget neutrality provision 
 791 

in this manner. In light of the statute’s budget neutrality requirement, in this FY 2015 

IPPS/LTCH PPS proposed rule, we are proposing to continue to use the methodology we 

finalized in FY 2013 to calculate a budget neutrality adjustment factor to the FY 2015 

national IPPS rates. 

 In general terms, in each of these previous years, we used available cost reports 

for the participating hospitals to derive an estimate of the additional costs attributable for 

the demonstration. Prior to FY 2013, we used finalized, or settled, cost reports, as 

available, and “as submitted” cost reports for hospitals for which finalized cost reports 

were not available. Annual market basket percentage increase amounts provided by the 

CMS Office of the Actuary reflecting the growth in the prices of inputs for inpatient 

hospitals were applied to these cost amounts. In the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53452), we used “as submitted” cost reports (for cost reporting periods ending in 

CY 2010) for each hospital participating in the demonstration in estimating the costs of 

the demonstration. In addition, in FY 2013, we incorporated different update factors (the 

market basket percentage increase and the applicable percentage increase, as applicable, 

to several years of data as opposed to solely using the market basket percentage increase) 

for the calculation of the budget neutrality offset amount. Finally, in each of the previous 

years, an annual update factor provided by the CMS Office of the Actuary reflecting 

growth in the volume of inpatient operating services was also applied. For the budget 

neutrality calculations in the IPPS final rules for FYs 2005 through 2011, the annual 

volume adjustment applied was 2 percent; for the IPPS final rules for FYs 2012, 2013, 
 792 

and 2014, it was 3 percent. For a detailed discussion of our budget neutrality offset 

calculations, we refer readers to the IPPS final rule applicable to the fiscal year involved. 

 In general, for FYs 2005 through 2009, we based the budget neutrality offset 

estimate on the estimated cost of the demonstration in an earlier given year. For these 

periods, we derived that estimated cost by subtracting the estimated amount that would 

otherwise be paid without the demonstration in an earlier given year from the estimated 

amount for the same year that would be paid under the demonstration under the 

reasonable cost-based methodology authorized by section 410A of Pub. L. 108-173. (We 

note that section 410A of Pub. L. 108-173 was later amended by the Affordable Care 

Act.) The reasonable cost-based methodology authorized by section 410A of Pub. L. 

108-173, as amended, is hereafter referred to as the “reasonable cost methodology.” (We 

ascertained the estimated amount that would be paid in an earlier given year under the 

reasonable cost methodology and the estimated amount that would otherwise be paid 

without the demonstration in an earlier given year from “as submitted” cost reports that 

were submitted by the hospitals prior to the inception of the demonstration.) We then 

updated the estimated cost described above to the current year by multiplying it by the 

market basket percentage increases applicable to the years involved and the applicable 

annual volume adjustment. For the FY 2010 IPPS/RY 2010 LTCH PPS final rule, data 

from finalized cost reports reflecting the participating hospitals’ experience under the 

demonstration were available. Specifically, the finalized cost reports for the first 2 years 

of the demonstration, that is, cost reports for cost reporting years beginning in FYs 2005 

and 2006 (CYs 2004, 2005, and 2006) were available. These data showed that the actual 
 793 

costs of the demonstration for these years exceeded the amounts originally estimated in 

the respective final rules for the budget neutrality adjustment. In the 

FY 2010 IPPS/RY 2010 LTCH PPS final rule, we included in the budget neutrality offset 

amount an amount in addition to the estimate of the demonstration costs in that fiscal 

year. This additional amount was based on the amount that the costs of the 

demonstration for FYs 2005 and 2006 exceeded the budget neutrality offset amounts 

finalized in the IPPS rules applicable for those years. 

 Following upon the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we have 

continued to propose a methodology for calculating the budget neutrality offset amount to 

account for both the estimated demonstration costs in the upcoming fiscal year and an 

amount by which the actual demonstration costs corresponding to an earlier, given year 

(which would be known once we have finalized cost reports for that year) exceeded the 

budget neutrality offset amount finalized in the corresponding year’s IPPS final rule. 

However, we noted in the FYs 2011, 2012, and 2013 IPPS final rules that, because of a 

delay affecting the settlement process for cost reports for IPPS hospitals occurring on a 

larger scale than merely for the demonstration, we were unable to finalize this component 

of the budget neutrality offset amount accounting for the amount by which the actual 

demonstration costs in a given year exceeded the budget neutrality offset amount 

finalized in the corresponding year’s IPPS final rule for cost reports of demonstration 

hospitals dating to those beginning in FY 2007. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53449 through 53453), we 

adopted changes to the methodology for calculating the budget neutrality offset amount 
 794 

in an effort to further improve and refine it. We noted that the revised methodology 

varied, in part, from that finalized in the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51698 through 51705). Specifically, in adopting refinements to the methodology, 

our objective was to simplify the calculation so that it included as few steps as possible. 

In addition, we incorporated different update factors (the market basket percentage 

increase and the applicable percentage increase, as applicable, to several years of data as 

opposed to solely using the market basket percentage increase) for the calculation of the 

budget neutrality offset amount. We stated that we believed this approach would 

maximize the precision of our calculation because it would more closely replicate 

payments made with and without the demonstration. We refer readers to the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53449 through 53453) for a detailed discussion of the 

methodology we used for FY 2013. We noted that, although we were making changes to 

certain aspects of the budget neutrality offset amount calculation for FY 2013, several 

core components of the methodology would remain unchanged. For example, we 

continued to include in the budget neutrality offset amount methodology the estimate of 

the demonstration costs for the upcoming fiscal year and the amount by which the actual 

demonstration costs corresponding to an earlier year (which would be determined once 

we have finalized cost reports for that year) exceeded the budget neutrality offset amount 

finalized in the corresponding year’s IPPS final rule. However, finalized cost reports for 

the hospitals participating in the demonstration were not available for FYs 2007, 2008, 

2009, and 2010 at the time of development of the FY 2013 IPPS/LTCH PPS final rule. 

Therefore, we were unable to finalize this component of the budget neutrality offset 
 795 

calculation. We stated in the final rule that we expected settled cost reports for all of the 

demonstration hospitals that participated in the applicable fiscal year (FYs 2007, 2008, 

2009, and 2010) to be available prior to the FY 2014 IPPS/LTCH PPS proposed rule. 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50739 through 50744), we 

determined the final budget neutrality offset amount to be applied to the FY 2014 IPPS 

rates to be $52,589,741. This amount was comprised of two distinct components: (1) the 

final resulting difference between the estimated reasonable cost amount to be paid under 

the demonstration to the 22 participating hospitals in FY 2014 for covered inpatient 

hospital services and the estimated amount that would otherwise be paid to such hospitals 

in FY 2014 without the demonstration (this amount was $46,549,861); and (2) the 

amount by which the actual costs of the demonstration for FY 2007, as shown in the 

finalized cost reports for the hospitals that participated in the demonstration during 

FY 2007, exceeded the budget neutrality offset amount that was finalized in the FY 2007 

IPPS final rule (this amount, $6,039,880, was derived from finalized cost reports for cost 

reporting periods beginning in FY 2007 for the 9 hospitals that participated in the 

demonstration during that year). 

2. Proposed FY 2015 Budget Neutrality Offset Amount 

 For the reasons discussed in the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53449 through 53453), we are proposing in this FY 2015 IPPS/LTCH PPS 

proposed rule to continue to use the methodology finalized in the FY 2013 IPPS/LTCH 

PPS final rule to calculate a budget neutrality adjustment factor to be applied to the 

FY 2015 national IPPS payment rates. As we stated in the FY 2013 IPPS/LTCH PPS 
 796 

final rule (77 FR 53451), we revised our methodology in that final rule to further improve 

and refine the calculation of the budget neutrality offset amount and to simplify the 

methodology so that it includes only a few steps. Consistent with the methodology 

finalized in the FY 2013 IPPS/LTCH PPS final rule, the proposed methodology for 

calculating the estimated FY 2015 demonstration cost for the participating hospitals is as 

follows: 

Step 1: For each of the participating hospitals, we are proposing to identify the 

general reasonable cost amount calculated under the reasonable cost methodology for 

covered inpatient hospital services (as indicated on the “as submitted” cost report for the 

hospital’s cost reporting period ending in CY 2012). The general reasonable cost amount 

calculated under the reasonable cost methodology is hereafter referred to as the 

“reasonable cost amount.” As we explained in the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53451), we believe that a way to streamline our methodology for calculating the 

budget neutrality offset amount would be to use cost reports with the same status and 

from the same time period for all hospitals participating in the demonstration. Because 

“as submitted” cost reports ending in CY 2012 are the most recent available cost reports, 

we believe they would be an accurate predictor of the costs of the demonstration in 

FY 2015 because they give us a recent picture of the participating hospitals’ costs. 

 Because section 410A of Pub. L. 108-173 stipulates swing-bed services are to be 

included among the covered inpatient hospital services for which the demonstration 

payment methodology applies, we are proposing to include the cost of these services, as 

reported on the cost reports for the hospitals that provide swing-bed services, within the 
 797 

general total estimated FY 2012 reasonable cost amount for covered inpatient hospital 

services under the demonstration. As indicated above, we are proposing to use “as 

submitted” cost reports for the hospital’s cost reporting period ending in CY 2012 for this 

calculation. 

 We are proposing to sum the two above-referenced amounts to calculate the 

general total estimated FY 2012 reasonable cost amount for covered inpatient hospital 

services for all participating hospitals. 

 We are proposing to multiply this sum (that is, the general total estimated 

FY 2012 reasonable cost amount for covered inpatient hospital services for all 

participating hospitals) by the FY 2013, FY 2014, and FY 2015 IPPS market basket 

percentage increases, which are formulated by the CMS Office of the Actuary. In this 

proposed rule, the current estimate of the FY 2015 IPPS market basket percentage 

increase provided by the CMS Office of the Actuary is specified in section IV.B.1. of the 

preamble of this proposed rule. We are proposing to use the final FY 2015 IPPS market 

basket percentage increase in the final rule. We also are proposing to then multiply the 

product of the general total estimated FY 2012 reasonable cost amount for all 

participating hospitals and the market basket percentage increases applicable to the years 

involved by a 3-percent annual volume adjustment for FYs 2013 through 2015—the 

result would be the general total estimated FY 2015 reasonable cost amount for covered 

inpatient hospital services for all participating hospitals. 

 We are proposing to apply the IPPS market basket percentage increases 

applicable for FYs 2013 through 2015 to the FY 2012 reasonable cost amount described 
 798 

above to model the estimated FY 2015 reasonable cost amount under the demonstration. 

We are proposing to use the IPPS market basket percentage increases because we believe 

that these update factors appropriately indicate the trend of increase in inpatient hospital 

operating costs under the reasonable cost methodology for the years involved. The 

3-percent annual volume adjustment was stipulated by the CMS Office of the Actuary 

and is being proposed because it is intended to accurately reflect the tendency of 

hospitals’ inpatient caseloads to increase. We acknowledge the possibility that inpatient 

caseloads for small hospitals may fluctuate, and are proposing to incorporate into the 

estimate of demonstration costs a factor to allow for a potential increase in inpatient 

hospital services. 

 Step 2: For each of the participating hospitals, we are proposing to identify the 

general estimated amount that would otherwise be paid in FY 2012 under applicable 

Medicare payment methodologies for covered inpatient hospital services (as indicated on 

the “as submitted” cost report for cost reporting periods ending in CY 2012) if the 

demonstration was not implemented. Similarly, as in Step 1, for the hospitals that 

provide swing-bed services, we are proposing to identify the estimated amount that 

generally would otherwise be paid for these services (as indicated on the “as submitted” 

cost report for cost reporting periods ending in CY 2012) and include it in the total 

FY 2012 general estimated amount that would otherwise be paid for covered inpatient 

hospital services without the demonstration. We are proposing to sum these two amounts 

in order to calculate the estimated FY 2012 total payments that generally would 
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otherwise be paid for covered inpatient hospital services for all participating hospitals 

without the demonstration. 

 We are proposing to multiply the above amount (that is, the estimated FY 2012 

total payments that generally would otherwise be paid for covered inpatient hospital 

services for all participating hospitals without the demonstration) by the FYs 2013 

through 2015 IPPS applicable percentage increases. In this proposed rule, the current 

estimate of the FY 2015 applicable percentage increase is specified in section IV.B. of 

this preamble. This methodology differs from Step 1, in which we are proposing to apply 

the market basket percentage increases to the sum of the hospitals’ general total FY 2012 

estimated reasonable cost amount for covered inpatient hospital services. We believe that 

the IPPS applicable percentage increases are appropriate factors to update the estimated 

amounts that generally would otherwise be paid without the demonstration. This is 

because IPPS payments would constitute the majority of payments that would otherwise 

be made without the demonstration and the applicable percentage increase is the factor 

used under the IPPS to update the inpatient hospital payment rates. Hospitals 

participating in the demonstration would be participating under the IPPS payment 

methodology if they were not in the demonstration. (We are proposing to use the final 

FY 2015 applicable percentage increase in the final rule.) Then we are proposing to 

multiply the product of the estimated FY 2012 total payments that generally would 

otherwise be made without the demonstration and the applicable IPPS percentage 

increases for the years involved by a 3-percent annual volume adjustment for FYs 2013 

through 2015. The result would be the general total estimated FY 2015 costs that would 
 800 

otherwise be paid without the demonstration for covered inpatient hospital services to the 

participating hospitals. 

 Step 3: We are proposing to subtract the amount derived in Step 2 (representing 

the sum of estimated amounts that generally would otherwise be paid to the participating 

hospitals for covered inpatient hospital services for FY 2015 if the demonstration were 

not implemented) from the amount derived in Step 1 (representing the sum of the 

estimated reasonable cost amount that generally would be paid under the demonstration 

to all participating hospitals for covered inpatient hospital services for FY 2015). We are 

proposing that the resulting difference would be one component of the estimated amount 

for which an adjustment to the national IPPS rates would be calculated (as further 

discussed below). 

 For this proposed rule, the resulting difference is $53,673,008. This estimated 

amount is based on the specific assumptions identified regarding the data sources used, 

that is, “as submitted” recently available cost reports. Also, we note that if updated data 

become available prior to the FY 2015 IPPS/LTCH PPS final rule, we would use them to 

the extent appropriate to estimate the costs of the demonstration program in FY 2015. 

Therefore, this estimated budget neutrality offset amount might change in the final rule, 

depending on the availability of updated data. 

 In addition, similar to previous years, we are proposing to include in the budget 

neutrality offset amount the amount by which the actual demonstration costs 

corresponding to an earlier given year (which would be determined once we had finalized 

cost reports for that year) exceeded the budget neutrality offset amount finalized in the 
 801 

corresponding year’s IPPS final rule. For this FY 2015 IPPS/LTCH PPS proposed rule, 

we have calculated the amount by which the actual costs of the demonstration in FY 2008 

(that is, the costs of the demonstration for the 10 hospitals that participated in FY 2008, 

as shown in these hospitals’ finalized cost reports for the cost report period beginning in 

that fiscal year), exceeded the budget neutrality offset amount that was finalized in the 

FY 2008 IPPS final rule. We have calculated this amount to be $10,389,771 for this 

proposed rule. However, we are noting that if updated data become available prior to the 

FY 2015 IPPS/LTCH PPS final rule, we would use them to the extent appropriate to 

determine this amount. Therefore, this amount might change in the final rule, depending 

on the availability of updated data. We also are currently working with the MACs that 

service the hospitals participating in the demonstration to obtain finalized cost reports for 

FYs 2009, 2010, and 2011. Similar to previous years, we are proposing that if settled 

cost reports for all of the demonstration hospitals that participated in an applicable year 

(FYs 2009, 2010, or 2011) are available prior to the FY 2015 IPPS/LTCH PPS final rule, 

we would include in the budget neutrality offset amount any additional amounts by which 

the final settled costs of the demonstration for the year (FYs 2009, 2010, or 2011) exceed 

the budget neutrality offset amount applicable to such year as finalized in the respective 

year’s IPPS final rule. 

 Therefore, the total budget neutrality offset amount that we are proposing to be 

applied to the FY 2015 IPPS rates is $64,062,779. This is the sum of two separate 

components: (1) the difference between the total estimated FY 2015 reasonable cost 

amount to be paid under the demonstration to the 22 participating hospitals for covered 
 802 

inpatient hospital services and the total estimated amount that would otherwise be paid to 

the participating hospitals in FY 2015 without the demonstration ($53,673,008); and 

(2) the amount by which the actual costs of the demonstration for FY 2008 (as shown in 

the finalized cost reports for cost reporting periods beginning in FY 2008 for the hospitals 

that participated in the demonstration during FY 2008) exceed the budget neutrality offset 

amount that was finalized in the FY 2008 IPPS final rule ($10,389,771). We are 

proposing that the resulting total ($64,062,779) would be the amount for which an 

adjustment to the national IPPS rates would be calculated. 

M. Requirement for Transparency of Hospital Charges under the Affordable Care Act 

1. Overview 

 Hospitals determine their charges for items and services provided to patients. 

While Medicare does not pay billed charges, hospital reported charges are used in 

determining Medicare’s national payment rates (for example, billed charges are adjusted 

to cost to determine how much to pay for one type of case relative to another). Although 

the Medicare payment amount for a discharge under the IPPS or a service furnished 

under the OPPS is not based directly on the hospital’s charges for the individual services 

provided, we believe that hospital charges nevertheless remain an important component 

of our healthcare system. For example, hospital charges are often billed, in full, to 

uninsured patients who cannot benefit from discounts negotiated by insurance companies. 

Hospital charges also vary significantly by hospital, making it challenging for patients to 

compare the cost of similar services across hospitals. 
 803 

 In 2013, we released data that demonstrated significant variation across the 

country and within communities in what hospitals charge for a number of common 

inpatient and outpatient services. These data also showed that hospital charges for 

services furnished in both the inpatient setting and the outpatient setting were, in general, 

significantly higher than the amount paid by Medicare under the IPPS or the OPPS. The 

data that we released are posted on the Web site at: https://www/cms.gov/ResearchStatistics-Data-and-Systems/Statistics-Trends-and-Reports/Medicare-Provider-ChargeData/index.html. Our intent in releasing these data was to enable the public to examine 

the relationship between the amounts charged by individual hospitals for comparable 

services and Medicare’s payment for that inpatient or outpatient care. We believe that 

providing charge data comparisons is introducing both transparency and accountability to 

hospital pricing, and we are continuing to pursue opportunities to report on hospital 

charging practices. 

2. Transparency Requirement under the Affordable Care Act 

 The Affordable Care Act contains a provision that is consistent with our effort 

to improve the transparency of hospital charges. As a result of the Affordable Care Act, 

section 2718(e) of the Public Health Service Act requires that “[e]ach hospital operating 

within the United States shall for each year establish (and update) and make public (in 

accordance with guidelines developed by the Secretary) a list of the hospital’s standard 

charges for items and services provided by the hospital, including for diagnosis-related 

groups established under section 1886(d)(4) of the Social Security Act.” 
 804 

 In this proposed rule, we are reminding hospitals of their obligation to comply 

with the provisions of section 2718(e) of the Public Health Service Act. Hospitals are 

responsible for establishing their charges and are in the best position to determine the 

exact manner and method by which to make those charges available to the public. 

Therefore, we are providing hospitals with the flexibility to determine how they make a 

list of their standard charges public. Our guidelines for implementing section 2718(e) of 

the Public Health Service Act are that hospitals either make public a list of their standard 

charges (whether that be the chargemaster itself or in another form of their choice), or 

their policies for allowing the public to view a list of those charges in response to an 

inquiry. We encourage hospitals to undertake efforts to engage in consumer friendly 

communication of their charges to help patients understand what their potential financial 

liability might be for services they obtain at the hospital, and to enable patients to 

compare charges for similar services across hospitals. We expect that hospitals will 

update the information at least annually, or more often as appropriate, to reflect current 

charges. 

 We are confident that hospital compliance with this statutory transparency 

requirement will greatly improve the public accessibility of charge information. As 

hospitals make data publicly available in compliance with section 2718(e) of the Public 

Health Service Act, we also will continue to review and post relevant charge data in a 

consumer friendly way, as we previously have done by posting on the CMS Web site the 

following hospital and physician charge information: May and June 2013 hospital charge 

data releases; 2013 physician data requests for information; and the April 2014 physician 
 805 

data releases and data provided on geographic variation in payments and payments per 

beneficiary. 
 806 

N. Medicare Payment for Short Inpatient Hospital Stays 

 Some members of the hospital community have expressed support for the general 

concept of an alternative payment methodology under the Medicare program for short 

inpatient hospital stays. We are interested in public comments on such a payment 

methodology, specifically how it might be designed. There are several issues of 

consideration that would inform how such a payment methodology would be devised. 

Below we outline some specific questions and considerations that we have identified as 

critical for developing such a methodology. This list of questions and considerations is 

not exhaustive, and we welcome additional questions, suggestions, and input from 

stakeholders. 

● Defining short or low cost inpatient hospital stays: 

 One issue would be how to define a short inpatient hospital stay for the purpose of 

determining the appropriate Medicare payment. For instance, would a short inpatient 

hospital stay be one where the average length of stay for the MS-DRG is short or would it 

be atypically short or low cost cases relative to other cases within same MS-DRG? There 

are significant differences in mean lengths of stay among MS-DRGs. (We refer readers 

to Table 5.—List of Proposed Medicare Severity Diagnosis-Related Groups (MS-DRGs), 

Relative Weighting Factors, and Geometric and Arithmetic Mean Length of Stay for this 

proposed rule, which is available via the Internet on the CMS Web site.) For example, 

many frequently billed MS-DRGs have historically had mean lengths of stay of 

approximately 2 days, such as MS-DRG 313 (Chest Pain). Other MS-DRGs such as MS-
 807 

DRG 871 (Septicemia or Severe Sepsis without Mechanical Ventilation 96+ hours with 

MCC) have had longer lengths of stay. 

 If we adopted a policy that paid less for atypically low-cost or short-stay cases 

relative to the average case in the same MS-DRG, we believe such a policy is more likely 

to affect an MS-DRG like MS-DRG 871 that has a longer average length of stay or 

higher average cost associated with the typical patient. Such a policy is less likely to 

apply to MS-DRG 313 because the typical case is already low cost or short stay. 

● Determining appropriate payment for short inpatient hospital stays: 

 Another issue would be how to determine the appropriate payment once a short 

stay has been identified. Some have suggested a per diem based payment amount, 

perhaps modelled on the existing transfer payment policy. Again, such a policy is far 

more likely to affect payment for an atypically short-stay or low-cost case in an MS-DRG 

with a longer average length of stay. For short-stay cases in an MS-DRG where the 

average length of stay for the MS-DRG is short, this methodology would be unlikely to 

affect payment as the full IPPS payment would be made in 1 or 2 days. 

 For these types of short-stay cases, one relevant issue to address may be that 

payment for the same case will be very different under the OPPS and the IPPS depending 

upon whether the patient has been formally admitted to the hospital as an inpatient, 

pursuant to a physician order. Under what circumstances should the IPPS payment 

amount be limited to the OPPS payment amount and under what circumstances might it 

be appropriate for the payment amount to be higher? If it were appropriate for the 
 808 

payment amount to be higher, how would the amount of the additional payment be 

determined? 

 We welcome input on these and other issues related to an alternative payment 

methodology under the Medicare program for short inpatient hospital stays. 

O. Suggested Exceptions to the 2-Midnight Benchmark 

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50943 through 50954), we 

discussed modifications and clarifications to CMS’ longstanding policy on how Medicare 

contractors review inpatient hospital and CAH admissions for payment purposes. Under 

that final rule, we established a 2-midnight benchmark for determining the 

appropriateness of an inpatient hospital admission versus treatment on an outpatient 

basis. We provided in regulations at § 412.3(e)(1) that, in addition to services designated 

as inpatient only, surgical procedures, diagnostic tests, and other treatments are generally 

appropriate for inpatient hospital admission and payment under Medicare Part A when 

the physician (1) expects the beneficiary to require a medically necessary hospital stay 

that crosses at least 2 midnights and (2) admits the beneficiary to the hospital based upon 

that expectation. The FY 2014 policy responded to both hospital calls for more guidance 

about when an inpatient admission and Part A payment are appropriate, and 

beneficiaries’ concerns about increasingly long stays as outpatients due to hospital 

uncertainties about payment. 

 In the FY 2014 IPPS/LTCH PPS final rule, at § 412.3(e)(2), we recognized that if 

an unforeseen circumstance, such as a beneficiary’s death or transfer, results in a shorter 

beneficiary stay than the physician’s expectation of at least 2 midnights, the patient may 
 809 

be considered to be appropriately treated on an inpatient basis and hospital inpatient 

payment may be made under Medicare Part A. We also clarified, in both the final rule 

and subsequent subregulatory guidance, that the unforeseen circumstances specified at 

§ 412.3(e)(2) are not all-inclusive and could also include additional circumstances such 

as unexpected clinical improvement, election of hospice care, or departure against 

medical advice. 

 The FY 2014 IPPS/LTCH PPS final rule also indicated that there are exceptions 

to the 2-midnight benchmark. In other words, we expect there to be cases in which an 

admitting practitioner expects the beneficiary’s length of stay to last less than 2 midnights 

and yet inpatient admission would still be appropriate. For example, we specified that 

procedures on the OPPS inpatient only list are always appropriately inpatient, regardless 

of the actual time expected at the hospital, so long as the procedure is medically 

necessary and performed pursuant to a physician order and formal admission. 

 In addition to procedures contained on the OPPS inpatient only list, we noted in 

the FY 2014 IPPS/LTCH PPS final rule that there may be other rare and unusual 

circumstances in which a hospital stay expected to last less than 2 midnights would 

nonetheless be appropriate for inpatient hospital admission and Part A payment. We 

indicated that we would explore other potential exceptions to the generally applicable 

benchmark and would detail any such rare and unusual circumstances in subregulatory 

guidance. As part of this process, throughout the year, we have accepted and considered 

suggestions from stakeholders on this topic. 
 810 

 In January 2014, we identified medically necessary, newly initiated mechanical 

ventilation (excluding anticipated intubations related to minor surgical procedures or 

other treatment) as the first rare and unusual exception to the 2-midnight rule and 

announced it on the CMS Web site. 

 We recognize that there could be additional rare and unusual circumstances that 

we have not identified that justify inpatient admission and Part A payment absent an 

expectation of care spanning at least 2 midnights and are inviting further feedback on this 

issue. Suggestions can be sent to CMS via written correspondence or emailed to 

SuggestedExceptions@cms.hhs.gov with “Suggested Exceptions to the 2-Midnight 

Benchmark” in the subject line. We will continue to respond to these suggestions 

through subregulatory guidance, such as postings on the CMS Web site or manual 

instruction.
 811 

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

A. Overview 

 Section 1886(g) of the Act requires the Secretary to pay for the capital-related 

costs of inpatient acute hospital services “in accordance with a prospective payment 

system established by the Secretary.” Under the statute, the Secretary has broad authority 

in establishing and implementing the IPPS for acute care hospital inpatient capital-related 

costs. The IPPS for capital-related costs was initially implemented in the Federal fiscal 

year (FY) 1992 IPPS final rule (56 FR 43358), in which we established a 10-year 

transition period to change the payment methodology for Medicare hospital inpatient 

capital-related costs from a reasonable cost-based methodology to a prospective 

methodology (based fully on the Federal rate). 

 FY 2001 was the last year of the 10-year transition period established to phase in 

the IPPS for hospital inpatient capital-related costs. For cost reporting periods beginning 

in FY 2002, capital IPPS payments are based solely on the Federal rate for almost all 

acute care hospitals (other than hospitals receiving certain exception payments and 

certain new hospitals). (We refer readers to the FY 2002 IPPS final rule (66 FR 39910 

through 39914) for additional information on the methodology used to determine capital 

IPPS payments to hospitals both during and after the transition period.) 

 The basic methodology for determining capital prospective payments using the 

Federal rate is set forth in § 412.312 of the regulations. For the purpose of calculating 

capital payments for each discharge, the standard Federal rate is adjusted as follows: 
 812 

 (Standard Federal Rate) x (DRG Weight) x (Geographic Adjustment Factor 

(GAF)) x (COLA for hospitals located in Alaska and Hawaii) x (1 + Capital DSH 

Adjustment Factor + Capital IME Adjustment Factor, if applicable). 

 In addition, under § 412.312(c), hospitals also may receive outlier payments under 

the capital IPPS for extraordinarily high-cost cases that qualify under the thresholds 

established for each fiscal year. 

B. Additional Provisions 

1. Exception Payments 

 The regulations at § 412.348 provide for certain exception payments under the 

capital IPPS. The regular exception payments provided under §§ 412.348(b) through (e) 

were available only during the 10-year transition period. For a certain period after the 

transition period, eligible hospitals may have received additional payments under the 

special exceptions provisions at § 412.348(g). However, FY 2012 was the final year 

hospitals could receive special exceptions payments. For additional details regarding 

these exceptions policies, we refer readers to the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51725). 

 Under § 412.348(f), a hospital may request an additional payment if the hospital 

incurs unanticipated capital expenditures in excess of $5 million due to extraordinary 

circumstances beyond the hospital’s control. Additional information on the exception 

payment for extraordinary circumstances in § 412.348(f) can be found in the FY 2005 

IPPS final rule (69 FR 49185 and 49186). 
 813 

2. New Hospitals 

 Under the capital IPPS, § 412.300(b) of the regulations defines a new hospital as a 

hospital that has operated (under previous or current ownership) for less than 2 years and 

lists examples of hospitals that are not considered new hospitals. In accordance with 

§ 412.304(c)(2), under the capital IPPS a new hospital is paid 85 percent of its allowable 

Medicare inpatient hospital capital-related costs through its first 2 years of operation, 

unless the new hospital elects to receive full prospective payment based on 100 percent of 

the Federal rate. We refer readers to the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51725) for additional information on payments to new hospitals under the capital 

IPPS. 

3. Hospitals Located in Puerto Rico 

 Section 412.374 of the regulations provides for the use of a blended payment 

amount for prospective payments for capital-related costs to hospitals located in Puerto 

Rico. Accordingly, under the capital IPPS, we compute a separate payment rate specific 

to Puerto Rico hospitals using the same methodology used to compute the national 

Federal rate for capital-related costs. In general, hospitals located in Puerto Rico are paid 

a blend of the applicable capital IPPS Puerto Rico rate and the applicable capital IPPS 

Federal rate. Capital IPPS payments to hospitals located in Puerto Rico are computed 

based on a blend of 25 percent of the capital IPPS Puerto Rico rate and 75 percent of the 

capital IPPS Federal rate. For additional details on capital IPPS payments to hospitals 

located in Puerto Rico, we refer readers to the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51725). 
 814 

C. Proposed Annual Update for FY 2015 

 The proposed annual update to the capital PPS Federal and Puerto 

Rico-specific rates, as provided for at § 412.308(c), for FY 2015 is discussed in 

section III. of the Addendum to this proposed rule. 

 We note that, in section II.D. of the preamble of this proposed rule, we present a 

discussion of the MS-DRG documentation and coding adjustment, including previously 

finalized policies and historical adjustments, as well as the recoupment adjustment to the 

standardized amounts under section 1886(d) of the Act that we are proposing for 

FY 2015 in accordance with the amendments made to section 7(b)(1)(B) of Pub. L. 

110-90 by section 631 of the ATRA. Because section 631 of the ATRA requires CMS to 

make a recoupment adjustment only to the operating IPPS standardized amount, we are 

not proposing a similar adjustment to the national or Puerto Rico capital IPPS rates (or to 

the operating IPPS hospital-specific rates or Puerto Rico-specific standardized amount). 

This approach is consistent with our historical approach regarding the application of the 

recoupment adjustment authorized by section 7(b)(1)(B) of Pub. L. 110-90. 

 In section II.D.7. of the preamble of this proposed rule, we also note our 

discussion in the FY 2014 IPPS/LTCH PPS final rule of the possibility of applying an 

additional prospective adjustment to account for the cumulative MS-DRG documentation 

and coding effect through FY 2010. In that same final rule (78 FR 50515 through 50517 

and 50747), we stated that if we were to apply an additional prospective adjustment for 

the cumulative MS-DRG documentation and coding effect through FY 2010, we believe 

the most appropriate additional adjustment is -0.55 percent. We did not apply an 
 815 

additional prospective adjustment in FY 2014 for the cumulative MS-DRG 

documentation and coding effect through FY 2010, consistent with the approach taken 

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

believe that if we were to apply an additional prospective adjustment for the cumulative 

MS-DRG documentation and coding effect through FY 2010, the most appropriate 

additional adjustment is -0.55 percent. However, we are not proposing such an 

adjustment to the capital Federal rate in FY 2015, consistent with the approach taken for 

the operating IPPS standardized amount (and hospital-specific rates) as discussed in 

section II.D.7. of the preamble of this proposed rule. We will consider whether such an 

adjustment to the capital IPPS Federal rate is appropriate in future years’ rulemaking.
 816 

VI. Proposed Changes for Hospitals Excluded from the IPPS 

A. Proposed Rate-of-Increase in Payments to Excluded Hospitals for FY 2015 

 Certain hospitals excluded from a prospective payment system, including 

children’s hospitals, 11 cancer hospitals, and hospitals located outside the 50 States, the 

District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin 

Islands, Guam, the Northern Mariana Islands, and American Samoa) receive payment for 

inpatient hospital services they furnish on the basis of reasonable costs, subject to a 

rate-of-increase ceiling. A per discharge limit (the target amount as defined in 

§ 413.40(a) of the regulations) is set for each hospital based on the hospital’s own cost 

experience in its base year, and updated annually by a rate-of-increase percentage. For 

each cost reporting period, the updated target amount is multiplied by total Medicare 

discharges during that period and applies as an aggregate upper limit (the ceiling as 

defined in § 413.40(a) of total inpatient operating costs for a hospital’s cost reporting 

period. In accordance with § 403.752(a) of the regulations, RNHCIs also are subject to 

the rate-of-increase limits established under § 413.40 of the regulations discussed above. 

 As explained in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50747), 

beginning with FY 2006, we have used the percentage increase in the IPPS operating 

market basket to update the target amounts for children’s hospitals, cancer hospitals, and 

RNHCIs. Consistent with §§ 412.23(g), 413.40(a)(2)(ii)(A), and 413.40(c)(3)(viii), we 

also have used the percentage increase in the IPPS operating market basket to update the 

target amounts for short–term acute care hospitals located in the U.S. Virgin Islands, 

Guam, the Northern Mariana Islands, and American Samoa. For the reasons explained in 
 817 

the FY 2014 IPPS/LTCH PPS final rule (78 FR 50747), we are proposing to continue to 

use the percentage increase in the IPPS operating market basket to update the target 

amounts for children’s hospitals, cancer hospitals, RNHCIs, and short-term acute care 

hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and 

American Samoa for FY 2015 and subsequent fiscal years. 

 In addition, because we have revised and rebased the IPPS operating market 

basket to a FY 2010 base year, we are proposing to continue to use the percentage 

increase in the FY 2010-based IPPS operating market basket to update these target 

amounts for FY 2015 and subsequent fiscal years. (We refer readers to the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50596 through 50603) for a further discussion of the 

revision and rebasing of the IPPS operating market to a FY-2010 base year.) 

Accordingly, for FY 2015, the rate-of-increase percentage to be applied to the target 

amount for these children’s hospitals, cancer hospitals, RNHCIs, and short-term acute 

care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, 

and American Samoa would be the FY 2015 percentage increase in the FY 2010-based 

IPPS operating market basket. 

 For this proposed rule, based on IHS Global Insight, Inc.’s 2014 first quarter 

forecast, we estimated that the FY 2010-based IPPS operating market basket update for 

FY 2015 is 2.7 percent (that is, the estimate of the market basket rate-of-increase). We 

are proposing that if more recent data become available for the final rule, we would use 

them to calculate the IPPS operating market basket update for FY 2015. 
 818 

B.. Proposed Updates to the Reasonable Compensation Equivalent (RCE) Limits on 

Compensation for Physician Services Provided in Providers (§ 415.70) 

1. Background 

 Under section 1848 of the Act and 42 CFR Parts 414 and 415, medical or surgical 

services furnished by physicians to individual Medicare beneficiaries generally are billed 

and paid under Medicare Part B on a fee-for-service basis under the Medicare Physician 

Fee Schedule (MPFS). As required by section 1887(a)(2)(B) of the Act, the amount of 

allowable compensation for services furnished by physicians to providers that are paid by 

Medicare on a reasonable cost basis is subject to reasonable compensation equivalent 

(RCE) limits. Under these limits, Medicare recognizes as reasonable, for purposes of 

payment to the provider, the lower of the actual cost of the services furnished by the 

physician to the provider (that is, any form of compensation to the physician) or an RCE. 

The allowable compensation costs for physicians’ services to a provider are described in 

§ 415.55 of the regulations. Under § 415.60(a) of the regulations, for purposes of 

applying the RCE limits, “physician compensation costs means monetary payments, 

fringe benefits, deferred compensation, and any other items of value (excluding office 

space and billing and collection services) that a provider or other organization furnishes a 

physician in return for the physician’s services” to the provider. 

 On March 2, 1983, we published a final rule in the Federal Register that codified 

regulations to implement section 1887(a)(2)(B) of the Act (currently at 42 CFR 415.70) 

and established the first set of RCE limits (48 FR 8902). In accordance with 

§ 415.70(a)(2), RCE limits do not apply to the costs of physician compensation 
 819 

attributable to furnishing inpatient hospital services for which payment is made under the 

IPPS or to the costs of physician compensation attributable to approved GME programs 

that are payable under §§ 413.75 through 413.83 of the regulations. In addition, under 

§ 415.70(a)(3), compensation that a physician receives for activities that may not be paid 

for under either Medicare Part A or Part B is not considered in applying these RCE 

limits. Furthermore, in accordance with § 413.70, RCE limits are not used in determining 

the reasonable costs that CAHs incur in compensating physicians for services furnished 

to the CAH. 

 The RCE limits apply equally to all physicians’ services to providers that are 

payable on a reasonable cost basis under Medicare. If a physician receives any 

compensation from one or more providers for his or her services to the provider (that is, 

those services that benefit patients generally), payment to those providers for the costs of 

such compensation is subject to the RCE limits. The RCE limits are not applied to 

payment for services that are identifiable medical or surgical services to individual 

patients and paid under the MPFS, even if the physician agrees to accept compensation 

(for example, from a hospital) for those services. Payments to teaching hospitals that 

have elected to be paid for physicians’ services to the provider on a reasonable cost basis

in accordance with section 1861(b)(7) of the Act are subject to the limits (68 FR 45458). 

2. Overview of the Current RCE Limits 

a. Application of the RCE Limits 

 Currently, we use the RCE limits to compute Medicare payments when a 

physician is compensated by a provider that is subject to the RCE limits. We also use 
 820 

these limits when the physician is compensated by any other provider-related 

organization for physician administrative, supervisory, and other services to the provider 

under Medicare. In applying the RCE limits, we compute the Medicare payments using 

information submitted on the cost report, and ensure that each compensated physician is 

assigned to the most appropriate specialty category. The current physician specialty 

categories for RCE limits are General/Family Practice, Internal Medicine, Surgery, 

Pediatrics, OB/GYN, Radiology, Psychiatry, Anesthesiology, Pathology, and Total. If 

there is no specific specialty category (for example, for an emergency room physician), 

we use the “Total” category, for which the RCE limits are calculated based on mean 

annual income data for all physicians. 

 If the physician’s contractual compensation covers all duties, activities, and 

services furnished to the provider and, under a reassignment, all physicians’ services 

furnished to individual patients of the provider, and the physician is employed by the 

provider full time, we use the RCE limit for the appropriate specialty, adjusted by the 

physician’s allocation agreement (which reflects the percentage of total time spent 

performing services furnished to the provider) to arrive at the Medicare program’s share 

of the provider’s allowable physician compensation costs (§ 415.60). In the absence of 

an allocation agreement, we would assume that 100 percent of the compensation paid to 

the physician by the provider is related to physicians’ services for which payment is made 

under the MPFS and that there are no allowable physician compensation costs to the 

provider (§ 415.60(f)(2)). 
 821 

 If a physician’s compensation from the provider represents payment only for 

services that benefit patients generally (that is, the physician bills for all services 

furnished to individual patients), we use the appropriate specialty RCE limit. If a 

physician is employed by a provider to furnish services of general benefit to patients on 

other than a full-time basis, the RCE limit will be adjusted to reflect the hours the 

physician actually worked, as reported on the provider’s cost report, related to a full work 

year of 2,080 hours. 

b. Exceptions to the RCE Limits 

 Some providers such as small or rural hospitals may be unable to recruit or 

maintain an adequate number of physicians at a compensation level within the prescribed 

RCE limits. In accordance with section 1887(a)(2)(C) of the Act and § 415.70(e) of the 

regulations, if a provider can demonstrate to the MAC its inability to recruit or maintain 

physicians at a compensation level allowable under the RCE limits (as documented, for 

example, by unsuccessful advertising through national medical or health care 

publications), the MAC may grant the provider an exception to the RCE limits 

established under these rules. Such exceptions would allow the provider to be paid based 

on costs for compensation higher than the RCE limit. 

c. Methodology for Establishing the RCE Limits 

 In the March 2, 1983 final rule with comment period (48 FR 8902), we published 

the initial RCE limits, along with the methodology used to calculate those limits, that 

were applicable to cost reporting periods beginning during CYs 1982 and 1983. As part 

of that same rule, we established regulations that outline our general authority to develop, 
 822 

publish, and apply RCE limits (currently at § 415.70). Section 415.70(b) of the 

regulations specifies that we establish the methodology for determining annual RCE 

limits, considering, to the extent possible, average physician incomes by specialty and 

type of location, using the best available data. 

 The methodology for establishing the initial RCE limits was based on the analysis 

contained in an internal working paper, “A Methodology for Determination of 

Reasonable FTE Compensation for Hospital-Based Physicians.”43 (Copies of this 

working paper are available on the CMS Web site at: http://www.cms.gov/MedicareFee-for-Service-Payment/AcuteInpatientPPS/index.html.) As outlined in this working 

paper, our methodology for establishing the initial reasonable levels of compensation 

includes the following five steps (for additional discussion of this methodology, we refer 

readers to the March 2, 1983 final rule with comment period (48 FR 8902)): 

 Step 1: We estimated the national average (mean) income for all physicians using 

1979 physician net incomes from the American Medical Association (AMA) Periodic 

Survey of Physicians (PSP), published by the AMA in its Profile of Medical Practices, 

1981. 

 Step 2: We projected physicians’ 1979 base net income levels to the appropriate 

future year to account for changes in net income levels occurring after the period for 

which we have data using the Consumer Price Index for All Urban Consumers (CPI-U), 

and projected the results using forecasts of the CPI-U for future years. 

 

43 Cantwell, James R. and Sobaski, William J., A Methodology for Determination of Reasonable FTE 

Compensation for Hospital-Based Physicians, Working Paper No. OR-32, revised December 1982. 
 823 

 Step 3: We determined the relationship between average net income for all 

physicians (estimated in the first step above) and net income of certain categories of 

specialist physicians that are commonly compensated by providers for services that 

generally benefit Medicare beneficiaries resulting in separate specialty adjusters for nine 

physician specialties as well as the adjuster for the “Total” category. 

 Step 4: We also adjusted each of these specialty (including the “Total”) adjusters 

for differences in costs between types of geographic locations using Standard 

Metropolitan Statistical Areas (SMSAs) as defined by the Office of Management and 

Budget (OMB). 

 Step 5: Using the AMA PSP data, we calculated the average hours practiced per 

year for each specialty and location adjuster combination, which we then related to a 

standard full-time equivalent (FTE) work year of 2,080 hours. We used these ratios to 

weight the specialty-location adjusters from the previous step. 

 This same methodology was used to update the RCE limits published in a notice 

in the Federal Register on May 5, 1997 (62 FR 24483). These updated RCE limits were 

effective for cost reporting periods beginning on or after May 5, 1997. 

 For RCE limits established prior to January 1, 1998, we used the CPI-U to 

update the RCE limits. In a final rule with comment period published in the Federal 

Register on October 31, 1997 (62 FR 59075), we finalized a policy to use the Medicare 

Economic Index (MEI) to update the RCE limits (rather than the CPI-U), effective for 

cost reporting periods beginning on or after January 1, 1998. We adopted the MEI as the 

applicable update factor in order to achieve a measure of consistency in the 
 824 

methodologies used to determine payments to physicians for medical and surgical 

services furnished to individual patients and reasonable compensation levels for services 

that are of general benefit to a provider’s patients. However, we did not update the RCE 

limits at that time. 

 In the FY 2004 IPPS final rule published in the Federal Register on 

August 1, 2003 (68 FR 45458), we published updated RCE limits that were effective for 

cost reporting periods beginning on or after January 1, 2004. We updated the RCE limits 

using the CPI-U to adjust the data to 1997, and the MEI to adjust the data from 1998 to 

2004. In addition, we continued to adjust the RCE limits to account for differences in 

salary levels by location, as well as by specialty. For the location adjustment, we 

continued to base the geographical classifications of the providers on Metropolitan 

Statistical Areas (MSAs) (the OMB changed the area name to describe metropolitan areas 

in the 1980’s from SMSAs to MSAs, but the definition of MSAs differed only slightly 

from the previously used SMSAs). 

3. Proposed Changes to the RCE Limits 

 In accordance with § 415.70(b), when establishing the methodology to determine 

the RCE limits, we consider, to the extent possible, the average physician incomes by 

specialty and type of location using the best available data. Since the initial RCE limits 

were developed, we have adjusted the RCE data to account for specialty and location (as 

discussed earlier in this section). In this proposed rule, we are proposing to use the most 

recent MEI data to update the RCE limits and to replace the RCE limits that have been in 

effect since January 1, 2004. We believe that doing so will enhance the accuracy of the 
 825 

RCE limits. In addition, for the reasons discussed below, we are proposing to eliminate 

the location adjustment to the RCE data, while continuing to adjust the RCE limits by 

specialty. We are not proposing changes to any of the other existing policies with respect 

to the application of and exceptions to the RCE limits. 

 In establishing the initial and subsequently updated RCE limits, we included an 

adjustment to account for differences in salary levels based on the location of the 

provider using geographic classifications based on the MSAs as defined by the OMB. 

We assigned an appropriate MSA designation based on the State/county in which the 

provider is located. We included a table in each of the previous RCE limit notices and 

rules, whereby each MSA designation was grouped into one of three categories: 

Metropolitan areas with a population greater than 1 million, metropolitan areas with a 

population less than 1 million, and non-metropolitan areas. The MSA designation of the 

provider is then used to identify the appropriate RCE limit. 

 To update the current RCE limits by location under the current methodology, we 

would need to use, as in past updates, the MSA designations that correspond with the 

update period. However, since 2003, the OMB no longer updates or uses MSAs. We 

considered continuing to use the MSA designations, as we have in the past, but we would 

have no way to account for shifts in populations among MSAs because the OMB no 

longer updates geographic classifications based on MSA designations. The OMB 

regularly updates the geographic definitions, and the counties included in each area, to 

account for population shifts due to migrations, birth, and death rates but currently the 

OMB uses Core-Based Statistical Area (CBSA) designations rather than MSAs. If we 
 826 

were to continue to use the MSA designation, providers could potentially be underpaid or 

overpaid if the population of their MSA changed significantly from 2004. Therefore, we 

determined that, because the MSA designations are no longer updated, it would not be 

appropriate to continue using the previous location adjustment methodology. The most 

recent geographic delineations used by the OMB are CBSAs, a term used to refer to both 

Metropolitan and Micropolitan Statistical Areas. However, CBSA delineations do not 

match the MSA definitions that were used to develop the initial and subsequently updated 

RCE limits. As noted above, we have used the AMA PSP data to develop previous and 

current RCE limits. The AMA PSP data were collected from 1970 to 1980 and included 

physicians’ income, hours worked, and MSA-based population information. The data 

that have been used to develop and update the RCE limits were developed using MSAs as 

the geographic unit. It is not possible to exactly crosswalk the MSA designations to the 

CBSA designations in order to update the RCE limits using the current location 

adjustment methodology. Even if it was possible to crosswalk the MSAs to the CBSAs, 

it would not be appropriate to use the MSA-based AMA PSP data to develop 

CBSA-based RCE limits. There have been significant changes in the populations of the 

MSA-based locations contained in the AMA PSP data that could not be translated into 

CBSAs. As such, that data would no longer be valid as the basis to develop RCE limits 

based on CBSAs 

 The OMB has cautioned users about using the new CBSA designations. For 

instance, in OMB’s 2010 “Standards for Delineating Metropolitan and Micropolitan 
 827 

Statistical Areas (CBSAs)” published on June 28, 2010 in the Federal Register

(75 FR 37246), OMB states: 

 “OMB establishes and maintains these areas solely for statistical purposes. In 

reviewing and revising these areas, OMB does not take into account or attempt to 

anticipate any public or private sector nonstatistical uses that may be made of the 

delineations. These areas are not designed to serve as a general-purpose geographic 

framework applicable for nonstatistical activities or for use in program funding formulas. 

 “Furthermore, the Metropolitan and Micropolitan Statistical Area Standards do 

not produce an urban-rural classification, and confusion of these concepts can lead to 

difficulties in program implementation. Counties included in Metropolitan and 

Micropolitan Statistical Areas and many other counties may contain both urban and rural 

territory and populations. . . . OMB urges agencies, organizations, and policy makers to 

review carefully the goals of nonstatistical programs and policies to ensure that 

appropriate geographic entities are used to determine eligibility for the allocation of 

Federal funds.” (Emphasis in original.) 

 For CMS to accurately update the location-adjusted RCE limits using the CBSAs, 

we believe it would be necessary to use a new data source for information on physician 

salaries, specialties, location, and hours worked; and the data would need to be allocated 

to different geographic areas based on CBSAs. The AMA PSP collected data from a 

large sample of office-based physicians. We considered using data that are currently 

collected and publicly available. We could not find a reliable dataset that contained all of 

the necessary data elements needed to update the location-adjusted RCE limits based on 
 828 

CBSAs. The most reliable data we could find came from the Bureau of Labor Statistics 

(BLS) Occupational Employment Statistics (OES). The BLS OES data are collected 

annually, and capture a large and diverse population of physicians and corresponding 

CBSA. We believe the BLS OES data are the most current, reliable source of income 

data for physicians. Although, the BLS OES is very reliable and collects data points for 

physician specialties, salary, and location, it does not collect detailed information for all 

10 specialties; the “Radiology” and “Pathology” specialties are not separately captured. 

As such, we did not believe it was appropriate to use the BLS OES data to create an 

updated RCE limit if we would not have data available for two specialties. 

 We also weighed the benefit of collecting updated information from physicians 

(through use of a new nationwide survey) in order to obtain the data necessary for 

application of an appropriate locality adjustment based on CBSAs against the burden 

placed on such physicians in providing such data. In order to have a dataset that could 

accurately capture all the necessary information, we would need to collect data from a 

large population of physicians, including a sufficient sample size for each physician 

specialty in each CBSA. We weighed the burden that such a nationwide survey would 

entail for all physicians, including office-based physicians, to be asked to respond to an 

in-depth survey regarding their salary, specialty, location, hours worked, and other 

practice information against the benefit of using updated, CBSA-based information to 

include a location adjustment for the providers that are subject to the RCE limits. 

 When the RCE limits were developed in 1983, other than inpatient acute care 

hospitals paid under the IPPS, most provider types were reimbursed on a reasonable cost 
 829 

basis. Since then, providers such as skilled nursing facilities (SNFs), long-term care 

hospitals (LTCHs), inpatient rehabilitation facilities (IRFs), inpatient psychiatric facilities 

(IPFs), and home health agencies (HHAs) that previously were paid on a reasonable cost 

basis have transitioned to prospective payment systems and are no longer subject to the 

RCE limits. As of FY 2011 (the most recent cost report year for which we have complete 

data), our data show that there were only 59 children’s hospitals and cancer hospitals and 

46 teaching hospitals (that have elected to be paid for physicians’ services to the provider 

on a reasonable cost basis) that are subject to the RCE limits. As such, we believe the 

benefit that could be gained by gathering the new data that would be necessary to 

maintain a location adjustment for the RCE limits is outweighed by the burden of 

conducting such a comprehensive survey of physicians. 

 Furthermore, we analyzed how the elimination of the location adjustment would 

affect the accuracy and appropriateness of the proposed RCE limits. To perform this 

analysis, we needed a reliable source of physician income data (without a location 

adjustment) which could be compared to the RCE limits without a location adjustment. 

We determined that the best available source of physician income data is the mean annual 

income data for similar RCE physician specialties collected by the BLS OES. As 

mentioned above, the BLS OES data are collected annually and capture a large and 

diverse population of physicians. These data are the most current, reliable source of 

income data by physician specialties. In addition, when comparing salaries, it is 

important to compare salary amounts that reflect the same number of hours worked per 

year. Because many physicians do not work a 2,080 hour work year, their salary may 
 830 

seem higher or lower due to the number of hours actually worked. The RCE limits are 

based on physicians who worked a 2,080 hour work year. The BLS OES data also are 

based on a 2,080 hour work year; therefore, we believe that comparing the RCE limits to 

these BLS OES data is appropriate for purposes of our analysis. 

 We performed an analysis comparing RCE limits for 2012, calculated without a 

location adjustment and solely for purposes of the analysis, to the most recently published 

(at the time of the analysis) BLS OES physician mean annual income data for the same 

year, to determine whether RCE limits based on the AMA PSP data, but without a 

location adjustment, would continue to reasonably reflect mean annual physician income 

data. For 2012, the BLS OES had income information for 8 of the 10 RCE specialties, 

which include the “Total” category; the BLS OES data did not capture the “Radiology” 

and “Pathology” specialties. We searched for another reliable data source for 

“Radiology” and “Pathology” but we could not find one with sufficient data elements to 

compare with the RCE limits. We used the MEI to update the RCE limits for these eight 

specialties to 2012 without including the location factor. We then compared these 2012 

RCE limits to the 2012 BLS OES data for these same eight specialties. As shown in the 

table below, we found that the RCE limits ranged from 10.41 percent above the BLS 

OES mean annual income data to 3.58 percent below the BLS OES data. Only three of 

the eight specialties had RCE limits slightly less than the current BLS OES mean annual 

wages for their specialty. The remaining five specialties had RCE limits above the 

current BLS OES mean annual wages for the specialties. 

 
 831 

Analysis Chart 

Specialty 

RCE 

Limits 

Updated to 

2012* 

BLS OES 

Mean 2012 

Annual 

Wage 

Percent 

Difference 

Total $206,300 $184,820 10.41%

General/Family Practice $174,600 $180,850 -3.58%

Internal Medicine $192,700 $191,520 0.61%

Surgery $240,300 $230,540 4.06%

Pediatrics $165,500 $167,640 -1.29%

OB/GYN $231,200 $216,760 6.25%

Radiology $265,200 N/A N/A

Psychiatry $176,800 $177,520 -0.41%

Anesthesiology $233,500 $232,820 0.29%

Pathology $253,900 N/A N/A

*These limits were calculated using the proposed methodology only for purposes of this impact analysis. 

 The RCE amounts updated to 2012 and the BLS OES numbers for 2012 varied 

only slightly, and in most cases, the RCE limit was higher than the BLS OES mean 

annual wage. Based on this analysis, we believe that RCE limits calculated using the 

AMA PSP data, and our proposed elimination of the location adjustment for the updated 

RCE limits, would result in RCE limits that are a reasonable reflection of mean annual 

physician income and would continue to ensure that providers subject to the RCE limits 

are paid in a fair and accurate manner. 

 Because there are a relatively small number of providers currently affected by the 

RCE limits and because, as discussed above, we believe the revised RCE limits without a 

location adjustment would continue to ensure appropriate payment to such providers, we 

believe that eliminating the location adjustment would have a minimal overall effect on 

providers subject to the RCE limits and on the industry as a whole. 
 832 

 For the reasons discussed above, we are proposing to eliminate the location 

adjustment under the RCE limit methodology, and to revise § 415.70(b) of the 

regulations to remove consideration of the “type of location” as part of the methodology 

used to establish RCE limits. 

 Set forth below are the proposed updated RCE limits on the amount of allowable 

compensation for services furnished by physicians to providers for cost reporting periods 

beginning on or after January 1, 2015. To calculate these proposed RCE limits, we used 

the same methodology that was used to calculate the original and previous updates to the 

RCE limits, but did not apply an adjustment based on geographical classification. As 

noted earlier, this methodology was derived from the 1982 working paper. We used the 

mean physician income by specialty from that working paper to calculate the RCE limits 

without adjusting for geographical classification. We then updated these data by the 

CPI-U (from 1982 to 1997) and then by the MEI (from 1998 to 2015) to compute the 

proposed updated RCE limits. The proposed RCE limits effective for cost reporting 

periods beginning on or after January 1, 2015 are shown in the chart below. 

Proposed CY 2015 RCE Limits 

Total $212,100

General/Family Practice $179,500

Internal Medicine $198,100

Surgery $247,100

Pediatrics $170,200

OB/GYN $237,800

Radiology $272,700

Psychiatry $181,800

Anesthesiology $240,100

Pathology $261,100
 833 

 We are inviting public comments on our proposals to update the RCE limits and 

to eliminate the location adjustment for the RCE limits for cost reporting periods 

beginning on or after January 1, 2015. In addition, we are inviting public comments on 

our proposal to revise § 415.70(b) of the regulations to eliminate consideration of the 

type of location as part of the methodology to establish RCE limits for cost reporting 

periods beginning on or after January 1, 2015. 

C. Critical Access Hospitals (CAHs) 

1. Background 

 Sections 1820 and 1861(mm) of the Act, as amended by section 4201 of the 

Balanced Budget Act (BBA) of 1997, replaced the Essential Access Community 

Hospitals and Rural Primary Care Hospitals (EACH/RPCH) program with the Medicare 

Rural Hospital Flexibility Program (MRHFP), under which a qualifying facility can be 

designated as a CAH. CAHs participating in the MRHFP must meet the conditions for 

designation by the State and be certified by the Secretary in accordance with section 1820 

of the Act. Further, in accordance with section 1820(e)(3) of the Act, a CAH must meet 

other criteria that the Secretary specifies. 

 The regulations that govern the conditions of participation (CoPs) for CAHs 

under the statutory requirements of section 1820 are codified at 42 CFR Part 485, 

Subpart F. 
 834 

2. Proposed Changes Related to Reclassification as Rural for CAHs 

 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 in accordance with section 1886(d)(8)(E) of the Act. The regulations 

implementing this location requirement are located at § 485.610(b). The regulations 

governing the process for a facility located in an urban area to apply for reclassification 

as a rural facility under section 1886(d)(8)(E) of the Act are located at § 412.103. 

 In this proposed rule, we are proposing to implement the most recently published 

OMB delineations (we refer readers to section III.B. of the preamble of this proposed rule 

for a discussion of the changes that were announced in OMB Bulletin No. 13-01). As 

previously stated, a facility must be located in a rural area in order to be eligible for 

designation as a CAH. Therefore, a new OMB delineation that redesignates an area from 

rural to urban, affects the status of a facility that is currently a CAH and had met the 

CAH location requirements prior to the new OMB delineation. A facility that is located 

in an urban area cannot remain a CAH unless it is reclassified as rural under § 412.103 of 

the regulations. In both the FY 2005 IPPS final rule (69 FR 49221 and 69 FR 60252) and 

the FY 2010 IPPS/LTCH PPS final rule (74 FR 43940), we amended the regulations at 

§ 412.103(a) and § 485.610(b) to provide for a transition period during which CAHs that 

had previously been located in rural areas but, as a result of new OMB delineations, were 

now located in urban areas, could reclassify as rural under § 412.103. Specifically, in 

both the FY 2005 IPPS final rule and the FY 2010 IPPS/LTCH PPS final rule, we 
 835 

provided for a 2-year period during which a CAH located in an urban area as a result of 

the new OMB delineations could continue participating without interruption as a CAH, 

thereby allowing the CAH sufficient time to reclassify as rural under § 412.103. If the 

facility did not reclassify as a rural facility by the end of that 2-year period, the CAH 

would not be able to retain its CAH status beyond that 2-year period. However, under the 

FY 2005 IPPS final rule and the FY 2010 IPPS/LTCH PPS final rule, the application of 

the regulation was limited to October 1, 2004 through September 30, 2006, and 

October 1, 2009 through September 30, 2011, respectively. As a result, in the absence of 

a new amendment to the regulations each time there are new OMB delineations, a CAH 

that becomes located in an urban area as a result of those OMB delineations would not be 

given 2 years to reclassify as rural under § 412.103 of the regulations. 

 In the FY 2010 IPPS/LTCH PPS final rule (74 FR 43940), we stated that we 

would consider whether it would be 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 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. After further consideration, 

we believe that it is appropriate to propose to change the regulations to provide for a 

transition period that is not restricted to a timeframe, but rather can be applied any time a 

facility that is currently designated as a CAH becomes located in an urban area as a result 

of a new OMB delineation. 

 Therefore, we are proposing that, effective October 1, 2014, a CAH that was 

previously located in a rural area but is now located in an urban area as a result of a new 
 836 

OMB labor market area delineation will continue to be treated as rural for 2 years from 

the date the OMB delineation is implemented. Accordingly, if the OMB delineations 

announced in OMB Bulletin No. 13-01 on February 28, 2013 discussed in section III.B. 

of the preamble of this proposed rule are implemented in the FY 2015 IPPS/LTCH PPS 

final rule, effective October 1, 2014, any CAH affected by the new OMB delineations in 

OMB Bulletin No. 13-01 would retain its rural status through September 30, 2016. An 

affected CAH would be required to reclassify as a rural facility under § 412.103 within 

that 2-year period in order to continue participating in the Medicare program as a CAH 

after the 2-year transition period ends. Therefore, taking into consideration the example 

above, any CAH affected by a new OMB delineation that is implemented in the FY 2015 

IPPS/LTCH PPS final rule would be required to reclassify as rural by 

September 30, 2016, in order to retain its CAH status after September 30, 2016. 

 To implement this proposed change, we are proposing to revise § 412.103 by 

adding a new paragraph (a)(6), and to revise § 485.610 by making a conforming change 

to the introductory text of paragraph (b) and adding a new paragraph (b)(5) to provide for 

a 2-year transition period that will apply any time a new OMB delineation causes a 

facility that was previously located in a rural area and is designated as a CAH to be 

located in an urban area. We believe that this proposal to revise the regulations to 

automatically provide for a 2-year transition period following the implementation of new 

OMB delineations is more efficient than providing for a regulatory change limited to a 

timeframe, and, as a result, will be more effective in reducing any disruption caused by 

new OMB delineations. 
 837 

3. Proposed Revision of the Requirements for Physician Certification of CAH Inpatient 

Services

 For inpatient CAH services to be payable under Medicare Part A, section 

1814(a)(8) of the Act requires that a physician certify “that the individual may reasonably 

be expected to be discharged or transferred to a hospital within 96 hours after admission 

to the critical access hospital.” The regulations implementing this statutory requirement 

are located at 42 CFR 424.15. 

 Prior to FY 2014, this physician certification was required no later than 1 day 

before the date on which the claim for payment for the inpatient CAH service is 

submitted. In the FY 2014 IPPS/LTCH PPS final rule, we revised the CAH regulations 

concerning the timing requirements for certification of inpatient CAH services. 

Specifically, we revised § 424.15(b) to state: “Certification begins with the order for 

inpatient admission. The certification must be completed, signed, and documented in the 

medical record prior to discharge” (78 FR 50970). This change was effective 

October 1, 2013. 

 However, in order to provide CAHs with greater flexibility in meeting this 

certification requirement, we are now proposing to amend the regulations governing the 

timing of the 96-hour certification requirement at § 424.15(b) such that physician 

certification is required no later than 1 day before the date on which the claim for 

payment for the inpatient CAH service is submitted. That is, we are proposing to remove 

the requirement that certification of the 96-hour requirement must be completed prior to 
 838 

discharge and are proposing to reinstate the timing requirement that was in place prior to 

October 1, 2013. 

 We are proposing to revise § 424.15(b) to remove the phrase “prior to discharge” 

and replace it with “no later than 1 day before the date on which the claim for payment 

for the inpatient CAH service is submitted”. In addition, we are proposing to make a 

conforming amendment to § 424.11(d)(5). Section 424.11(d)(5) states “[f]or all inpatient 

hospital or critical access hospital inpatient services, including inpatient psychiatric 

facility services, a delayed certification may not extend past discharge.” Because we are 

proposing to change the timing requirement for physician certification of CAH inpatient 

services at § 424.15(b), such that the certification could be completed past discharge, we 

are proposing to revise § 424.11(d)(5) to remove the phrase “or critical access hospital 

inpatient”. We are seeking public comment on these proposed changes to the regulations 

governing the requirement for physician certification of CAH inpatient services.
 839 

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

System (LTCH PPS) for FY 2015 

A. Background of the LTCH PPS 

1. Legislative and Regulatory Authority 

 Section 123 of the Medicare, Medicaid, and SCHIP (State Children's Health 

Insurance Program) Balanced Budget Refinement Act of 1999 (BBRA) 

(Pub. L. 106-113) as amended by section 307(b) of the Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554) provides for 

payment for both the operating and capital-related costs of hospital inpatient stays in 

long-term care hospitals (LTCHs) under Medicare Part A based on prospectively set 

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

that are described in section 1886(d)(1)(B)(iv) of the Act, effective for cost reporting 

periods beginning on or after October 1, 2002. 

 Section 1886(d)(1)(B)(iv)(I) of the Act defines a LTCH as “a hospital which has 

an average inpatient length of stay (as determined by the Secretary) of greater than 

25 days.” Section 1886(d)(1)(B)(iv)(II) of the Act also provides an alternative definition 

of LTCHs: specifically, a hospital that first received payment under section 1886(d) of 

the Act in 1986 and has an average inpatient length of stay (LOS) (as determined by the 

Secretary of Health and Human Services (the Secretary)) of greater than 20 days and has 

80 percent or more of its annual Medicare inpatient discharges with a principal diagnosis 

that reflects a finding of neoplastic disease in the 12-month cost reporting period ending 

in FY 1997. 
 840 

 Section 123 of the BBRA requires the PPS for LTCHs to be a “per discharge” 

system with a diagnosis-related group (DRG) based patient classification system that 

reflects the differences in patient resources and costs in LTCHs. 

 Section 307(b)(1) of the BIPA, among other things, mandates that the Secretary 

shall examine, and may provide for, adjustments to payments under the LTCH PPS, 

including adjustments to DRG weights, area wage adjustments, geographic 

reclassification, outliers, updates, and a disproportionate share adjustment. 

 In the August 30, 2002 Federal Register, we issued a final rule that implemented 

the LTCH PPS authorized under the BBRA and BIPA (67 FR 55954). For the initial 

implementation of the LTCH PPS (FYs 2003 through FY 2007), the system used 

information from LTCH patient records to classify patients into distinct long-term care 

diagnosis-related groups (LTC-DRGs) based on clinical characteristics and expected 

resource needs. Beginning in FY 2008, we adopted the Medicare severity long-term care 

diagnosis-related groups (MS-LTC-DRGs) as the patient classification system used under 

the LTCH PPS. Payments are calculated for each MS-LTC-DRG and provisions are 

made for appropriate payment adjustments. Payment rates under the LTCH PPS are 

updated annually and published in the Federal Register. 

 The LTCH PPS replaced the reasonable cost-based payment system under the Tax 

Equity and Fiscal Responsibility Act of 1982 (TEFRA) (Pub. L. 97-248) for payments for 

inpatient services provided by a LTCH with a cost reporting period beginning on or after 

October 1, 2002. (The regulations implementing the TEFRA reasonable cost-based 

payment provisions are located at 42 CFR Part 413.) With the implementation of the PPS 
 841 

for acute care hospitals authorized by the Social Security Amendments of 1983 

(Pub. L. 98-21), which added section 1886(d) to the Act, certain hospitals, including 

LTCHs, were excluded from the PPS for acute care hospitals and were paid their 

reasonable costs for inpatient services subject to a per discharge limitation or target 

amount under the TEFRA system. For each cost reporting period, a hospital-specific 

ceiling on payments was determined by multiplying the hospital's updated target amount 

by the number of total current year Medicare discharges. (Generally, in section VII. of 

the preamble of this proposed rule, when we refer to discharges, we describe Medicare 

discharges.) The August 30, 2002 final rule further details the payment policy under the 

TEFRA system (67 FR 55954). 

 In the August 30, 2002 final rule, we provided for a 5-year transition period from 

payments under the TEFRA system to payments under the LTCH PPS. During this 

5-year transition period, a LTCH’s total payment under the PPS was based on an 

increasing percentage of the Federal rate with a corresponding decrease in the percentage 

of the LTCH PPS payment that is based on reasonable cost concepts, unless a LTCH 

made a one-time election to be paid based on 100 percent of the Federal rate. Beginning 

with LTCHs’ cost reporting periods beginning on or after October 1, 2006, total LTCH 

PPS payments are based on 100 percent of the Federal rate. 

 In addition, in the August 30, 2002 final rule, we presented an in-depth discussion 

of the LTCH PPS, including the patient classification system, relative weights, payment 

rates, additional payments, and the budget neutrality requirements mandated by section 

123 of the BBRA. The same final rule that established regulations for the LTCH PPS 
 842 

under 42 CFR Part 412, Subpart O, also contained LTCH provisions related to covered 

inpatient services, limitation on charges to beneficiaries, medical review requirements, 

furnishing of inpatient hospital services directly or under arrangement, and reporting and 

recordkeeping requirements. We refer readers to the August 30, 2002 final rule for a 

comprehensive discussion of the research and data that supported the establishment of the 

LTCH PPS (67 FR 55954). 

 We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51733 

through 51743) for a chronological summary of the main legislative and regulatory 

developments affecting the LTCH PPS through the annual update cycles prior to the 

FY 2014 rulemaking cycle. In addition, in this proposed rule, we discuss the provisions 

of the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67), enacted on 

December 26, 2013, that affect the LTCH PPS. In section VII.I.2. of the preamble of this 

proposed rule, we discuss the provisions of section 1206(a) of Pub. L. 113-67, which 

amended section 1886(m) of the Act by adding paragraph (6) and established, among 

other things, patient-level criteria for payments under the LTCH PPS for implementation 

beginning with FY 2016. In section VII.E. of the preamble of this proposed rule, we 

discuss the provisions of section 1206(b)(1) of Pub. L. 113-67, which provide for the 

retroactive reinstatement and extension, for an additional 4 years, of the moratorium on 

the full implementation of the 25-percent threshold payment adjustment policy (except 

for “grandfathered” hospitals-within-hospitals (HwHs), which are permanently exempt 

from this policy). In section VII.G. of the preamble of this proposed rule, we discuss the 

provisions of section 1206(b)(2) of Pub. L. 113-67 (as amended by section 112(b) of the 
 843 

Protecting Access to Medicare Act (Pub. L. 113-93), which, subject to certain defined 

exceptions, provide for statutory moratoria on the establishment of new LTCHs and 

LTCH satellite facilities and a new statutory moratorium on the increase in the number of 

hospital beds in LTCHs or LTCH satellite facilities for the period beginning 

April 1, 2014 and ending September 30, 2017. In section IX.C. of the preamble of this 

proposed rule, we discuss the provisions of section 1206(c) of Pub. L. 113-67, which 

amended the LTCH Quality Reporting Program established under section 1886(m)(5) of 

the Act by requiring the Secretary to establish a functional status quality measure to 

evaluate the in mobility among inpatients requiring ventilator support no later than 

October 1, 2015. In section VII.H. of the preamble of this proposed rule, we discuss the 

findings of a review of payments to certain LTCHs (that is, LTCHs classified under 

subclause (II) of section 1886(d)(1)(B)(iv) of the Act) that was conducted in accordance 

with section 1206(d) of Pub. L. 113-67, and propose to apply a payment adjustment 

under the LTCH PPS to “subclause (II)” LTCHs beginning in FY 2015 that would result 

in payments to this type of LTCH resembling payments under the reasonable cost 

TEFRA payment system model. 

2. Criteria for Classification as an LTCH 

a. Classification as an LTCH 

 Under the regulations at § 412.23(e)(1), to qualify to be paid under the LTCH 

PPS, a hospital must have a provider agreement with Medicare. Furthermore, 

§ 412.23(e)(2)(i), which implements section 1886(d)(1)(B)(iv)(I) of the Act, requires that 

a hospital have an average Medicare inpatient length of stay of greater than 25 days to be 
 844 

paid under the LTCH PPS. Alternatively, § 412.23(e)(2)(ii) states that, for cost reporting 

periods beginning on or after August 5, 1997, a hospital that was first excluded from the 

PPS in 1986 and can demonstrate that at least 80 percent of its annual Medicare inpatient 

discharges in the 12-month cost reporting period ending in FY 1997 have a principal 

diagnosis that reflects a finding of neoplastic disease must have an average inpatient 

length of stay for all patients, including both Medicare and non-Medicare inpatients, of 

greater than 20 days. 

b. Hospitals Excluded from the LTCH PPS 

 The following hospitals are paid under special payment provisions, as described 

in § 412.22(c) and, therefore, are not subject to the LTCH PPS rules: 

● Veterans Administration hospitals. 

● Hospitals that are reimbursed under State cost control systems approved under 

42 CFR Part 403. 

● Hospitals that are reimbursed in accordance with demonstration projects 

authorized under section 402(a) of the Social Security Amendments of 1967 

(Pub. L. 90-248) (42 U.S.C. 1395b-1) or section 222(a) of the Social Security 

Amendments of 1972 (Pub. L. 92-603) (42 U.S.C. 1395b-1 (note)) (Statewide all-payer 

systems, subject to the rate-of-increase test at section 1814(b) of the Act). 

● Nonparticipating hospitals furnishing emergency services to Medicare 

beneficiaries. 

3. Limitation on Charges to Beneficiaries 
 845 

 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, 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 specified under § 489.30(a). However, under the 

LTCH PPS, Medicare will only pay for days for which the beneficiary has coverage until 

the short-stay outlier (SSO) threshold is exceeded. Therefore, if the Medicare payment 

was for a SSO case (§ 412.529) that was less than the full LTC-DRG payment amount 

because the beneficiary had insufficient remaining Medicare days, the LTCH could also 

charge the beneficiary for services delivered on those uncovered days (§ 412.507). 

4. Administrative Simplification Compliance Act (ASCA) and Health Insurance 

Portability and Accountability Act (HIPAA) Compliance 

 Claims submitted to Medicare must comply with both the Administrative 

Simplification Compliance Act (ASCA) (Pub. L. 107-105), and the Health Insurance 

Portability and Accountability Act of 1996 (HIPAA) (Pub. L. 104-191). Section 3 of the 

ASCA requires that the Medicare Program deny payment under Part A or Part B for any 

expenses incurred for items or services “for which a claim is submitted other than in an 

electronic form specified by the Secretary.” Section 1862(h) of the Act (as added by 
 846 

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 under 45 CFR Parts 160 and 

162 (generally known as the Transactions Rule). The Transactions Rule requires covered 

entities, including covered health care providers, to conduct certain electronic health care 

transactions according to the applicable transactions and code sets standards. 

 The Department of Health and Human Services has a number of initiatives 

designed to encourage and support the adoption of health information technology and 

promote nationwide health information exchange to improve health care. The Office of 

the National Coordinator for Health Information Technology (ONC) leads these efforts in 

collaboration with other agencies, including CMS and the Office of the Assistant 

Secretary for Planning and Evaluation (ASPE). Through a number of activities, 

including several open government initiatives, HHS is promoting the adoption of 

electronic health record (EHR) technology certified under the ONC Health Information 

Technology (HIT) Certification Program developed to support secure, interoperable, 

health information exchange. While certified EHR technology is not yet available for 

LTCHs and other types of providers that are not eligible for the Medicare and Medicaid 

EHR Incentive Programs, ONC has requested the HIT Policy Committee (a Federal 

Advisory Committee) to explore the expansion of EHR certification under the ONC HIT 

Certification Program, focusing on EHR certification criteria needed for long-term and 
 847 

postacute care (including LTCHs) and behavioral health care providers. ONC has issued 

a proposed rule concerning a voluntary 2015 Edition of EHR certification criteria that 

would more easily accommodate HIT certification for health care settings where 

individual or institutional health care providers are not typically eligible to qualify for 

meaningful use incentive payments under Medicare or Medicaid, such as behavioral 

health or long-term postacute care settings. We believe that the use of certified EHRs by 

LTCHs (and other types of providers that are ineligible for the Medicare and Medicaid 

EHR Incentive Programs) can effectively and efficiently help providers improve internal 

care delivery practices, support the exchange of important information across care 

partners and during transitions of care, and could enable the reporting of electronically 

specified clinical quality measures (eCQMs) (as described elsewhere in this rule). More 

information on the proposed rule concerning a voluntary 2015 Edition of EHR 

certification criteria, identification of EHR certification criteria and development of 

standards applicable to LTCHs can be found at: 

 • http://www.healthit.gov/policy-researchers-implementers/standards-andcertification-regulations; 

 • http://www.healthit.gov/facas/FACAS/health-it-policy-committee/hitpcworkgroups/certificationadoption; 

 • http://wiki.siframework.org/LCC+LTPAC+Care+Transition+SWG; and 

 • http://wiki.siframework.org/Longitudinal+Coordination+of+Care. 

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

(MS-LTC-DRG) Classifications and Relative Weights for FY 2015 
 848 

1. Background 

 Section 123 of the BBRA requires that the Secretary implement a PPS for LTCHs 

(that is, a per discharge system with a diagnosis-related group (DRG)-based patient 

classification system reflecting the differences in patient resources and costs). Section 

307(b)(1) of the BIPA modified the requirements of section 123 of the BBRA by 

requiring that the Secretary examine “the feasibility and the impact of basing payment 

under such a system [the long-term care hospital (LTCH) PPS] on the use of existing (or 

refined) hospital DRGs that have been modified to account for different resource use of 

LTCH patients, as well as the use of the most recently available hospital discharge data.” 

 When the LTCH PPS was implemented for cost reporting periods beginning on or 

after October 1, 2002, we adopted the same DRG patient classification system (that is, 

the CMS DRGs) that was utilized at that time under the IPPS. As a component of the 

LTCH PPS, we refer to this patient classification system as the “long-term care 

diagnosis-related groups (LTC-DRGs).” Although the patient classification system used 

under both the LTCH PPS and the IPPS are the same, the relative weights are different. 

The established relative weight methodology and data used under the LTCH PPS result in 

relative weights under the LTCH PPS that reflect “the differences in patient resource use 

. . .” of LTCH patients (section 123(a)(1) of the BBRA (Pub. L. 106-113)). 

 As part of our efforts to better recognize severity of illness among patients, in the 

FY 2008 IPPS final rule with comment period (72 FR 47130), the MS-DRGs and the 

Medicare severity long-term care diagnosis-related groups (MS-LTC-DRGs) were 

adopted under the IPPS and the LTCH PPS, respectively, effective beginning 
 849 

October 1, 2007 (FY 2008). For a full description of the development, implementation, 

and rationale for the use of the MS-DRGs and MS-LTC-DRGs, we refer readers to the 

FY 2008 IPPS final rule with comment period (72 FR 47141 through 47175 and 47277 

through 47299). (We note that, in that same final rule, we revised the regulations at 

§ 412.503 to specify that for LTCH discharges occurring on or after October 1, 2007, 

when applying the provisions of 42 CFR Part 412, Subpart O applicable to LTCHs for 

policy descriptions and payment calculations, all references to LTC-DRGs would be 

considered a reference to MS-LTC-DRGs. For the remainder of this section, we present 

the discussion in terms of the current MS-LTC-DRG patient classification system unless 

specifically referring to the previous LTC-DRG patient classification system that was in 

effect before October 1, 2007.) 

 The MS-DRGs adopted in FY 2008 represent an increase in the number of DRGs 

by 207 (that is, from 538 to 745) (72 FR 47171). The MS-DRG classifications are 

updated annually. There are currently 751 MS-DRG groupings. If we finalize the 

proposed changes to the MS-DRG groupings described in section II.G. of this preamble, 

there would be a total of 753 MS-DRG groupings for FY 2015. Consistent with section 

123 of the BBRA, as amended by section 307(b)(1) of the BIPA, and § 412.515 of the 

regulations, we use information derived from LTCH PPS patient records to classify 

LTCH discharges into distinct MS-LTC-DRGs based on clinical characteristics and 

estimated resource needs. We then assign an appropriate weight to the MS-LTC-DRGs 

to account for the difference in resource use by patients exhibiting the case complexity 

and multiple medical problems characteristic of LTCHs. Below we provide a general 
 850 

summary of our existing methodology for determining the proposed MS-LTC-DRG 

relative weights. 

 In a departure from the IPPS, and as discussed in greater detail below in section 

VII.B.3.f. of this preamble, we are proposing to continue to use proposed low-volume 

MS-LTC-DRGs (that is, proposed MS-LTC-DRGs with less than 25 LTCH cases) in 

determining the proposed 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 proposed relative weights for the large number of proposed low-volume 

MS-LTC-DRGs, we are proposing to group all of the low-volume MS-LTC-DRGs into 

five quintiles based on average charge per discharge. (A detailed discussion of the initial 

development and application of the quintile methodology appears in the August 30, 2002 

LTCH PPS final rule (67 FR 55978).) Under our existing methodology, we are 

proposing to account for adjustments to payments for short-stay outlier (SSO) cases (that 

is, cases where the covered length of stay at the LTCH is less than or equal to five-sixths 

of the geometric average length of stay for the MS-LTC-DRG). Furthermore, we are 

proposing to make adjustments to account for nonmonotonically increasing weights, 

when necessary. That is, theoretically, cases under the MS-LTC-DRG system that are 

more severe require greater expenditure of medical care resources and will result in 

higher average charges such that, in the severity levels within a base MS-LTC-DRG, the 

proposed relative weights should increase monotonically with severity from the lowest to 

highest severity level. (We discuss nonmonotonicity in greater detail and our proposed 

methodology to adjust the proposed MS-LTC-DRG relative weights to account for 
 851 

nonmonotonically increasing proposed relative weights in section VII.B.3.g. (Step 6) of 

this preamble.) 

2. Patient Classifications into MS-LTC-DRGs 

a. Background 

 The MS-DRGs (used under the IPPS) and the MS-LTC-DRGs (used under the 

LTCH PPS) are based on the CMS DRG structure. As noted above in this section, we 

refer to the DRGs under the LTCH PPS as MS-LTC-DRGs although they are structurally 

identical to the MS-DRGs used under the IPPS. 

 The MS-DRGs are organized into 25 major diagnostic categories (MDCs), most 

of which are based on a particular organ system of the body; the remainder involve 

multiple organ systems (such as MDC 22, Burns). Within most MDCs, cases are then 

divided into surgical DRGs and medical DRGs. Surgical DRGs are assigned based on a 

surgical hierarchy that orders operating room (O.R.) procedures or groups of O.R. 

procedures by resource intensity. The GROUPER software program does not recognize 

all ICD-9-CM procedure codes as procedures affecting DRG assignment. That is, 

procedures that are not surgical (for example, EKGs), or minor surgical procedures (for 

example, a biopsy of skin and subcutaneous tissue (procedure code 86.11)) do not affect 

the MS-LTC-DRG assignment based on their presence on the claim. 

 Generally, under the LTCH PPS, a Medicare payment is made at a predetermined 

specific rate for each discharge and that payment varies by the MS-LTC-DRG to which a 

beneficiary’s stay is assigned. Cases are classified into MS-LTC-DRGs for payment 

based on the following six data elements: 
 852 

● Principal diagnosis; 

● Additional or secondary diagnoses; 

● Surgical procedures; 

● Age; 

● Sex; and 

● Discharge status of the patient. 

 Through FY 2010, the number of diagnosis and procedure codes considered for 

MS-DRG assignment was limited to nine and six, respectively. However, for claims 

submitted on the 5010 format beginning January 1, 2011, we increased the capacity to 

process diagnosis and procedure codes up to 25 diagnoses and 25 procedures. This 

includes one principal diagnosis and up to 24 secondary diagnoses for severity of illness 

determinations. We refer readers to section II.G.11.c. of the preamble of the FY 2011 

IPPS/LTCH PPS final rule for a complete discussion of this change (75 FR 50127). 

 Under HIPAA transactions and code sets regulations at 45 CFR Parts 160 and 

162, covered entities must comply with the adopted transaction standards and operating 

rules specified in Subparts I through S of Part 162. Among other requirements, by 

January 1, 2012, covered entities were required to use the ASC X12 Standards for 

Electronic Data Interchange Technical Report Type 3 -- Health Care Claim: Institutional 

(837), May 2006, ASC X12N/005010X223, and Type 1 Errata to Health Care Claim: 

Institutional (837) ASC X12 Standards for Electronic Data Interchange Technical Report 

Type 3, October 2007, ASC X12N/005010X233A1 for the health care claims or 

equivalent encounter information transaction (45 CFR 162.1102). 
 853 

 HIPAA requires covered entities to use the applicable medical data code set 

requirements when conducting HIPAA transactions (45 CFR 162.1000). Currently, upon 

the discharge of the patient, the LTCH must assign appropriate diagnosis and procedure 

codes from the most current version of the Internal Classification of Diseases, Ninth 

Revision, Clinical Modification (ICD-9-CM). For additional information on the 

ICD-9-CM coding system, we refer readers to the FY 2008 IPPS final rule with comment 

period (72 FR 47241 through 47243 and 47277 through 47281). We also refer readers to 

the detailed discussion on correct coding practices in the August 30, 2002 LTCH PPS 

final rule (67 FR 55981 through 55983). Additional coding instructions and examples are 

published in the Coding Clinic for ICD-9-CM, a product of the American Hospital 

Association. (We refer readers to section II.G.13. of the preamble of this proposed rule 

for additional information on the annual revisions to the ICD-9-CM codes.) 

 Providers use the code sets under the ICD-9-CM coding system to report 

diagnoses and procedures for Medicare hospital inpatient services under the MS-DRG 

system. We have been discussing the conversion to the ICD-10 coding system for many 

years. We refer readers to section II.G.1. of the preamble of this proposed rule for 

additional information on the implementation of the ICD-10 coding system. 

 To create the MS-DRGs (and by extension, the MS-LTC-DRGs), base DRGs 

were subdivided according to the presence of specific secondary diagnoses designated as 

complications or comorbidities (CCs) into one, two, or three levels of severity, depending 

on the impact of the CCs on resources used for those cases. Specifically, there are sets of 

MS–DRGs that are split into 2 or 3 subgroups based on the presence or absence of a CC 
 854 

or a major complication or comorbidity (MCC). We refer readers to section II.D. of the 

FY 2008 IPPS final rule with comment period for a detailed discussion about the creation 

of MS-DRGs based on severity of illness levels (72 FR 47141 through 47175). 

 Medicare administrative contractors (MACs) enter the clinical and demographic 

information submitted by LTCHs into their claims processing systems and subject this 

information to a series of automated screening processes called the Medicare Code Editor 

(MCE). These screens are designed to identify cases that require further review before 

assignment into a MS-LTC-DRG can be made. During this process, certain cases are 

selected for further development (74 FR 43949). 

 After screening through the MCE, each claim is classified into the appropriate 

MS-LTC-DRG by the Medicare LTCH GROUPER software on the basis of diagnosis 

and procedure codes and other demographic information (age, sex, and discharge status). 

The GROUPER software used under the LTCH PPS is the same GROUPER software 

program used under the IPPS. Following the MS-LTC-DRG assignment, the Medicare 

contractor determines the prospective payment amount by using the Medicare PRICER 

program, which accounts for hospital-specific adjustments. Under the LTCH PPS, we 

provide an opportunity for LTCHs to review the MS-LTC-DRG assignments made by the 

Medicare contractor and to submit additional information within a specified timeframe as 

provided in § 412.513(c). 

 The GROUPER software is used both to classify past cases to measure relative 

hospital resource consumption to establish the MS-LTC-DRG relative weights and to 

classify current cases for purposes of determining payment. The records for all Medicare 
 855 

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. 
 856 

b. Proposed Changes to the MS-LTC-DRGs for FY 2015 

 As specified by our regulations at § 412.517(a), which require that the 

MS-LTC-DRG classifications and relative weights be updated annually, and consistent 

with our historical practice of using the same patient classification system under the 

LTCH PPS as is used under the IPPS, we are proposing to update the MS-LTC-DRG 

classifications effective October 1, 2014, through September 30, 2015 (FY 2015) 

consistent with the proposed changes to specific MS-DRG classifications presented in 

section II.G. of this preamble (that is, proposed GROUPER Version 32.0). Therefore, the 

proposed MS-LTC-DRGs for FY 2015 presented in this proposed rule are the same as the 

proposed MS-DRGs that are being proposed for use under the IPPS for FY 2015. In 

addition, because the proposed MS-LTC-DRGs for FY 2015 are the same as the proposed 

MS-DRGs for FY 2015, the other proposed changes that affect MS-DRG (and by 

extension MS-LTC-DRG) assignments under proposed GROUPER Version 32.0 as 

discussed in section II.G. of the preamble of this proposed rule, including the proposed 

changes to the MCE software and the ICD-9-CM coding system, also are applicable 

under the LTCH PPS for FY 2015. 

3. Development of the Proposed FY 2015 MS-LTC-DRG Relative Weights 

a. General Overview of the Development of the MS-LTC-DRG Relative Weights 

 One of the primary goals for the implementation of the LTCH PPS is to pay each 

LTCH an appropriate amount for the efficient delivery of medical care to Medicare 

patients. The system must be able to account adequately for each LTCH’s case-mix in 

order to ensure both fair distribution of Medicare payments and access to adequate care 
 857 

for those Medicare patients whose care is more costly (67 FR 55984). To accomplish 

these goals, we have annually adjusted the LTCH PPS standard Federal prospective 

payment system rate by the applicable relative weight in determining payment to LTCHs 

for each case. 

 The basic methodology used to develop the MS-LTC-DRG relative weights 

generally continues to be consistent with the general methodology established when the 

LTCH PPS was implemented in the August 30, 2002 LTCH PPS final rule (67 FR 55989 

through 55991), with the exception of some modifications of our historical procedures for 

assigning relative weights in cases of zero volume and/or nonmonotonicity resulting from 

the adoption of the MS-LTC-DRGs. (For details on the modifications to our historical 

procedures for assigning relative weights in cases of zero volume and/or 

nonmonotonicity, we refer readers to the FY 2008 IPPS final rule with comment period 

(72 FR 47289 through 47295) and the FY 2009 IPPS final rule (73 FR 48542 through 

48550).) Under the LTCH PPS, relative weights for each MS-LTC-DRG are a primary 

element used to account for the variations in cost per discharge and resource utilization 

among the payment groups (§ 412.515). To ensure that Medicare patients classified to 

each MS-LTC-DRG have access to an appropriate level of services and to encourage 

efficiency, we calculate a relative weight for each MS-LTC-DRG that represents the 

resources needed by an average inpatient LTCH case in that MS-LTC-DRG. For 

example, cases in a MS-LTC-DRG with a relative weight of 2 will, on average, cost 

twice as much to treat as cases in a MS-LTC-DRG with a relative weight of 1. 
 858 

b. Proposed Development of the MS-LTC-DRG Relative Weights for FY 2015 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50755through 50760), we 

presented our policies for the development of the MS-LTC-DRG relative weights for 

FY 2014. The basic methodology we used to develop the FY 2014 MS-LTC-DRG 

relative weights was the same as the methodology we used to develop the FY 2013 

MS-LTC-DRG relative weights in the FY 2013 IPPS/LTCH PPS final rule and was 

consistent with the general methodology established when the LTCH PPS was 

implemented in the August 30, 2002 LTCH PPS final rule (67 FR 55989 through 55991). 

In this FY 2015 IPPS/LTCH PPS proposed rule, we are proposing to continue to apply 

our established methodology to develop the FY 2015 MS-LTC-DRG relative weights for 

FY 2015, which includes application of established policies related to the data, the 

hospital-specific relative value (HSRV) methodology, the treatment of severity levels in 

the MS-LTC-DRGs, low-volume and no-volume MS-LTC-DRGs, adjustment for 

nonmonotonicity, and the steps for calculating the MS-LTC-DRG relative weights with a 

budget neutrality factor. Below we present the methodology that we are proposing to 

continue to use to determine the MS-LTC-DRG relative weights for FY 2015, which is 

consistent with the methodology presented in the FY 2014 IPPS/LTCH PPS final rule. 

 Beginning with the FY 2008 update, we established a budget neutrality 

requirement for the annual update to the MS-LTC-DRG classifications and relative 

weights at § 412.517(b) (in conjunction with § 412.503), such that estimated aggregate 

LTCH PPS payments would be unaffected, that is, would be neither greater than nor less 

than the estimated aggregate LTCH PPS payments that would have been made without 
 859 

the classification and relative weight changes (72 FR 26882 through 26884). Consistent 

with § 412.517(b), we are proposing to continue to apply our established two-step budget 

neutrality methodology, which is based on the current year MS-LTC-DRG classifications 

and relative weights. We are proposing to continue to apply our established two-step 

budget neutrality methodology such that the annual update to the MS-LTC-DRG 

classifications and relative weights for FY 2015 are based on the FY 2014 

MS-LTC-DRG classifications and relative weights established in Table 11 listed in 

section VI. of the Addendum to the FY 2014 IPPS/LTCH PPS final rule (78 FR 51002). 

(For additional information on the established two-step budget neutrality methodology, 

we refer readers to the FY 2008 IPPS final rule (72 FR 47295 through 47296).) 

c. Data 

 For the FY 2014 IPPS/LTCH PPS final rule (78 FR 50755), to calculate the 

MS-LTC-DRG relative weights for FY 2014, we obtained total charges from FY 2012 

Medicare LTCH bill data from the December 2012 update of the FY 2012 MedPAR file, 

which were the best available data at that time, and used the finalized Version 31.0 of the 

GROUPER to classify LTCH cases. Consistent with our historical practice, to calculate 

the proposed MS-LTC-DRG relative weights for FY 2015 in this proposed rule, we are 

proposing to obtain total charges from the FY 2013 Medicare LTCH bill data from the 

December 2013 update of the FY 2013 MedPAR file, which are the best available data at 

this time, and to use Version 32.0 of the GROUPER to classify LTCH cases. 

 In this FY 2015 IPPS/LTCH PPS proposed rule and consistent with our historical 

methodology, we are proposing to exclude the data from LTCHs that are all-inclusive 
 860 

rate providers and LTCHs that are reimbursed in accordance with demonstration projects 

authorized under section 402(a) of Pub. L. 90-248 or section 222(a) of Pub. L. 92-603. 

Furthermore, consistent with our historical practice, we are proposing to exclude 

Medicare Advantage (Part C) claims, which are now included in the MedPAR files, in the 

calculations for the proposed relative weights under the LTCH PPS that are used to 

determine payments for Medicare fee-for-service claims. Specifically, we are proposing 

not to use any claims from the MedPAR files that have a GHO Paid indicator value of 

“1,” which effectively removes Medicare Advantage claims from the proposed relative 

weight calculations. Accordingly, in the development of the proposed FY 2015 

MS-LTC-DRG relative weights in this proposed rule, we excluded the data of 

12 all-inclusive rate providers and one LTCH that is paid in accordance with 

demonstration projects that had claims in the December 2013 update of the FY 2013 

MedPAR file, as well as any Medicare Advantage claims. 

d. Hospital-Specific Relative Value (HSRV) Methodology 

 By nature, LTCHs often specialize in certain areas, such as ventilator-dependent 

patients and treatment of infections and wound care. Some case types (MS-DRGs) may 

be treated, to a large extent, in hospitals that have, from a perspective of charges, 

relatively high (or low) charges. This nonrandom distribution of cases with relatively 

high (or low) charges in specific MS-LTC-DRGs has the potential to inappropriately 

distort the measure of average charges. In this proposed rule, to account for the fact that 

cases may not be randomly distributed across LTCHs, consistent with the methodology 

we have used since the implementation of the LTCH PPS, we are proposing to continue 
 861 

to use a hospital-specific relative value (HSRV) methodology to calculate the proposed 

MS-LTC-DRG relative weights for FY 2015. We believe this method removes this 

hospital-specific source of bias in measuring LTCH average charges (67 FR 55985). 

Specifically, under this methodology, we reduce the impact of the variation in charges 

across providers on any particular proposed MS-LTC-DRG relative weight by converting 

each LTCH's charge for a case to a relative value based on that LTCH's average charge. 

 Under the HSRV methodology, we standardize charges for each LTCH by 

converting its charges for each case to hospital-specific relative charge values and then 

adjusting those values for the LTCH's case-mix. The adjustment for case-mix is needed 

to rescale the hospital-specific relative charge values (which, by definition, average 1.0 

for each LTCH). The average relative weight for a LTCH is its case-mix, so it is 

reasonable to scale each LTCH's average relative charge value by its case-mix. In this 

way, each LTCH's relative charge value is adjusted by its case-mix to an average that 

reflects the complexity of the cases it treats relative to the complexity of the cases treated 

by all other LTCHs (the average case-mix of all LTCHs). 

 In accordance with our established methodology, we are proposing to continue to 

standardize charges for each case by first dividing the adjusted charge for the case 

(adjusted for SSOs under § 412.529 as described in section VII.B.3.g. (Step 3) of this 

preamble) by the average adjusted charge for all cases at the LTCH in which the case was 

treated. SSO cases are cases with a length of stay that is less than or equal to five-sixths 

the average length of stay of the MS-LTC-DRG (§ 412.529 and § 412.503). The average 

adjusted charge reflects the average intensity of the health care services delivered by a 
 862 

particular LTCH and the average cost level of that LTCH. The resulting ratio is 

multiplied by that LTCH’s case-mix index to determine the standardized charge for the 

case (67 FR 55989). 

 Multiplying the resulting ratio by the LTCH's case-mix index accounts for the fact 

that the same relative charges are given greater weight at a LTCH with higher average 

costs than they would at a LTCH with low average costs, which is needed to adjust each 

LTCH's relative charge value to reflect its case-mix relative to the average case-mix for 

all LTCHs. Because we standardize charges in this manner, we count charges for a

Medicare patient at a LTCH with high average charges as less resource intensive than 

they would be at a LTCH with low average charges. For example, a $10,000 charge for a 

case at a LTCH with an average adjusted charge of $17,500 reflects a higher level of 

relative resource use than a $10,000 charge for a case at a LTCH with the same case-mix, 

but an average adjusted charge of $35,000. We believe that the adjusted charge of an 

individual case more accurately reflects actual resource use for an individual LTCH 

because the variation in charges due to systematic differences in the markup of charges 

among LTCHs is taken into account. 

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

Weights 

 For purposes of determining the proposed MS-LTC-DRG relative weights, under 

our historical methodology, there are three different categories of MS-DRGs based on 

volume of cases within specific MS-LTC-DRGs. Proposed MS-LTC-DRGs with at least 

25 cases are each assigned a unique proposed relative weight; proposed low-volume 
 863 

MS-LTC-DRGs (that is, proposed MS-LTC-DRGs that contain between 1 and 24 cases 

based on a given year’s claims data) are grouped into quintiles (as described below) and 

assigned the proposed relative weight of the quintile. Proposed no-volume 

MS-LTC-DRGs (that is, no cases in the given year’s claims data are assigned to those 

proposed MS-LTC-DRGs) are cross-walked to other proposed MS-LTC-DRGs based on 

the clinical similarities and assigned the proposed relative weight of the cross-walked 

MS-LTC-DRG (as described in greater detail below). In this proposed rule, we are 

proposing to continue to utilize these same three categories of MS-LTC-DRGs for 

purposes of the treatment of severity levels in determining the proposed MS-LTC-DRG 

relative weights for FY 2015. (We provide in-depth discussions of our policy regarding 

weight-setting for proposed low-volume MS-LTC-DRGs in section VII.B.3.f. of the 

preamble of this proposed rule and for proposed no-volume MS-LTC-DRGs, under Step 

5 in section VII.B.3.g. of the preamble of this proposed rule.) 

 Furthermore, in determining the proposed FY 2015 MS-LTC-DRG relative 

weights, when necessary, we are proposing to make adjustments to account for 

nonmonotonicity, as discussed in greater detail below in Step 6 of section VII.B.3.g. of 

this preamble. We refer readers to the discussion in the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule for our rationale for including an adjustment for nonmonotonicity 

(74 FR 43953 through 43954). 

f. Proposed Low-Volume MS-LTC-DRGs 

 In order to account for proposed MS-LTC-DRGs with low volume (that is, with 

fewer than 25 LTCH cases), consistent with our existing methodology for purposes of 
 864 

determining the proposed FY 2015 MS-LTC-DRG relative weights, we are proposing to 

continue to employ the quintile methodology for proposed low-volume MS-LTC-DRGs, 

such that we group the proposed “low-volume MS-LTC-DRGs” (that is, proposed 

MS-LTC-DRGs that contained between 1 and 24 cases annually) into one of five 

categories (quintiles) based on average charges (67 FR 55984 through 55995 and 

72 FR 47283 through 47288). In determining the proposed FY 2015 MS-LTC-DRG 

relative weights in this proposed rule, in cases where the initial assignment of a proposed 

low-volume MS-LTC-DRG to a quintile results in nonmonotonicity within a base-DRG, 

in order to ensure appropriate Medicare payments, consistent with our historical 

methodology, we are proposing to make adjustments to the treatment of proposed 

low-volume MS-LTC-DRGs to preserve monotonicity, as discussed in detail below in 

section VII.B.3.g. (Step 6) of the preamble of this proposed rule. 

 In this proposed rule, using LTCH cases from the December 2013 update of the 

FY 2013 MedPAR file (which is currently the best available data), we identified 297 

proposed MS-LTC-DRGs that contained between 1 and 24 cases. This list of proposed 

MS-LTC-DRGs was then divided into one of the 5 low-volume quintiles, each containing 

59 proposed MS-LTC-DRGs (297/5 = 59 with two proposed MS-LTC-DRGs as the 

remainder). We are proposing to assign a proposed low-volume MS-LTC-DRG to a 

specific low-volume quintile by sorting the proposed low-volume MS-LTC-DRGs in 

ascending order by average charge in accordance with our established methodology. 

Based on the data available for this proposed rule, the number of proposed 

MS-LTC-DRGs with less than 25 cases is not evenly divisible by 5. Therefore, 
 865 

consistent with our historical approach, we are proposing to use the average charge of the 

low-volume quintile to determine which of the low-volume quintiles contain the 

additional proposed low-volume MS-LTC-DRG. Specifically for this proposed rule, 

after organizing the proposed MS-LTC-DRGs by ascending order by average charge, we 

are proposing to assign the first fifth (1st through 59th) of proposed low-volume 

MS-LTC-DRGs (with the lowest average charge) into proposed Quintile 1. The 

proposed MS-LTC-DRGs with the highest average charge cases were assigned into 

proposed Quintile 5. Because the average charge of the 119th proposed low-volume 

MS–LTC–DRG in the sorted list was closer to the average charge of the 118th proposed 

low-volume MS–LTC–DRG (assigned to proposed Quintile 2) than to the average charge 

of the 120th proposed low-volume MS–LTC–DRG (assigned to proposed Quintile 2), we 

are proposing to assign it to proposed Quintile 2 (such that proposed Quintile 2 contains 

60 proposed low-volume MS– LTC–DRGs before any adjustments for nonmonotonicity, 

as discussed below). This resulted in 3 of the 5 proposed low-volume quintiles 

containing 59 proposed MS-LTC–DRGs (proposed Quintiles 1, 3, and 4) and two 

proposed low-volume quintiles containing 60 proposed MS–LTC–DRGs (Quintiles 2 and 

5). Table 13A, which is listed in section VI. of the Addendum to this proposed rule and 

is available via the Internet, lists the proposed composition of the low-volume quintiles 

for proposed MS-LTC-DRGs for FY 2015. 

 Accordingly, in order to determine the proposed FY 2015 relative weights for the 

proposed MS-LTC-DRGs with low volume, we are proposing to use the five proposed 

low-volume quintiles described above. We determined a proposed relative weight and 
 866 

(geometric) average length of stay for each of the five proposed low-volume quintiles 

using the methodology that we are proposing to apply to the proposed MS-LTC-DRGs 

(25 or more cases), as described below in section VII.B.3.g. of the preamble of this 

proposed rule. We are proposing to assign the same proposed relative weight and 

average length of stay to each of the proposed low-volume MS-LTC-DRGs that make up 

an individual proposed low-volume quintile. We note that, as this system is dynamic, it 

is possible that the number and specific type of proposed MS-LTC-DRGs with a low 

volume of LTCH cases will vary in the future. 

 Furthermore, we note that we will continue to monitor the volume (that is, the 

number of LTCH cases) in the proposed low-volume quintiles to ensure that our 

proposed quintile assignments used in determining the proposed MS-LTC-DRG relative 

weights result in appropriate payment for such cases and do not result in an unintended 

financial incentive for LTCHs to inappropriately admit these types of cases. 

g. Steps for Determining the Proposed FY 2015 MS-LTC-DRG Relative Weights 

 In this proposed rule, we are proposing to determine the proposed FY 2015 

MS-LTC-DRG relative weights based on our existing methodology. (For additional 

information on the original development of this methodology, and modifications to it 

since the adoption of the MS-LTC-DRGs, we refer readers to the August 30, 2002 LTCH 

PPS final rule (67 FR 55989 through 55995) and the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 43951 through 43966).) In summary, to determine the proposed 

FY 2015 MS-LTC-DRG relative weights, we are proposing to group LTCH cases to the 

appropriate proposed MS-LTC-DRG, while taking into account the proposed low-volume 
 867 

quintile (as described above). After grouping the cases to the appropriate proposed 

MS-LTC-DRG (or proposed low-volume quintile), we are proposing to calculate the 

FY 2015 relative weights by first removing statistical outliers and cases with a length of 

stay of 7 days or less (Steps 1 and 2 below). Next, we are proposing to adjust the number 

of cases in each proposed MS-LTC-DRG (or proposed low-volume quintile) for the 

effect of SSO cases (Step 3 below). After removing statistical outliers (Step 1 below) and 

cases with a length of stay of 7 days or less (Step 2 below), the SSO adjusted discharges 

and corresponding charges were then used to calculate “relative adjusted weights” for 

each proposed MS-LTC-DRG (or proposed low-volume quintile) using the HSRV 

method. 

 Below we discuss in detail the steps for calculating the proposed FY 2015 

MS-LTC-DRG relative weights. We note that, as we discussed in section VII.B.3.c. of 

the preamble of this proposed rule, we excluded the data of all-inclusive rate LTCHs, 

LTCHs that are paid in accordance with demonstration projects, and any Medicare 

Advantage claims in the December 2013 update of the FY 2013 MedPAR file. 

 Step 1--Remove statistical outliers. 

 The first step in the calculation of the proposed FY 2015 MS-LTC-DRG relative 

weights is to remove statistical outlier cases. Consistent with our historical relative 

weight methodology, we are proposing to continue to define statistical outliers as cases 

that are outside of 3.0 standard deviations from the mean of the log distribution of both 

charges per case and the charges per day for each proposed MS-LTC-DRG. These 

statistical outliers are removed prior to calculating the proposed relative weights because 
 868 

we believe that they may represent aberrations in the data that distort the measure of 

average resource use. Including those LTCH cases in the calculation of the proposed 

relative weights could result in an inaccurate proposed relative weight that does not truly 

reflect relative resource use among the proposed MS-LTC-DRGs. (For additional 

information on this step of the relative weight methodology, we refer readers to 

67 FR 55989 and 74 FR 43959.) 

 Step 2--Remove cases with a length of stay of 7 days or less. 

 The proposed MS-LTC-DRG relative weights reflect the average of resources 

used on representative cases of a specific type. Generally, cases with a length of stay of 

7 days or less do not belong in a LTCH because these stays do not fully receive or benefit 

from treatment that is typical in a LTCH stay, and full resources are often not used in the 

earlier stages of admission to a LTCH. If we were to include stays of 7 days or less in the 

computation of the proposed FY 2015 MS-LTC-DRG relative weights, the value of many 

proposed relative weights would decrease and, therefore, payments would decrease to a 

level that may no longer be appropriate. We do not believe that it would be appropriate 

to compromise the integrity of the payment determination for those LTCH cases that 

actually benefit from and receive a full course of treatment at a LTCH by including data 

from these very short stays. Therefore, consistent with our historical relative weight 

methodology, in determining the proposed FY 2015 MS-LTC-DRG relative weights, we 

are proposing to remove LTCH cases with a length of stay of 7 days or less. (For 

additional information on this step of the relative weight methodology, we refer readers 

to 67 FR 55989 and 74 FR 43959.) 
 869 

 Step 3--Adjust charges for the effects of SSOs. 

 After removing cases with a length of stay of 7 days or less, we were left with 

cases that have a length of stay of greater than or equal to 8 days. As the next step in the 

calculation of the proposed FY 2015 MS-LTC-DRG relative weights, consistent with our 

historical relative weight methodology, we are proposing to adjust each LTCH’s charges 

per discharge for those remaining cases for the effects of SSOs (as defined in 

§ 412.529(a) in conjunction with § 412.503). 

 In this proposed rule, we are proposing to make this adjustment by counting an 

SSO case as a fraction of a discharge based on the ratio of the length of stay of the case to 

the average length of stay for the proposed 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 proposed MS-LTC-DRG. This process produces 

the same result as if the actual charges per discharge of an SSO case were adjusted to 

what they would have been had the patient's length of stay been equal to the average 

length of stay of the MS-LTC-DRG. 

 Counting SSO cases as full discharges with no adjustment in determining the 

proposed FY 2015 MS-LTC-DRG relative weights would lower the proposed FY 2015 

MS-LTC-DRG relative weight for affected proposed MS-LTC-DRGs because the 

relatively lower charges of the SSO cases would bring down the average charge for all 

cases within a proposed MS-LTC-DRG. This would result in an “underpayment” for 

non-SSO cases and an “overpayment” for SSO cases. Therefore, we are proposing to 

adjust for SSO cases under § 412.529 in this manner because it results in more 
 870 

appropriate payments for all LTCH cases. (For additional information on this step of the 

relative weight methodology, we refer readers to 67 FR 55989 and 74 FR 43959.) 

 Step 4--Calculate the proposed FY 2015 MS-LTC-DRG relative weights on an 

iterative basis. 

 Consistent with our historical relative weight methodology, we are proposing to 

calculate the proposed FY 2015 MS-LTC-DRG relative weights using the HSRV 

methodology, which is an iterative process. First, for each LTCH case, we are proposing 

to calculate a hospital-specific relative charge value by dividing the SSO adjusted charge 

per discharge (see Step 3) of the LTCH case (after removing the statistical outliers (see 

Step 1) and LTCH cases with a length of stay of 7 days or less (see Step 2)) by the 

average charge per discharge for the LTCH in which the case occurred. The resulting 

ratio was then multiplied by the LTCH's case-mix index to produce an adjusted 

hospital-specific relative charge value for the case. An initial case-mix index value of 1.0 

was used for each LTCH. 

 For each proposed MS-LTC-DRG, we calculated the proposed FY 2015 relative 

weight by dividing the average of the adjusted hospital-specific relative charge values 

(from above) for the proposed MS-LTC-DRG by the overall average hospital-specific 

relative charge value across all cases for all LTCHs. Using these recalculated proposed 

MS-LTC-DRG relative weights, each LTCH’s average relative weight for all of its cases 

(that is, its case-mix) was calculated by dividing the sum of all the LTCH’s proposed 

MS-LTC-DRG relative weights by its total number of cases. The LTCHs’ 

hospital-specific relative charge values (from above) were then multiplied by the 
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hospital-specific case-mix indexes. The hospital-specific case-mix adjusted relative 

charge values were then used to calculate a new set of proposed MS-LTC-DRG relative 

weights across all LTCHs. This iterative process was continued until there was 

convergence between the relative weights produced at adjacent steps, for example, when 

the maximum difference was less than 0.0001. 

 Step 5--Determine a proposed FY 2015 relative weight for proposed 

MS-LTC-DRGs with no LTCH cases. 

 As we stated above, we determined the proposed FY 2015 relative weight for 

each proposed MS-LTC-DRG using total Medicare allowable total charges reported in 

the best available LTCH claims data (that is, the December 2013 update of the FY 2013 

MedPAR file for this proposed rule). Using these data, we identified the proposed 

MS-LTC-DRGs for which there were no LTCH cases in the database, such that no 

patients who would have been classified to those MS-LTC-DRGs were treated in LTCHs 

during FY 2013 and, therefore, no charge data were available for these proposed 

MS-LTC-DRGs. Therefore, in the process of determining the proposed MS-LTC-DRG 

relative weights, we were unable to calculate proposed relative weights for the proposed 

MS-LTC-DRGs with no LTCH cases using the methodology described in Steps 1 

through 4 above. However, because patients with a number of the diagnoses under these 

proposed MS-LTC-DRGs may be treated at LTCHs, consistent with our historical 

methodology, we are proposing to assign a proposed relative weight to each of the 

proposed no-volume MS-LTC-DRGs based on clinical similarity and relative costliness 

(with the exception of proposed “transplant” MS-LTC-DRGs and proposed “error” 
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MS-LTC-DRGs, as discussed below). (For additional information on this step of the 

relative weight methodology, we refer readers to 67 FR 55991 and 74 FR 43959 through 

43960.) 

 In general, we determined proposed FY 2015 relative weights for the proposed 

MS-LTC-DRGs with no LTCH cases in the December 2013 update of the FY 2013 

MedPAR file used in this proposed rule (that is, proposed “no-volume” MS-LTC-DRGs) 

by cross-walking each proposed no-volume MS-LTC-DRG to another proposed 

MS-LTC-DRG with a calculated proposed relative weight (determined in accordance 

with the methodology described above). Then, the proposed “no-volume” 

MS-LTC-DRG was assigned the same proposed relative weight (and average length of 

stay) of the proposed MS-LTC-DRG to which it was cross-walked (as described in 

greater detail below). 

 Of the 753 proposed MS-LTC-DRGs for FY 2015, we identified 237 proposed 

MS-LTC-DRGs for which there are no LTCH cases in the database (including the 

8 proposed “transplant” MS-LTC-DRGs and 2 proposed “error” MS-LTC-DRGs). As 

stated above, we are proposing to assign proposed relative weights for each of the 237 

proposed no-volume MS-LTC-DRGs (with the exception of the 8 proposed “transplant” 

MS-LTC-DRGs and the 2 proposed “error” MS-LTC-DRGs, which are discussed below) 

based on clinical similarity and relative costliness to one of the remaining 

516 (753 - 237= 516) proposed MS-LTC-DRGs for which we were able to determine 

proposed relative weights based on FY 2013 LTCH claims data using the steps described 

above. (For the remainder of this discussion, we refer to the proposed “cross-walked” 
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MS-LTC-DRGs as the proposed MS-LTC-DRGs to which we cross-walked one of the 

237 proposed “no volume” MS-LTC-DRGs, with the exception of the 8 proposed 

“transplant” MS-LTC-DRGs and the 2 proposed “error” MS-LTC-DRGs, for purposes of 

determining a proposed relative weight.) Then, we are proposing to assign the proposed 

no-volume MS-LTC-DRG the proposed relative weight of the proposed cross-walked 

MS-LTC-DRG. (As explained below in Step 6, when necessary, we are proposing to 

make adjustments to account for nonmonotonicity.) 

 For this proposed rule, we cross-walked the proposed no-volume MS-LTC-DRG 

to a proposed MS-LTC-DRG for which there were LTCH cases in the December 2013 

update of the FY 2013 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. We evaluated the 

relative costliness in determining the applicable proposed MS-LTC-DRG to which a 

proposed no-volume MS-LTC-DRG was cross-walked in order to assign an appropriate 

proposed relative weight for the proposed no-volume MS-LTC-DRGs in FY 2015. (For 

more details on our process for evaluating relative costliness, we refer readers to the 

FY 2010 IPPS/RY 2010 LTCH PPS final rule (73 FR 48543).) We believe in the rare 

event that there would be a few LTCH cases grouped to one of the proposed no-volume 

MS-LTC-DRGs in FY 2015, the proposed relative weights assigned based on the 

proposed cross-walked MS-LTC-DRGs would result in an appropriate LTCH PPS 
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payment because the crosswalks, which are based on similar clinical similarity and 

relative costliness, generally require equivalent relative resource use. 

 We then assigned the proposed relative weight of the proposed cross-walked 

MS-LTC-DRG as the proposed relative weight for the proposed no-volume 

MS-LTC-DRG such that both of these proposed MS-LTC-DRGs (that is, the proposed 

no-volume MS-LTC-DRG and the proposed cross-walked MS-LTC-DRG) have the same 

proposed relative weight for FY 2015. We note that if the proposed cross-walked 

MS-LTC-DRG had 25 cases or more, its proposed relative weight, which was calculated 

using the methodology described in Steps 1 through 4 above, was assigned to the 

proposed no-volume MS-LTC-DRG as well. Similarly, if the proposed MS-LTC-DRG 

to which the proposed no-volume MS-LTC-DRG was cross-walked had 24 or less cases 

and, therefore, was designated to one of the proposed low-volume quintiles for purposes 

of determining the proposed relative weights, we assigned the proposed relative weight of 

the applicable proposed low-volume quintile to the proposed no-volume MS-LTC-DRG 

such that both of these proposed MS-LTC-DRGs (that is, the proposed no-volume 

MS-LTC-DRG and the proposed cross-walked MS-LTC-DRG) have the same proposed 

relative weight for FY 2015. (As we noted above, in the infrequent case where 

nonmonotonicity involving a proposed no-volume MS-LTC-DRG resulted, additional 

adjustments as described in Step 6 were required in order to maintain monotonically 

increasing proposed relative weights.) 

 For this proposed rule, a list of the proposed no-volume MS-LTC-DRGs and the 

proposed MS-LTC-DRGs to which each was cross-walked (that is, the proposed 
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cross-walked MS-LTC-DRGs) for FY 2015 is shown in Table 13B, which is listed in 

section VI. of the Addendum to this proposed rule and is available via the Internet. 

 To illustrate this methodology for determining the proposed relative weights for 

the proposed FY 2015 MS-LTC-DRGs with no LTCH cases, we are providing the 

following example, which refers to the proposed no-volume MS-LTC-DRGs crosswalk 

information for FY 2015 provided in Table 13B. 

 Example: There were no cases in the FY 2013 MedPAR file used for this 

proposed rule for proposed MS-LTC-DRG 61 (Acute Ischemic Stroke with Use of 

Thrombolytic Agent with MCC). We determined that proposed MS-LTC-DRG 70 

(Nonspecific Cerebrovascular Disorders with MCC) was similar clinically and based on 

resource use to proposed MS-LTC-DRG 61. Therefore, we assigned the same proposed 

relative weight of proposed MS-LTC-DRG 70 of 0.8657 for FY 2015 to proposed 

MS-LTC-DRG 61 (obtained from Table 11, which is listed in section VI. of the 

Addendum to this proposed rule and is available via the Internet). 

 Again, we note that, as this system is dynamic, it is entirely possible that the 

number of proposed MS-LTC-DRGs with no volume of LTCH cases based on the system 

will vary in the future. We used the most recent available claims data in the MedPAR 

file to identify proposed no-volume MS-LTC-DRGs and to determine the proposed 

relative weights in this proposed rule. 

 Furthermore, for FY 2015, consistent with our historical relative weight 

methodology, we are proposing to establish a relative weight of 0.0000 for the following 

proposed transplant MS-LTC-DRGs: Heart Transplant or Implant of Heart Assist 
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System with MCC (proposed MS-LTC-DRG 1); Heart Transplant or Implant of Heart 

Assist System without MCC (proposed MS-LTC-DRG 2); Liver Transplant with MCC or 

Intestinal Transplant (proposed MS-LTC-DRG 5); Liver Transplant without MCC 

(proposed MS-LTC-DRG 6); Lung Transplant (proposed MS-LTC-DRG 7); 

Simultaneous Pancreas/Kidney Transplant (proposed MS-LTC-DRG 8); Pancreas 

Transplant (proposed MS-LTC-DRG 10); and Kidney Transplant (proposed 

MS-LTC-DRG 652). This is because Medicare will only cover these procedures if they 

are performed at a hospital that has been certified for the specific procedures by Medicare 

and presently no LTCH has been so certified. At the present time, we include these eight 

proposed transplant MS-LTC-DRGs in the proposed GROUPER program for 

administrative purposes only. Because we use the same proposed GROUPER program 

for LTCHs as is used under the IPPS, removing these proposed MS-LTC-DRGs would be 

administratively burdensome. (For additional information regarding our treatment of 

transplant MS-LTC-DRGs, we refer readers to the RY 2010 LTCH PPS final rule 

(74 FR 43964).) 

 Step 6--Adjust the proposed FY 2015 MS-LTC-DRG relative weights to account 

for nonmonotonically increasing relative weights. 

 As discussed earlier in this section, the MS-DRGs contain base DRGs that have 

been subdivided into one, two, or three severity of illness levels. Where there are three 

severity levels, the most severe level has at least one secondary diagnosis 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 secondary diagnosis code that is a CC (that 
 877 

is, complication or comorbidity). Those cases without an MCC or a CC are referred to as 

“without CC/MCC.” When data do not support the creation of three severity levels, the 

base MS-DRG is subdivided into either two levels or the base MS-DRG is not 

subdivided. The two-level subdivisions could consist of the MS-DRG with CC/MCC and 

the MS-DRG without CC/MCC. Alternatively, the other type of two-level subdivision 

may consist of the MS-DRG with MCC and the MS-DRG without MCC. 

 In those base MS-LTC-DRGs that are split into either two or three severity levels, 

cases classified into the “without CC/MCC” MS-LTC-DRG are expected to have a lower 

resource use (and lower costs) than the “with CC/MCC” MS-LTC-DRG (in the case of a 

two-level split) or both the “with CC” and the “with MCC” MS-LTC-DRGs (in the case 

of a three-level split). That is, theoretically, cases that are more severe typically require 

greater expenditure of medical care resources and will result in higher average charges. 

Therefore, in the three severity levels, proposed relative weights should increase by 

severity, from lowest to highest. If the proposed relative weights decrease as severity 

increases (that is, if within a base proposed MS-LTC-DRG, a proposed MS-LTC-DRG 

with CC has a higher proposed relative weight than one with MCC, or the proposed 

MS-LTC-DRG “without CC/MCC” has a higher proposed relative weight than either of 

the others), they are nonmonotonic. We continue to believe that utilizing nonmonotonic 

proposed 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 

proposed 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 
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same base proposed MS-LTC-DRG (which are generally expected to have lower resource 

use and costs). Consequently, in determining the proposed FY 2015 MS-LTC-DRG 

relative weights in this proposed rule, consistent with our historical methodology, we are 

proposing to combine MS-LTC-DRG severity levels within a base proposed 

MS-LTC-DRG for the purpose of computing a proposed relative weight when necessary 

to ensure that monotonicity was maintained. For a comprehensive description of our 

existing methodology to adjust for nonmonotonicity, we refer readers to the FY 2010 

IPPS/RY 2010 LTCH PPS final rule (74 FR 43964 through 43966). Any adjustments for 

nonmonotonicity that were made in determining the proposed FY 2015 MS-LTC-DRG 

relative weights in this proposed rule by applying this methodology are denoted in 

Table 11, which is listed in section VI. of the Addendum to this proposed rule and is 

available via the Internet. 

 Step 7-- Calculate the proposed FY 2015 budget neutrality factor. 

 In accordance with the regulations at § 412.517(b) (in conjunction with 

§ 412.503), the annual update to the MS-LTC-DRG classifications and relative weights is 

done in a budget neutral manner such that estimated aggregate LTCH PPS payments 

would be unaffected, that is, would be neither greater than nor less than the estimated 

aggregate LTCH PPS payments that would have been made without the MS-LTC-DRG 

classification and relative weight changes. (For a detailed discussion on the 

establishment of the budget neutrality requirement for the annual update of the 

MS-LTC-DRG classifications and relative weights, we refer readers to the RY 2008 

LTCH PPS final rule (72 FR 26881 and 26882).) 
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 The MS-LTC-DRG classifications and relative weights are updated annually 

based on the most recent available LTCH claims data to reflect changes in relative LTCH 

resource use (§ 412.517(a) in conjunction with § 412.503). Under the budget neutrality 

requirement at §412.517(b), for each annual update, the MS-LTC-DRG relative weights 

are uniformly adjusted to ensure that estimated aggregate payments under the LTCH PPS 

would not be affected (that is, decreased or increased). Consistent with that provision, 

we are proposing to update the MS-LTC-DRG classifications and relative weights for 

FY 2015 based on the most recent available LTCH data, and apply a budget neutrality 

adjustment in determining the proposed FY 2015 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), we are proposing to continue to use our established 

two-step budget neutrality methodology. In this proposed rule, in the first step of our 

proposed MS-LTC-DRG budget neutrality methodology, for FY 2015, we are proposing 

to calculate and apply a normalization factor to the recalibrated proposed relative weights 

(the result of Steps 1 through 6 above) to ensure that estimated payments were not 

affected by changes in the composition of case types or the changes to the classification 

system. That is, the proposed normalization adjustment is intended to ensure that the 

recalibration of the proposed MS-LTC-DRG relative weights (that is, the process itself) 

neither increases nor decreases the average CMI. 

 To calculate the proposed normalization factor for FY 2015 (the first step of our 

proposed budget neutrality methodology), we are proposing to use the following three 

steps: (1.a.) we use the most recent available LTCH claims data (FY 2013) and group 
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them using the proposed FY 2015 GROUPER (Version 32.0) and the recalibrated 

proposed FY 2015 MS-LTC-DRG relative weights (determined in Steps 1 through 6 of 

the Steps for Determining the Proposed FY 2015 MS-LTC-DRG Relative Weights 

above) to calculate the average CMI; (1.b.) we group the same LTCH claims data 

(FY 2013) using the FY 2014 GROUPER (Version 31.0) and FY 2014 MS-LTC-DRG 

relative weights and calculated the average CMI; and (1.c.) we compute the ratio of these 

average CMIs by dividing the average CMI for FY 2014 (determined in Step 1.b.) by the 

average CMI for FY 2015 (determined in Step 1.a.). In determining the proposed 

MS-LTC-DRG relative weights for FY 2015, each recalibrated proposed MS-LTC-DRG 

relative weight was multiplied by 1.12619 (determined in Step 1.c.) in the first step of the 

proposed budget neutrality methodology, which produced proposed “normalized relative 

weights.” 

 In the second step of our proposed MS-LTC-DRG budget neutrality methodology, 

we are proposing to determine a budget neutrality factor to ensure that estimated 

aggregate LTCH PPS payments (based on the most recent available LTCH claims data) 

after reclassification and recalibration (that is, the proposed FY 2015 MS-LTC-DRG 

classifications and relative weights) are equal to estimated aggregate LTCH PPS 

payments before reclassification and recalibration (that is, the FY 2014 MS-LTC-DRG 

classifications and relative weights). Accordingly, consistent with our existing 

methodology, we are proposing to use FY 2013 discharge data to simulate payments and 

compared estimated aggregate LTCH PPS payments using the FY 2014 MS-LTC-DRGs 

and relative weights to estimate aggregate LTCH PPS payments using the proposed 
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FY 2015 MS-LTC-DRGs and relative weights. Specifically, for this proposed rule, as 

discussed previously in section VII.B.3.c. of this preamble, we are proposing to use 

LTCH claims data from the December 2013 update of the FY 2013 MedPAR file, as 

these are the best available data at this time. 

 For this proposed rule, we are proposing to determine the proposed FY 2015 

budget neutrality adjustment factor using the following three steps: (2.a.) we simulate 

estimated total LTCH PPS payments using the proposed normalized relative weights for 

FY 2015 and proposed GROUPER Version 32.0 (as described above); (2.b.) we simulate 

estimated total LTCH PPS payments using the FY 2014 GROUPER (Version 31.0) and 

the FY 2014 MS-LTC-DRG relative weights in Table 11 of the Addendum to the 

FY 2014 IPPS/LTCH PPS final rule available on the Internet (78 FR 51002); and (2.c.) 

we calculate the ratio of these estimated total LTCH PPS payments by dividing the 

estimated total LTCH PPS payments using the FY 2014 GROUPER (Version 31.0) and 

the FY 2014 MS-LTC-DRG relative weights (determined in Step 2.b.) by the estimated 

total LTCH PPS payments using the proposed FY 2015 GROUPER (Version 32.0) and 

the proposed normalized MS-LTC-DRG relative weights for FY 2015 (determined in 

Step 2.a.). In determining the proposed FY 2015 MS-LTC-DRG relative weights, each 

proposed normalized relative weight was multiplied by a proposed budget neutrality 

factor of 0.995275 (determined in Step 2.c.) in the second step of the proposed budget 

neutrality methodology to determine the proposed budget neutral FY 2015 relative 

weight for each proposed MS-LTC-DRG. 
 882 

 Accordingly, in determining the proposed FY 2015 MS-LTC-DRG relative 

weights in this proposed rule, consistent with our existing methodology, we are proposing 

to apply a proposed normalization factor of 1.12619 and a proposed budget neutrality 

factor of 0.995275 (computed as described above). Table 11, which is listed in section 

VI. of the Addendum to this proposed rule and is available via the Internet, lists the 

proposed MS-LTC-DRGs and their respective proposed relative weights, geometric mean 

length of stay, five-sixths of the geometric mean length of stay (used to identify SSO 

cases under § 412.529(a)), and the “IPPS Comparable Thresholds” (used in determining 

SSO payments under § 412.529(c)(3)), for FY 2015 (and reflect both the proposed 

normalization factor of 1.12619 and the proposed budget neutrality factor of 0.995275). 

C. Proposed LTCH PPS Payment Rates for FY 2015 

1. Overview of Development of the LTCH Payment Rates 

 The basic methodology for determining LTCH PPS Federal prospective payment 

rates is set forth at § 412.515 through § 412.536. In this section, we discuss the factors 

that we are proposing to use to update the LTCH PPS standard Federal rate for FY 2015, 

that is, effective for LTCH discharges occurring on or after October 1, 2014 through 

September 30, 2015. 

 For further details on the development of the FY 2003 standard Federal rate when 

the LTCH PPS was initially implemented, we refer readers to the August 30, 2002 LTCH 

PPS final rule (67 FR 56027 through 56037). For subsequent updates to the LTCH PPS 

standard Federal rate as implemented under § 412.523(c)(3), we refer readers to the 

following final rules: RY 2004 LTCH PPS final rule (68 FR 34134 through 34140); 
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RY 2005 LTCH PPS final rule (68 FR 25682 through 25684); RY 2006 LTCH PPS final 

rule (70 FR 24179 through 24180); RY 2007 LTCH PPS final rule (71 FR 27819 through 

27827); RY 2008 LTCH PPS final rule (72 FR 26870 through 27029); RY 2009 LTCH 

PPS final rule (73 FR 26800 through 26804); FY 2010 IPPS/RY 2010 LTCH PPS final 

rule (74 FR 44021 through 44030); FY 2011 IPPS/LTCH PPS final rule (75 FR 50443 

through 50444); FY 2012 IPPS/LTCH PPS final rule (76 FR 51769 through 51773); 

FY 2013 IPPS/LTCH PPS final rule (77 FR 53479 through 53481); and FY 2014 

IPPS/LTCH PPS final rule (78 FR 50760 through 50765). 

 The proposed update to the LTCH PPS standard Federal rate for FY 2015 is 

presented in section V.A. of the Addendum to this proposed rule. The components of the 

proposed annual market basket update to the LTCH PPS standard Federal rate for 

FY 2015 are discussed below, including the reduction to the annual update for LTCHs 

that fail to submit quality reporting data for fiscal year FY 2015 as required by the statute 

(as discussed below in section VII.C.2.c. of the preamble of this proposed rule). 

Furthermore, as discussed below in section VII.C.3. of the preamble of this proposed 

rule, for FY 2015, in addition to the proposed update factor, under the final year of the 3-

year phase-in under the current regulations at § 412.523(d)(3), we are proposing to make 

a one-time prospective adjustment to the standard Federal rate for FY 2015 so that the 

effect of any significant difference between the data used in the original computations of 

budget neutrality for FY 2003 and more recent data to determine budget neutrality for 

FY 2003 is not perpetuated in the prospective payment rates for future years . In 

addition, as discussed in section V.A. of the Addendum of this proposed rule, we are 
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proposing to make an adjustment to the standard Federal rate to account for the estimated 

effect of the changes to the area wage level adjustment for FY 2015 on estimated 

aggregate LTCH PPS payments, in accordance with § 412.523(d)(4). (We refer readers 

to the discussion of the reduction to the annual update for LTCHs that fail to submit 

quality reporting data under section VII.C.2.c. of the preamble of this proposed rule, the 

proposed application of the one-time prospective adjustment under the final year of the 

3-year phase-in under section VII.C.3. of this preamble, and the proposed budget 

neutrality adjustment for changes in the area wage levels under section V.A. of the 

Addendum of this proposed rule.) 

2. Proposed FY 2015 LTCH PPS Annual Market Basket Update 

a. Overview 

 Historically, the Medicare program has used a market basket to account for price 

increases in the services furnished by providers. The market basket used for the LTCH 

PPS includes both operating and capital-related costs of LTCHs because the LTCH PPS 

uses a single payment rate for both operating and capital-related costs. As discussed in 

the FY 2013 IPPS/LTCH PPS final rule (77 FR 53468 through 53476), we adopted the 

newly created FY 2009-based LTCH-specific market basket for use under the LTCH PPS 

beginning in FY 2013. For additional details on the historical development of the market 

basket used under the LTCH PPS, we refer readers to the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53467 through 53468) and this preamble. 

 Section 3401(c) of the Affordable Care Act provides for certain adjustments to 

any annual update to the standard Federal rate and refers to the timeframes associated 
 885 

with such adjustments as a “rate year” (which are discussed in more detail in section 

VII.C.2.b. of the preamble of this proposed rule.) We note that because the annual update 

to the LTCH PPS policies, rates, and factors now occurs on October 1, we adopted the 

term “fiscal year” (FY) rather than “rate year” (RY) under the LTCH PPS beginning 

October 1, 2010, to conform with the standard definition of the Federal fiscal year 

(October 1 through September 30) used by other PPSs, such as the IPPS (75 FR 50396 

through 50397). Although the language of sections 3004(a) 3401(c), 10319, and 1105(b) 

of the Affordable Care Act refers to years 2010 and thereafter under the LTCH PPS as 

“rate year,” consistent with our change in the terminology used under the LTCH PPS 

from “rate year” to “fiscal year,” for purposes of clarity, when discussing the annual 

update for the LTCH PPS, including the provisions of the Affordable Care Act, we use 

“fiscal year” rather than “rate year” for 2011 and subsequent years. 

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

Care Act 

 Section 1886(m)(3)(A) of the Act, as added by section 3401(c) of the Affordable 

Care Act, specifies that, for rate year 2010 and each subsequent rate year through 2019, 

any annual update to the standard Federal rate shall be reduced: 

● For rate year 2010 through 2019, by the “other adjustment” specified in 

sections 1886(m)(3)(A)(ii) and (m)(4) of the Act; and 

● For rate year 2012 and each subsequent year, by the productivity adjustment 

(which we refer to as “the multifactor productivity (MFP) adjustment”) described in 

section 1886(b)(3)(B)(xi)(II) of the Act. 
 886 

 Section 1886(m)(3)(B) of the Act provides that the application of paragraph (3) of 

section 1886(m) of the Act may result in the annual update being less than zero for a rate 

year, and may result in payment rates for a rate year being less than such payment rates 

for the preceding rate year. 

 Section 1886(b)(3)(B)(xi)(II) of the Act defines the MFP adjustment as equal to 

the 10-year moving average of changes in annual economy-wide, private nonfarm 

business multifactor productivity (as projected by the Secretary for the 10-year period 

ending with the applicable fiscal year, calendar year, cost reporting period, or other 

annual period). Under our methodology, the end of the 10-year moving average of 

changes in the MFP coincides with the end of the appropriate FY update period. In 

addition, the MFP adjustment that is applied in determining any annual update to the 

LTCH PPS standard Federal rate is the same adjustment that is required to be applied in 

determining the applicable percentage increase under the IPPS under section 

1886(b)(3)(B)(i) of the Act as they are both based on a fiscal year. The MFP adjustment 

is derived using a projection of MFP that is currently produced by IHS Global Insight, 

Inc. (For additional details on the development of the MFP adjustment and its 

application under the LTCH PPS, we refer readers to the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51691 through 51692 and 51770 through 51771).) 

 For FY 2015, we are proposing to continue to use our methodology for 

calculating and applying the proposed MFP adjustment to determine the annual update to 

the LTCH PPS standard Federal rate for FY 2015. (For details on the development of the 

proposed MFP adjustment, including our finalized methodology for calculating and 
 887 

applying the MFP adjustment, we refer readers to the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51689 through 51692).) 

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

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

1. Background 

 In accordance with section 1886(m)(5) of the Act, as added by section 3004(a) of 

the Affordable Care Act, the Secretary established the Long-Term Care Hospital Quality 

Reporting (LTCHQR) Program. (As noted above, although the language of section 

3004(a) of the Affordable Care Act refers to years 2011 and thereafter under the LTCH 

PPS as “rate year,” consistent with our change in the terminology used under the LTCH 

PPS from “rate year” to “fiscal year,” for purposes of clarity, when discussing the annual 

update for the LTCH PPS, including the provisions of the Affordable Care Act, we use 

“fiscal year” rather than “rate year” for 2011 and subsequent years.) Under the LTCHQR 

Program, as required by section 1886(m)(5)(A)(i) of the Act, for FY 2014 and each 

subsequent year, in the case of an LTCH that does not submit quality reporting data to the 

Secretary in accordance with section 1886(m)(5)(C) of the Act with respect to such a 

year, any annual update to a standard Federal rate for discharges for the hospital during 

the year, and after application of section 1886(m)(3) of the Act, shall be reduced by 2.0 

percentage points. Section 1886(m)(5)(A)(ii) of the Act provides that the application of 

the 2.0 percentage points reduction may result in an annual update that is less than 0.0 for 

a year, and may result in LTCH PPS payment rates for a year being less than such LTCH 

PPS payment rates for the preceding year. Furthermore, section 1886(m)(5)(B) of the 
 888 

Act specifies that the 2.0 percentage points reduction is applied in a noncumulative 

manner, such that any reduction made under section 1886(m)(5)(A) of the Act shall apply 

only with respect to the year involved, and shall not be taken into account in computing 

the LTCH PPS payment amount for a subsequent year. For additional information on the 

history of the LTCHQR Program, including the statutory authority and the selected 

measures, we refer readers to section IX.C. of the preamble of this proposed rule. 

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

under the LTCHQR Program 

 Consistent with section 1886(m)(5)(A)(i) of the Act, for FY 2014 and subsequent 

fiscal years, for LTCHs that do not submit quality reporting data under the LTCHQR 

Program with respect to such a fiscal year, any annual update to a standard Federal rate 

for discharges for the LTCH during the fiscal year and after application of the market 

basket update adjustments required by section 1886(m)(3) of the Act, is further reduced 

by 2.0 percentage points. That is, in establishing an update to the LTCH PPS standard 

Federal rate for FY 2014 and subsequent fiscal years, the full LTCH PPS market basket 

increase estimate, subject to an adjustment based on changes in economy-wide 

productivity (“the MFP adjustment”) required under section 1886(m)(3)(A)(i) of the Act 

and an additional reduction required by sections 1886(m)(3)(A)(ii) and 1886(m)(4) of the 

Act, is further reduced by 2.0 percentage points for LTCHs that fail to submit quality 

reporting data under the LTCHQR Program. The reduction in the annual update to the 

LTCH PPS standard Federal rate for failure to report quality data under the LTCHQR 
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Program for FY 2014 and subsequent fiscal years is codified under § 412.523(c)(4) of the 

regulations. 

 Specifically, consistent with section 1886(m)(5)(A)(i) of the Act, under 

§ 412.523(c)(4)(i), for an LTCH that does not submit quality reporting data in the form 

and manner and at the time specified by the Secretary under the LTCHQR Program, the 

annual update to the standard Federal rate under § 412.523(c)(3) is further reduced by 2.0 

percentage points. In addition, consistent with section 1886(m)(5)(A)(ii) of the Act, 

§ 412.523(c)(4)(ii) specifies that any reduction of the annual update to the standard 

Federal rate under § 412.523(c)(4)(i) will apply only to the fiscal year involved and will 

not be taken into account in computing the annual update to the standard Federal rate for 

a subsequent fiscal year. Lastly, consistent with section 1886(m)(5)(B) of the Act, under 

§ 412.523(c)(4)(iii), the application of any reduction of the annual update to the standard 

Federal rate under § 412.523(c)(4)(i) may result in an annual update that is less than 0.0 

percent for a fiscal year, and may result in payment rates for a fiscal year that would be 

less than such payment rates for the preceding rate year. 

 We discuss the application of the 2.0 percentage point reduction under 

§ 412.523(c)(4)(i) in our discussion of the proposed annual market basket update to the 

LTCH PPS standard Federal rate for FY 2015 below in section VII.C.2.e. of the preamble 

of this proposed rule. 

d. Proposed Market Basket under the LTCH PPS for FY 2015 

 Under the authority of section 123 of the BBRA as amended by section 307(b) of 

the BIPA, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53468), we adopted a newly 
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created FY 2009-based LTCH-specific market basket for use under the LTCH PPS 

beginning in FY 2013. The FY 2009-based LTCH-specific market basket is based solely 

on the Medicare cost report data submitted by LTCHs and, therefore, specifically reflects 

the cost structures of only LTCHs. For additional details on the development of the 

FY 2009-based LTCH-specific market basket, we refer readers to the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53467 through 53476). 

 For FY 2015, we are proposing to continue to use the FY 2009-based 

LTCH-specific market basket to update the LTCH PPS for FY 2015. We continue to 

believe that the FY 2009-based LTCH-specific market basket appropriately reflects the 

cost structure of LTCHs for the reasons discussed when we adopted the FY 2009-based 

LTCH-specific market basket for use under the LTCH PPS in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53467 through 53476). 

e. Proposed Annual Market Basket Update for LTCHs for FY 2015 

 Consistent with our historical practice, we are proposing to estimate the market 

basket update and the proposed MFP adjustment based on IGI’s forecast using the most 

recent available data. Based on IGI’s first quarter 2014 forecast, the proposed FY 2015 

full market basket estimate for the LTCH PPS using the FY 2009-based LTCH-specific 

market basket is 2.7 percent. Using our established methodology for determining the 

MFP adjustment, the current estimate of the proposed MFP adjustment for FY 2015 

based on IGI’s first quarter 2014 forecast is 0.4 percent, as discussed in section IV.B. of 

the preamble of this proposed rule. In addition, consistent with our historical practice of 

using the best available data, we are proposing that if more recent data is available, we 
 891 

would use such data to estimate the market basket update and the MFP adjustment for 

FY 2015 in the final rule. 

 For FY 2015, section 1886(m)(3)(A)(i) of the Act requires that any annual update 

to the standard Federal rate be reduced by the productivity adjustment (“the MFP 

adjustment”) described in section 1886(b)(3)(B)(xi)(II) of the Act. Consistent with the 

statute, we are proposing to reduce the full FY 2015 market basket update by the 

proposed FY 2015 MFP adjustment. To determine the market basket update for LTCHs 

for FY 2015, as reduced by the MFP adjustment, consistent with our established 

methodology, we are proposing to subtract the proposed FY 2015 MFP adjustment from 

the proposed FY 2015 market basket update. Furthermore, sections 1886(m)(3)(A)(ii) 

and 1886(m)(4)(E) of the Act requires that any annual update to the standard Federal rate 

for FY 2015 be reduced by the “other adjustment” described in paragraph (4), which is 

0.2 percentage point for FY 2015. Therefore, following application of the proposed 

productivity adjustment, we are proposing to reduce the adjusted market basket update 

(that is, the proposed full market basket increase less the proposed MFP adjustment) by 

the “other adjustment” specified by sections 1886(m)(3)(A)(ii) and 1886(m)(4) of the 

Act. (For additional details on our established methodology for adjusting the market 

basket increase by the MFP and the “other adjustment” required by the statute, we refer 

readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51771).) 

 As discussed previously in section VII.C.2.c. of the preamble of this proposed 

rule, for FY 2015, section 1886(m)(5) of the Act requires that for LTCHs that do not 

submit quality reporting data under the LTCHQR Program, any annual update to a 
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standard Federal rate, after application of the adjustments required by section 1886(m)(3) 

of the Act, is further reduced by 2.0 percentage points. Therefore, the proposed update to 

the LTCH PPS standard Federal rate for FY 2015 for LTCHs that fail to submit quality 

reporting data under the LTCHQR Program, the full LTCH PPS market basket increase 

estimate, subject to an adjustment based on changes in economy-wide productivity (“the 

MFP adjustment”) as required under section 1886(m)(3)(A)(i) of the Act and an 

additional reduction required by sections 1886(m)(3)(A)(ii) and 1886(m)(4) of the Act, 

would also be further reduced by 2.0 percentage points. 

 In this proposed rule, in accordance with the statute, we are proposing to reduce 

the proposed FY 2015 full market basket estimate of 2.7 percent (based on IGI’s first 

quarter 2014 forecast of the FY 2009-based LTCH-specific market basket) by the 

proposed FY 2015 MFP adjustment (that is, the 10-year moving average of MFP for the 

period ending FY 2015, as described in section IV.B. of the preamble of this proposed 

rule) of 0.4 percentage point (based on IGI’s first quarter 2014 forecast). Following 

application of the proposed productivity adjustment, the adjusted market basket update of 

2.3 percent (2.7 percent minus 0.4 percentage point) would then be reduced by 

0.2 percentage point, as required by sections 1886(m)(3)(A)(ii) and 1886(m)(4)(E) of the 

Act. Therefore, in this proposed rule, under the authority of section 123 of the BBRA as 

amended by section 307(b) of the BIPA, we are proposing to establish an annual market 

basket update under the LTCH PPS for FY 2015 of 2.1 percent (that is, the most recent 

estimate of the LTCH PPS proposed market basket update at this time of 2.7 percent, less 

the proposed MFP adjustment of 0.4 percentage point, and less the 0.2 percentage point 
 893 

required under section 1886(m)(4)(E) of the Act), provided the LTCH submits quality 

reporting data in accordance with section 1886(m)(5) of the Act. Accordingly, we are 

proposing to revise § 412.523(c)(3) by adding a new paragraph (xi), which specifies that 

the standard Federal rate for FY 2015 would be the standard Federal rate for the previous 

LTCH PPS year updated by 2.7 percent, and as further adjusted, as appropriate, as 

described in § 412.523(d). For LTCHs that fail to submit quality reporting data under the 

LTCHQR Program, under proposed § 412.523(c)(3)(xi) in conjunction with 

§ 412.523(c)(4), we are proposing to further reduce the annual update to the LTCH PPS 

standard Federal rate by 2.0 percentage points in accordance with section 1886(m)(5) of 

the Act. Accordingly, we are proposing to establish an annual update to the LTCH PPS 

standard Federal rate of 0.1 percent (that is, 2.1 percent minus 2.0 percentage points) for 

FY 2015 for LTCHs that fail to submit quality reporting data under the LTCHQR 

Program. As stated above, consistent with our historical practice of using the best 

available data, we are proposing that if more recent data is available, we would use such 

data to establish an annual update to the LTCH PPS standard Federal rate for FY 2015 

under § 412.523(c)(3)(xi) in the final rule. (We note that, we also are proposing to adjust 

the proposed FY 2015 standard Federal rate by applying a one-time prospective 

adjustment under the final year of the 3-year phase-in under § 412.523(d)(3) (discussed in 

section VII.C.3. of the preamble of this proposed rule) and by a proposed area wage level 

budget neutrality factor in accordance with § 412.523(d)(4) (as discussed in section 

V.B.5. of the Addendum of this proposed rule).) 
 894 

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

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

 We set forth regulations implementing the LTCH PPS, based upon the broad 

authority granted to the Secretary, under section 123 of the BBRA (as amended by 

section 307(b) of the BIPA). Section 123(a)(1) of the BBRA required that the system 

“maintain budget neutrality” in the August 30, 2002 LTCH PPS final rule (67 FR 55954). 

The statutory budget neutrality requirement means that estimated aggregate payments 

under the LTCH PPS for FY 2003 would be equal to the estimated aggregate payments 

that would have been made if the LTCH PPS were not implemented for FY 2003. The 

methodology for determining the LTCH PPS standard Federal rate for FY 2003 that 

would “maintain budget neutrality” is described in considerable detail in the 

August 30, 2002 final rule (67 FR 56027 through 56037). Our methodology for 

estimating payments for the purposes of budget neutrality calculations used the best 

available data, and necessarily reflected several assumptions (for example, costs, inflation 

factors, and intensity of services provided) in estimating aggregate payments that would 

have been made if the LTCH PPS had not been implemented (without accounting for 

certain statutory provisions that affect the level of payments to LTCHs in years prior to 

the implementation of the LTCH PPS, as required by the statute). 

 In the August 30, 2002 final rule, we also stated our intentions to monitor LTCH 

PPS payment data to evaluate whether later data varied significantly from the data 

available at the time of the original budget neutrality calculations (for example, data 

related to inflation factors, intensity of services provided, or behavioral response to the 
 895 

implementation of the LTCH PPS). To the extent the later data significantly differed 

from the data employed in the original calculations, the aggregate amount of payments 

during FY 2003 based on later data may be higher or lower than the estimates upon 

which the budget neutrality calculations were based. Therefore, in that same final rule, 

under the broad authority conferred upon the Secretary in developing the LTCH PPS, 

including the authority for establishing appropriate adjustments, under section 123(a)(1) 

of the BBRA, as amended by section 307(b) of the BIPA, we provided in § 412.523(d)(3) 

of the regulations for the possibility of making a one-time prospective adjustment to the 

LTCH PPS rates, so that the effect of any significant difference between actual payments 

and estimated payments for the first year of the LTCH PPS would not be perpetuated in 

the LTCH PPS rates for future years. We refer readers to the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53487 through 53488) for a complete discussion of the history of the 

development of the one-time prospective adjustment to the LTCH PPS standard Federal 

rate at § 412.523(d)(3). 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53495), we finalized our policy 

to make a one-time prospective adjustment to the standard Federal rate so that it will be 

permanently reduced by approximately 3.75 percent to account for the estimated 

difference between projected aggregate FY 2003 LTCH PPS payments and the projected 

aggregate payments that would have been made in FY 2003 under the TEFRA payment 

system if the LTCH PPS had not been implemented. Specifically, using the methodology 

we adopted in that same final rule, we determined that permanently applying a factor of 

0.9625 (that is, a permanent reduction of approximately 3.75 percent) to the standard 
 896 

Federal rate is necessary to ensure estimated total FY 2003 LTCH PPS payments equal 

estimated total FY 2003 TEFRA payments consistent with our stated policy goal of the 

one-time prospective adjustment under § 412.523(d)(3) (that is, to ensure that the 

difference between estimated total FY 2003 LTCH PPS payments and estimated total 

FY 2003 TEFRA payments is not perpetuated in the LTCH PPS payment rates in future 

years). (We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53487 

through 53502) for a complete discussion of the evaluation approach, methodology, and 

determination of the one-time prospective adjustment to the LTCH PPS standard Federal 

rate at § 412.523(d)(3).) 

 Given the magnitude of this adjustment, in the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53501 through 53502), under § 412.523(d)(3), we established a policy to 

phase-in the permanent adjustment of 0.9625 to the standard Federal rate over a 3-year 

period. To achieve a permanent adjustment of 0.9625, under the phase-in of this 

adjustment, in that same final rule, we explained that we will apply a factor of 0.98734 to 

the standard Federal rate in each year of the 3-year phase-in, that is, in FY 2013 (which 

does not apply to payments for discharges occurring on or after October 1, 2012, and on 

or before December 28, 2012, consistent with current law), FY 2014, and FY 2015. By 

applying a permanent factor of 0.98734 to the standard Federal rate in each year for 

FYs 2013, 2014, and 2015, we will completely account for the entire adjustment by 

having applied a cumulative factor of 0.9625 (calculated as 0.98734 × 0.98734 × 0.98734 

= 0.9625) to the standard Federal rate. Accordingly, under § 412.523(d)(3), we applied a 
 897 

permanent factor of 0.98734 to the standard Federal rate in both FY 2013 and FY 2014 

under the established 3-year phase-in of the one-time prospective adjustment. 

 In this proposed rule, for FY 2015, we are proposing to apply a permanent onetime prospective adjustment factor of 0.98734 to the standard Federal rate for FY 2015 

under the last year of the 3-year phase-in of the one-time prospective adjustment, in 

accordance with the existing regulations under § 412.523(d)(3). 

D. Proposed Revision of LTCH PPS Geographic Classifications 

1. Background. 

 As discussed in the August 30, 2002 LTCH PPS final rule, which implemented 

the LTCH PPS (67 FR 56015 through 56019), in establishing an adjustment for area 

wage levels, the labor-related portion of an LTCH’s standard Federal payment rate is 

adjusted by using an appropriate wage index based on the labor market area in which the 

LTCH is located. Specifically, the application of the LTCH PPS area wage-level 

adjustment, which is codified under existing § 412.525(c) of the regulations, is based on 

the location of the LTCH--either in an “urban” area or a “rural” area. Currently, under 

the LTCH PPS, as codified under § 412.503 of the regulations, an “urban area” is defined 

as a Metropolitan Statistical Area (which includes a Metropolitan division, where 

applicable) as defined by the Executive OMB, and a “rural area” is defined as any area 

outside of an urban area. 

 In the RY 2006 LTCH PPS final rule (70 FR 24184 through 24185), we revised 

§ 412.525(c) to update 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 
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Core-Based Statistical Area (CBSA) designations (“CBSA designations”), which are 

based on 2000 Census data. We made this revision because we believed that the CBSA 

designations (geographic classifications) 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. We noted that these were the same CBSA designations implemented for acute care 

hospitals under the IPPS, which were codified under § 412.64(b) of the regulations, 

beginning in FY 2005. (For a further discussion of the CBSA-based labor market area 

designations currently used under the LTCH PPS, we refer readers to the RY 2006 LTCH 

PPS final rule (70 FR 24182 through 24191).) We have generally updated the LTCH 

PPS CBSA designations annually since they were adopted for RY 2006 when updates 

from OMB were available (73 FR 26812 through 26814, 74 FR 44023 through 44204, 

and 75 FR 50444 through 50445). 

 In OMB Bulletin No. 10-2, issued on December 1, 2009, OMB announced that 

the CBSA changes in that bulletin would be the final update prior to the 2010 Census of 

Population and Housing. We adopted those changes under the LTCH PPS in the 

FY 2011 IPPS/LTCH PPS final rule (75 FR 50444 through 50445), effective 

October 1, 2010. We continued to use these CBSA designations for FYs 2012 and 2013 

(76 FR 51808 and 77 FR 53710, respectively). New OMB labor market area delineations 

(which we refer to in this section as “new OMB delineations”) based on 2010 standards 

and the 2010 Decennial Census data were announced by OMB on February 28, 2013. 

OMB issued Bulletin No. 13-01, which announced revisions to the delineation of 
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Metropolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical 

Areas, and provided guidance on the uses of the delineation of these labor market areas. 

(For a copy of this bulletin, we refer readers to the following Web site: 

http://www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b-13-01.pdf. This 

bulletin specifically provides the delineations of all Metropolitan Statistical Areas 

(MSAs), Metropolitan Divisions, Micropolitan Statistical Areas, Combined Statistical 

Areas, and New England City and Town Areas in the United States and Puerto Rico 

based on the standards published in the Federal Register on June 28, 2010 (75 FR 37246 

through 37252) and 2010 Census data. (We note that, as discussed in section III.B. of the 

preamble of this proposed rule, consistent with the terminology used in the OMB Bulletin 

No. 13-01 and the standards published in the Federal Register on June 28, 2010, when 

referencing the new OMB geographic boundaries of Metropolitan Statistical Areas 

(MSAs) based on 2010 standards, we are using the term “new OMB delineations” rather 

than the term “CBSA-based labor market area definitions” that we have used in the past 

to refer to OMB geographic boundaries of statistical areas (75 FR 37249).) 

 As discussed in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50994 through 

50995), in order to implement these changes for the LTCH PPS (as in the case of the 

IPPS), it is necessary to identify the new OMB delineations for each county and hospital 

in the country. While the revisions OMB published on February 28, 2013, are not as 

sweeping as the changes OMB announced in 2003, the February 28, 2013 bulletin does 

contain a number of significant changes. For example, under the new OMB delineations, 

there are new CBSAs, urban counties that have become rural, rural counties that have 
 900 

become urban, and existing CBSAs that have been split apart and moved to other CBSAs. 

Because the update was not issued until February 28, 2013, and it was necessary for the 

changes made by the update and their ramifications to be extensively reviewed and 

verified, we were unable to undertake such a lengthy process before publication of the 

FY 2014 rulemaking cycle. That is, by the time the update was issued, the FY 2014 

IPPS/LTCH PPS proposed rule was in the advanced stages of development, and the 

proposed FY 2014 LTCH PPS wage indexes based on the CBSA designations that are 

currently used under the LTCH PPS had been developed. Therefore, we did not propose 

to use the changes to the LTCH PPS CBSA designations for FY 2014 based on the new 

OMB delineations. Rather, to allow for sufficient time to assess the new changes and 

their ramifications, we stated that we intended to propose the adoption of the new OMB 

delineations and the corresponding changes to the wage index based on those delineations 

under the LTCH PPS for FY 2015 through notice and comment rulemaking, consistent 

with the approach used under the IPPS (78 FR 50994 through 50995). As discussed 

below, in this proposed rule, under the authority of section 123 of the BBRA, as amended 

by section 307(b) of the BIPA, we are proposing to adopt the new OMB delineations 

announced in the February 28, 2013 OMB Bulletin No. 13-01, effective for FY 2015 

under the LTCH PPS, consistent with the approach proposed for the IPPS as discussed in 

section III.B. of the preamble of this proposed rule. 
 901 

2. Proposed Use of the New OMB Labor Market Area Delineations (“New OMB 

Delineations”) 

 Historically, Medicare prospective payment systems have utilized labor market 

area definitions developed by the OMB. As discussed above, the CBSA designations 

currently used under the LTCH PPS are based on the most recent market area definitions 

issued by the OMB. The OMB reviews its market area definitions/delineations based on 

data from the preceding decennial census to reflect more recent population changes. As 

discussed above and in section III.B. of the preamble of this proposed rule, the new OMB 

delineations are based on the OMB’s latest market area delineations based on the 2010 

Decennial Census data. Because we believe that the OMB’s latest labor market area 

delineations are the best available data that reflect the local economies and wage levels of 

the areas in which hospitals are currently located, we are proposing to adopt the new 

OMB delineations based on the 2010 Decennial Census data under the LTCH PPS, 

beginning in FY 2015, for the reasons discussed below (which are consistent with the 

IPPS proposal discussed in section III.B. of the preamble of this proposed rule). 

 When we implemented the wage index adjustment under § 412.525(c) for the 

LTCH PPS, and updated the LTCH PPS labor market area definitions based on the 

CBSA designations beginning in RY 2006, we explained that the LTCH PPS wage index 

adjustment was intended to reflect the relative hospital wage levels in the geographic area 

of the hospital as compared to the national average hospital wage level. (We refer 

readers to the RY 2003 LTCH PPS final rule (67 FR 56016) and the RY 2006 LTCH PPS 

final rule (70 FR 24184).) Because we believe that the new OMB delineations based on 
 902 

2010 Decennial Census data (reflect the most recent available geographic classifications 

(market area delineations), we are proposing to revise the geographic classifications used 

under the LTCH PPS based on these new OMB delineations to ensure that the LTCH 

PPS wage index adjustment continues to most appropriately account for and reflect the 

relative hospital wage and wage-related costs in the geographic area of the hospital as 

compared to the national average hospital wage and wage-related costs. Specifically, we 

are proposing to adopt the new OMB delineations (as discussed in greater detail below), 

effective for LTCH PPS discharges occurring on or after October 1, 2014 (that is, 

effective for FY 2015). We note that, because the application of the LTCH PPS area 

wage-level adjustment under existing § 412.525(c) is made on the basis of the location of 

the LTCH--either in an “urban” area or a “rural” area as those terms are defined under 

existing § 412.503. Under § 412.503, an “urban area” is defined as a Metropolitan 

Statistical Area as defined by the Executive OMB. A “rural area” is defined as any area 

outside of an urban area. Therefore, we are not proposing any changes to the existing 

regulations under this proposal. 

 As discussed in section III.B. of this preamble, while CMS and other stakeholders 

have explored potential alternatives to the current CBSA-based labor market system, no 

consensus has been achieved regarding how best to implement a replacement system. 

While we recognize that MSAs are not designed specifically to define labor market areas, 

we believe that they do represent a useful proxy for this purpose. Consistent with the 

approach taken for the IPPS, we have used MSAs to define labor market areas for 

purposes of Medicare wage indices under the LTCH PPS since its implementation in 
 903 

FY 2003. MSAs also are used to define labor market areas for purposes of the wage 

index for many of the other Medicare payment systems (for example, the IRF PPS, the 

SNF PPS, the HHA PPS, the OPPS, and the IPF PPS). (We refer readers to the RY 2006 

LTCH PPS final rule (70 FR 24184).) Therefore, under the authority of section 123 of 

the BBRA, as amended by section 307(b) of the BIPA, we are proposing to adopt the new 

OMB delineations as described in the February 28, 2013 OMB Bulletin No. 13-01, 

effective under the LTCH PPS for FY 2015. In addition, we are proposing to use these 

new OMB delineations to calculate area wage indexes in a manner that is consistent with 

the CBSA-based methodologies finalized in the RY 2006 LTCH PPS final rule, as 

refined in subsequent rulemaking. We also are proposing a wage index transition policy 

(as discussed in more detail below) for LTCHs that would experience a negative payment 

impact due to the proposed use of the new OMB delineations. This proposal, including 

the proposed wage index transition policy, is consistent with the proposal under the IPPS 

presented in section III.B. of the preamble of this proposed rule. The discussion below is 

focused on issues related to the proposed use of the new OMB delineations to define 

labor market areas for purposes of the wage index adjustment under the LTCH PPS, and 

is consistent with what is being proposed for the IPPS. 

a. Micropolitan Statistical Areas 

 When we adopted the CBSA designations under the LTCH PPS in RY 2006, we 

discussed CMS’ consideration of whether to use Micropolitan Statistical Areas to define 

the labor market areas for the purpose of the LTCH PPS wage index. OMB defines a 

“Micropolitan Statistical Area” as a Consolidated Metropolitan Statistical Area (CMSA) 
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“associated with at least one urban cluster that has a population of at least 10,000, but less 

than 50,000” (70 FR 24183). We refer to these areas as “Micropolitan Areas.” After 

conducting an extensive impact analysis, we determined that the best course of action 

would be to treat all hospitals located in “Micropolitan Areas” as “rural,” and to include 

these hospitals in the calculation of each State’s rural wage index. Because Micropolitian 

Areas tend to encompass smaller population centers and contain fewer hospitals than 

MSAs, we determined that if Micropolitan Areas were to be treated as separate labor 

market areas, the IPPS wage index would include drastically more single-provider labor 

market areas. This larger number of labor market areas with fewer providers could create 

instability in year-to-year wage index values for a large number of hospitals; could 

reduce the averaging effect of the wage index, lessening some of the efficiency incentive 

inherent in a system based on the average hourly wages for a large number of hospitals; 

and could arguably create an inequitable system when so many hospitals would have 

wage indexes based solely on their own wage data while other hospitals’ wage indexes 

would be based on an average hourly wage across many hospitals. For these reasons, we 

adopted a policy to include Micropolitan Areas in the State’s rural wage area, and have 

continued this policy through the present. (We refer reader to the RY 2006 LTCH PPS 

final rule (70 FR 24187).) 

 Based upon the 2010 Decennial Census data, a number of rural and urban 

counties have joined or have become Micropolitan Areas, while other counties that once 

were part of a Micropolitan Area under previous OMB CBSA designations, have become 

either urban or rural under the new OMB delineations. Overall, there are fewer 
 905 

Micropolitan Areas (541) under the new OMB delineations based on 2010 Decennial 

Census data than existed under the data from the 2000 Census (581). We believe that it is 

appropriate to continue the policy established in the RY 2006 LTCH PPS final rule, and 

we are proposing to treat Micropolitan Areas as rural labor market areas under the LTCH 

PPS. These areas continue to be defined as having relatively small urban cores 

(populations of 10,000-49,999). We do not believe that it would be appropriate to 

calculate a separate wage index for areas that typically may include only a few hospitals 

for the reasons set forth in the RY 2006 LTCH PPS final rule, as discussed above. 

Therefore, in conjunction with our proposal to use the new OMB labor market area 

delineations, under the authority of section 123 of the BBRA, as amended by section 

307(b) of the BIPA, for FY 2015, we are proposing to continue to treat Micropolitan 

Areas as “rural,” and to assign the Micropolitan Area the statewide rural wage index for 

the State in which the LTCH is located. We also are proposing that, beginning in 

FY 2015, the wage data for any IPPS hospitals located in the Micropolitan Areas would 

be included in the calculation of each State’s LTCH PPS rural area wage index. (As 

discussed in section V.B.2. of the Addendum to this proposed rule, the LTCH PPS area 

wage index values are calculated using the wage data of IPPS hospitals.) We note that 

this proposal is consistent with the proposal for the IPPS discussed in section III.B.2.a. of 

the preamble of this proposed rule. We refer readers to section VII.D.2.e. of this 

preamble for a discussion of our proposals to moderate the impact of our proposed use of 

the new OMB delineations under the LTCH PPS. 
 906 

b. Urban Counties That Became Rural under the New OMB Labor Market Area 

Delineations 

 In proposing to use the new OMB delineations, which are based upon 2010 

Decennial Census data, for FY 2015, we found that there are a number of counties (or 

county equivalents) that are defined as “urban” under the previous CBSA designations 

that are now defined as “rural” under the new OMB delineations. As discussed in section 

III.B. of this preamble, an analysis of the new OMB delineations shows that a total of 37 

counties (and county equivalents) that were considered to be part of an “urban” CBSA 

are now considered to be located in a “rural” area, beginning in FY 2015, based on the 

new OMB delineations. We refer readers to a table presented in section III.B.2.b. of the 

preamble of this proposed rule that lists the 37 urban counties that would be defined as 

rural if we finalize our proposal to use the new OMB delineations. Under our proposal to 

use the new OMB delineations for the LTCH PPS, we are proposing that LTCHs located 

in any of the 37 counties listed in the table under section III.B.2.b. of the preamble of this 

proposed rule would be considered “rural,” and would receive their respective State’s 

rural area wage index for FY 2015 under the LTCH PPS. We note that, currently, there 

are no LTCHs located in any of the 37 counties listed in the table that are currently 

considered to be part of an “urban” CBSA and that would be considered to be located in a 

“rural” area, beginning in FY 2015, if the proposed adoption of the new OMB 

delineations is finalized. We also proposing that, if finalized, the wage data for any IPPS 

hospitals located in those 37 counties listed in the table now would be considered “rural” 

when calculating the respective State’s LTCH PPS rural area wage index beginning in 
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FY 2015. (As discussed in section V.B.2. of the Addendum to this proposed rule, the 

LTCH PPS area wage index values are calculated using the area wage data of IPPS 

hospitals.) We note that this proposal is consistent with the proposal under the IPPS 

discussed in section III.B.2.b. of the preamble of this proposed rule. We refer readers to 

section VII.D.2.e. of the preamble of this proposed rule for a discussion of our proposals 

to moderate the impact of our proposal to implement the new OMB delineations under 

the LTCH PPS. 

c. Rural Counties That Became Urban under the New OMB Labor Market Area 

Delineations 

 In proposing to use the new OMB labor market area delineations (which are based 

upon 2010 Decennial Census data) for FY 2015, we found that there are a number of 

counties (or county equivalents) that are defined as “rural” under the previous OMB 

definitions (that is, CBSA designations) that would be considered “urban” if the proposed 

adoption of the new OMB delineations is finalized. As discussed in section III.B.2.c. of 

the preamble of this proposed rule, an analysis of the new OMB labor market area 

delineations shows that a total of 105 counties (and county equivalents) that were 

previously located in “rural” areas now are located in an “urban” area under the new 

OMB delineations. We refer readers to a table in section III.B.2.c. of the preamble of this 

proposed rule that lists the 105 “rural” counties that would be located in an “urban” area, 

if we finalize our proposal to adopt the new OMB delineations presented in section 

III.B.2.c. of the preamble of this proposed rule. There are currently no LTCHs located in 

the 105 “rural” counties listed in that table. 
 908 

 Under our proposal to adopt the new OMB labor market area delineations, we are 

proposing that LTCHs located in any of those 105 counties now would be included in 

their new respective “urban” CBSAs and would receive the respective “urban” CBSA’s 

area wage index. We also are proposing that, beginning in FY 2015, the wage data for 

any IPPS hospitals located within those 105 counties now would be included in the 

calculation of the LTCH PPS area wage index for those hospitals’ respective “urban” 

CBSAs. (As discussed in section V.B.2. of the Addendum to this proposed rule, the 

LTCH PPS area wage index values are calculated using the area wage data of IPPS 

hospitals.) We note that this proposal is consistent with the proposal for the IPPS 

discussed in section III.B.2.c. of the preamble of this proposed rule. We refer readers to 

section VII.D.2.e. of the preamble of this proposed rule for a discussion of our proposals 

to moderate the impact of our proposal to implement the new OMB delineations under 

the LTCH PPS. 

d. Urban Counties Moved to a Different Urban CBSA under the New OMB Labor 

Market Area Delineations 

 In addition to “rural” counties that would become “urban” and “urban” counties 

that would become “rural” under the new OMB delineations, we found that several urban 

counties shifted from one urban CBSA to another urban CBSA. In certain cases, the new 

OMB delineations involved a change only in the CBSA name or code, while the CBSA 

continued to encompass the same constituent counties. However, in other cases, under 

the new OMB delineations, some counties are shifted between existing urban CBSAs and 

new urban CBSAs, changing the constituent makeup of those CBSAs. For example, in 
 909 

some cases, entire CBSA are subsumed by another CBSA. In other cases, some CBSAs 

have counties that are split off as part of a different urban CBSA, or to form entirely new 

labor market areas. We refer readers to section III.B.2.d. of the preamble of this 

proposed rule for additional information, including examples, on urban counties that are 

moved from one urban CBSA to a different urban CBSA under the new OMB 

delineations. LTCHs located in these affected counties that would move from one urban 

CBSA to a different urban CBSA under our proposal to adopt the new OMB delineations 

would experience both negative and positive impacts in regard to the LTCH’s specific 

area wage index values. We refer readers to section VII.D.2.e. of the preamble of this 

proposed rule for a discussion of our proposals to moderate the impact imposed upon 

hospitals because of our proposal to adopt the new OMB labor market area delineations 

under the LTCH PPS. 

e. Proposed Transition Period 

 As indicated above, overall, we believe that our proposal to adopt the new OMB 

delineations would result in LTCH PPS wage index values being more representative of 

the actual costs of labor in a given area. However, we also recognize that some LTCHs 

would experience decreases in their area wage index values as a result of our proposal. 

We also realize that many LTCHs would have higher area wage index values under our 

proposal. To mitigate the impact imposed upon hospitals, we have in the past provided 

for transition periods when adopting changes that have significant payment implications, 

particularly large negative impacts. While we believe that using the new OMB 

delineations would create a more accurate payment adjustment for differences in area 
 910 

wage levels, we also recognize that adopting such changes may cause some short-term 

instability in LTCH PPS payments. Therefore, under the authority of section 123 of the 

BBRA, as amended by section 307(b) of the BIPA, we are proposing a transition policy 

for LTCHs that would experience a decrease in their area wage index values due to our 

proposal to adopt the new OMB delineations under the LTCH PPS. Specifically, for FY 

2015, we are proposing to compute a blended area wage index value for any LTCH that 

would experience a decrease in its area wage index value solely due to the proposed 

adoption of the new OMB delineations beginning in FY 2015. That is, for purposes of 

determining an LTCH’s area wage index for FY 2015, we are proposing to compute 

LTCH PPS wage index values using the proposed area wage data discussed above and in 

section V.B.4. of the Addendum to this proposed rule under both the current (FY 2014) 

CBSA designations and the proposed (FY 2015) new OMB delineations based on the 

2010 OMB Decennial Census data. For each LTCH, we are proposing to compare these 

two proposed wage indexes. If an LTCH’s proposed wage index under the proposed 

adoption for FY 2015 of the new OMB delineations is lower than the LTCH’s proposed 

wage index under the FY 2014 CBSA designations, we are proposing that, for FY 2015, 

the LTCH would be paid based on a blended wage index that would be computed as the 

sum of 50 percent of each of the two proposed wage index values described above 

(referred to as the proposed 50/50 blended wage index). If an LTCH’s proposed wage 

index under the proposed adoption for FY 2015 of the new OMB delineations is higher 

than the LTCH’s proposed wage index under the FY 2014 CBSA designations, we are 

proposing that, for FY 2015, the LTCH would be paid based on 100 percent of the 
 911 

proposed wage index under the proposed FY 2015 new OMB delineations (and would 

not receive the proposed 50/50 blended wage index). 

 Furthermore, we are proposing that the proposed transitional area wage index 

policy be used in a budget neutral manner. Under § 412.525(c)(2), any changes to the 

adjustment for differences in area wage levels are made in a budget neutral manner such 

that estimated aggregate FY 2015 LTCH PPS payments are unaffected; that is, will be 

neither greater than nor less than estimated aggregate LTCH PPS payments without such 

changes to the area wage-level adjustment. Under this policy, we determine an area 

wage-level adjustment budget neutrality factor that is applied to the standard Federal rate 

(under § 412.523(d)(4)) to ensure that any changes to the area wage-level adjustments are 

budget neutral such that any changes to the wage index values or labor-related share 

would not result in any change (increase or decrease) in estimated aggregate LTCH PPS 

payments. Because our proposed transition policy for LTCHs that would experience a 

decrease in their area wage index values solely as a result of our finalized policy to adopt 

the new OMB delineations under the LTCH PPS would result in an increase in estimated 

aggregate LTCH PPS payments without such changes, we are proposing to include the 

proposed 50/50 blended wage index in our calculations for the proposed area wage-level 

adjustment budget neutrality factor that would be applied to the proposed standard 

Federal rate to ensure that any changes to the area wage-level adjustment are budget 

neutral. Specifically, consistent with our established methodology, we are proposing to 

use the following methodology to determine a proposed area wage-level adjustment 

budget neutrality factor for FY 2015: 
 912 

 • Proposed Step 1—We are proposing to simulate estimated aggregate LTCH 

PPS payments using the FY 2014 wage index values as established in Tables 12A and 

12B for the FY 2014 IPPS/ LTCH PPS final rule (which is available via the Internet on 

the CMS Web site) and the FY 2014 labor-related share of 62.537 percent as established 

in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50996). 

 • Proposed Step 2—We are proposing to simulate estimated aggregate LTCH 

PPS payments using the proposed FY 2015 wage index values as shown in Tables 12A 

through 12D for this proposed rule (which are available via the Internet on the CMS Web 

site), including the proposed transitional 50/50 blended wage index values, if applicable 

(as discussed in section V.B.4. of the Addendum of this proposed rule), and the proposed 

FY 2015 labor-related share of 62.571 percent (as discussed in section V.B.3. of the 

Addendum to this proposed rule). 

 • Proposed Step 3—We are proposing to determine the ratio of these estimated 

total LTCH PPS payments by dividing the estimated total LTCH PPS payments using the 

FY 2014 area wage-level adjustments (calculated in proposed Step 1) by the estimated 

total LTCH PPS payments using the proposed FY 2015 area wage-level adjustments 

(calculated in proposed Step 2) to determine the proposed FY 2015 area wage-level 

adjustment budget neutrality factor. 

 • Proposed Step 4—We are proposing to then apply the proposed FY 2015 area 

wage-level adjustment budget neutrality factor from proposed Step 3 to the proposed 

FY 2015 LTCH PPS standard Federal rate after the application of the proposed FY 2015 

annual update as discussed in section V.A.2. of the Addendum to this proposed rule. 
 913 

 As explained above, we are proposing to apply this factor in determining the 

proposed FY 2015 standard Federal rate to ensure that the proposed updates to the area 

wage-level adjustment for FY 2015 would be implemented in a budget neutral manner. 

For this proposed rule, using the steps in the methodology described above, we 

determined a FY 2015 area wage-level adjustment budget neutrality factor of 1.0002034. 

 We note that this proposed transitional area wage index policy under our proposal 

to adopt the new OMB delineations for FY 2015 under the LTCH PPS is consistent with 

the proposals under the IPPS presented in sections III.B.2.e.(5) and (6) of the preamble of 

this proposed rule. As noted previously in section VII.D.2.b. of the preamble of this 

proposed rule, there are currently no LTCHs located in an “urban” county that would 

become “rural” under the proposal to adopt the new OMB delineations. Therefore, we 

are not proposing a transitional area wage index policy that is consistent with the IPPS 

proposal presented in section III.B.2.e.(2). of the preamble of this proposed rule for 

hospitals that are currently located in an “urban” county that would become “rural” under 

the proposed adoption of the new OMB delineations. We also note that we are not 

proposing any transitional policies under the LTCH PPS that would be consistent with 

those presented under the IPPS for hospitals with a reclassification or redesignation as 

discussed in section III.B.2.e.(3). of the preamble of this proposed rule, or for hospitals 

deemed urban under section 1886(d)(8)(B) of the Act as discussed in section III.B.2.e.(4) 

of the preamble of this proposed rule, as those reclassifications, redesignations, and 

statutory deems are not applicable to LTCHs.
 914 

E. Reinstatement and Extension of Certain Payment Rules for LTCH Services--The 

25-Percent Threshold Payment Adjustment 

1. Background 

 Section 1206(b)(1)(A) of the Pathway for SGR Reform Act of 2013 

(Pub. L. 113-67), enacted on December 26, 2013, provides for the retroactive 

reinstatement and extension, for an additional 4 years, of the moratorium on the full 

implementation of the 25-percent threshold payment adjustment (hereinafter referred to 

as “the 25-percent policy”) under the LTCH PPS established under section 114(c) of the 

MMSEA, as amended by section 4302(a) of the ARRA and sections 3106(c) and 

10312(a) of the Affordable Care Act. In addition, section 1206(b)(1)(B) of 

Pub. L. 113-67 provides for a permanent exemption from the application of the 

25-percent policy for certain grandfathered co-located LTCHs and LTCH satellite 

facilities. 

 Section 1206(b)(1)(C) of Pub. L. 113-67 also requires that “... [n]ot later than 1 

year before the end of the 9-year period referred to in section 114(c)(1) of the Medicare, 

Medicaid, and SCHIP Extension Act of 2007 (42 U.S.C. 1395ww note), as amended by 

subparagraph (B) [of section 1206 of Pub. L. 113-67], the Secretary of Health and 

Human Services shall submit to Congress a report on the need for any further extensions 

(or modifications of the extensions) of the 25 percent rule described in sections 412.534 

and 412.536 of title 42, Code of Federal Regulations, particularly taking into account the 

application of section 1886(m)(6) of the Social Security Act, as added by subsection 
 915 

(a)(1) [of section 1206 of Pub. L. 113-67].” We refer readers to section VII.I.2. of the 

preamble of this proposed rule for further discussion of this report. 

 The 25-percent policy is a payment adjustment under the LTCH PPS, originally 

established in our regulations at 42 CFR 412.534 for LTCHs and LTCH satellite facilities 

and their co-located referring hospitals in the FY 2005 IPPS final rule (69 FR 49191), and 

at 42 CFR 412.536 for all other LTCHs and referring hospitals in the RY 2007 LTCH 

PPS final rule (72 FR 26870), based on analyses of Medicare discharge data that 

indicated that patterns of patient shifting appeared to be occurring more for provider 

financial advantage than for patient benefit. In order to discourage such activity, a 

payment adjustment was applied for LTCH discharges of patients who were admitted to 

the LTCH from the same referring hospital in excess of an applicable percentage 

threshold, which was to transition to a 25-percent threshold after specified phase-in 

periods. (For rural and single-urban LTCHs and those with MSA-dominant referring 

hospitals, a 50-percent threshold was applied.). Under this policy, discharges in excess of 

the threshold are paid at an “IPPS equivalent” rate, instead of the much higher LTCH 

PPS rate. (We refer readers to detailed discussions of the 25-percent policy for LTCH 

HwHs and LTCH satellite facilities in the FY 2005 IPPS final rule (69 FR 49191 through 

49214) and its application to all other LTCHs in the RY 2008 LTCH PPS final rule 

(72 FR 26919 through 26944).) 

 The results of the different rulemaking schedules in effect when §§ 412.534 and 

412.536 were implemented (FY 2005 (October 1, 2004) and RY 2007 (July 1, 2006), 

respectively) are as follows: for co-located LTCHs and LTCH satellite facilities 
 916 

governed under § 412.534, the 25-percent policy was effective for cost reporting periods 

beginning on or after October 1, 2005 (“October” LTCHs); for LTCHs and LTCH 

satellite facilities governed under § 412.536, the 25-percent policy was effective for cost 

reporting periods beginning on or after July 1, 2007 (“July” LTCHs). In addition, even 

though grandfathered LTCH HwHs and LTCH satellite facilities are governed under 

§ 412.534(h), they are “July” LTCHs because the 25-percent policy was applied to these 

facilities in the RY 2008 LTCH PPS final rule. 

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

sections 3106(c) and 10312(a) of the Affordable Care Act, provided for a 5-year 

moratorium on the full application of the 25-percent policy that expired for some LTCHs 

and LTCH satellite facilities for cost reporting periods beginning on or after 

October 1, 2012 (“October” LTCHs) and for other LTCHs and LTCH satellite facilities 

for cost reporting periods beginning on or after July 1, 2012 (“July” LTCHs). (For a 

detailed description of the moratorium on the application of the 25-percent policy, we 

refer readers to the May 22, 2008 Interim Final Rule with Comment Period (73 FR 29699 

through 29704) and the August 27, 2009 Interim Final Rule with Comment Period for the 

ARRA, which was published in the FY 2010 IPPS final rule and Changes to the LTCH 

PPS and Rate Years 2010 and 2009 Rates final rule (74 FR 43990 through 43992). 

 The expiration of the statutory moratorium for both “July” and “October” LTCHs 

was delayed because CMS established regulatory extensions in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53483 through 53484), as amended by the FY 2013 IPPS/LTCH 

PPS correcting amendment (77 FR 63751 through 63753). Specifically, we established a 
 917 

1-year extension (that is, for cost reporting periods beginning on or after October 1, 2012, 

and before October 1, 2013) on the full application of the 25-percent policy for “October” 

LTCHs. For those “July” LTCHs that would have been affected by the “gap” between 

the expiration of the statutory moratorium (for cost reporting periods beginning on or 

after July 1, 2012) and our prospective regulatory relief (for cost reporting periods 

beginning on or after October 1, 2012), we also provided for an additional moratorium 

based on LTCH discharges occurring on or after October 1, 2012 and ending at the start 

of the LTCHs’ next cost reporting period. For those “July” LTCHs with cost reporting 

periods beginning on or after October 1, 2012, the regulatory extension of the statutory 

moratorium, described above, effective for the hospital’s first cost reporting period 

beginning on or after October 1, 2012, resulted in seamless coverage for that group. 

However, for those “July” LTCHs with cost reporting periods beginning on or after 

July 1, 2012, and before October 1, 2012, that would have otherwise been subject to the 

“gap” between the expiration of the statutory moratorium and the effective date of the 

regulatory moratoria, we established a second regulatory moratorium effective with 

discharges occurring beginning October 1, 2012, through the end of the LTCH’s cost 

reporting period (that is, the end of the cost reporting period that began on or after 

July 1, 2012, and before October 1, 2012). Therefore, by providing for the above 

described regulatory extension for “July” LTCHs, we eliminated the distinction between 

“July” and “October” LTCHs, which resulted in the 25-percent policy being applied for 

all cost reporting periods beginning on or after October 1, 2012, following the expiration 
 918 

of the moratorium. For more details about these moratoria, we refer readers to the 

FY 2013 IPPS/LTCH PPS final rule (77 FR 53483 through 53484). 

 Because we did not extend the regulatory moratorium on the 25-percent policy in 

the FY 2014 IPPS/LTCH PPS final rule, the full application of the payment adjustment 

policy was effective for all LTCHs (both “October” and “July” LTCHs) for cost reporting 

periods beginning on or after October 1, 2013 (78 FR 50772). 

2. Proposed Implementation of Section 1206(b)(1) of Pub. L. 113-67 

 As stated earlier, section 1206(b)(1)(A) of Pub. L. 113-67 provides an additional 

amendment to section 114(c) of the MMSEA, as amended by section 4302(a) of the 

ARRA and sections 3106(c) and 10312(a) of the Affordable Care Act, that extends the 

“original” statutory moratorium on the full implementation of the 25-percent policy to a 

total of 9 years from the original effective dates established by the MMSEA (July 1 or 

October 1, 2007, as applicable). As a result, the lapse of the regulatory moratorium on 

the full implementation of the 25-percent policy is moot. This “seamless” statutory 

moratorium provides relief until cost reporting periods beginning on or after July 1, or 

October 1, 2016, as applicable. Section 1206(b)(1)(B) provides a permanent exemption 

from the 25-percent policy for certain grandfathered co-located LTCHs and LTCH 

satellite facilities. 

 In this proposed rule, based on the statutory changes made by sections 

1206(b)(1)(A) and (b)(1)(B) of Pub. L. 113-67, we are proposing to make conforming 

amendments to the regulations governing application of the 25-percent policy. 

Specifically, we are proposing to revise §§ 412.534(c)(1)(i) and (c)(1)(ii), (c)(2), (c)(3), 
 919 

(d)(1) and (d)(1)(i), (d)(2), (d)(3), (e)(1) and (e)(1)(i), (e)(2), (e)(3), the introductory text 

of paragraph (h), (h)(4), and (h)(5) and to remove paragraph (h)(6); and removing 

paragraphs (a)(1)(iii) and (a)(2)(ii), revising (a)(2), and removing paragraph (a)(3) of 

§ 412.536 to reflect the statutory changes. 

F. Proposed Changes to the Fixed-Day Thresholds under the “Greater Than 3-Day 

Interruption of Stay” Policy under the LTCH PPS 

1. Background 

 The interrupted stay policy is a payment adjustment that was included under the 

LTCH PPS from the inception; that is, for cost reporting periods beginning on or after 

October 1, 2002 (FY 2003). In this discussion, we use the terms “interrupted stay” and 

“interruption of stay” interchangeably. An “interruption of stay” occurs when during the 

course of an LTCH hospitalization, a patient is discharged to an inpatient acute care 

hospital, an IRF, or a SNF for treatment or services not available at the LTCH for a 

specified period followed by a readmittance to the same LTCH. We refer readers to the 

RY 2003 LTCH PPS final rule (67 FR 56002). When we established this policy, we 

believed that the readmission to the LTCH represented a continuation of the initial 

treatment, a stay in which an “interruption” occurred, rather than a new admission if the 

length of stay at the intervening facility was within a specified number of days. If an 

“interruption of stay” occurred, payment for both “halves” of the LTCH discharge were 

then “bundled,” and Medicare would make one payment based on the second date of 

discharge. Specifically, under this policy, we established a fixed-day threshold, which 

applied to the specified number of days a Medicare beneficiary spends as an inpatient at 
 920 

an acute care hospital, an IRF, or a SNF. In the RY 2003 LTCH PPS final rule, we 

explained that we were implementing this policy because we wanted “...to reduce the 

incentives inherent in a discharged-based prospective payment system of “shifting” 

patients between Medicare-covered sites of care in order to maximize Medicare 

payments. This policy is particularly appropriate for LTCHs because, as a group, these 

hospitals differ considerably in the range of services offered such that where some 

LTCHs may be able to handle certain acute conditions, others will need to transfer their 

patients to acute care hospitals. 

 “For instance, some LTCHs are equipped with operating rooms and intensive care 

units and are capable of performing minor surgeries. However, other LTCHs are unable 

to provide those services and will need to transfer the beneficiary to an acute care 

hospital. We believed that our policy also provided for a patient . . . “who no longer 

requires hospital-level care, but is not ready to return to the community,” and who “... 

could be transferred to a SNF.” (We refer readers to the RY 2003 LTCH PPS final rule 

(67 FR 56002).) 

 Therefore, in the regulations under 42 CFR 412.531, we defined two types of 

interruptions of stays. Under § 412.531(a)(1), “[a] 3-day or less interruption of stay” 

means a stay at a LTCH during which a Medicare inpatient is discharged from the LTCH 

to an acute care hospital, IRF, SNF, or the patient's home and readmitted to the same 

LTCH within 3 days of the discharge from the LTCH. Whereas under the “3 day or less 

interruption of stay policy,” the fixed-day threshold period begins with the calendar date 

of discharge from the LTCH and ends not later than midnight of the third day, if an 
 921 

LTCH patient’s “interruption” exceeds this threshold, payment is governed by the 

“greater than 3-day interruption of stay” policy. (We refer readers to the RY 2005 LTCH 

PPS final rule (69 FR 25690 through 25700), the RY 2006 LTCH PPS final rule (70 FR 

24206), and the RY 2007 LTCH PPS final rule (71 FR 27872 through 27875) for detailed 

discussions of the 3-day or less interruption of stay policy.) We are not proposing to 

revise the 3-day or less category of interrupted stays, but we make mention of the policy 

for clarity in making a distinction between the 3-day or less interruption of stay policy 

and the greater than 3-day interruption of stay policy that we are proposing to revise. 

 The “greater than 3-day interruption of stay policy,” is defined under 

§ 412.531(a)(2) as a stay “...during which a Medicare inpatient is transferred upon 

discharge to an acute care hospital, an IRF, or a SNF for treatment or services that are not 

available in the long-term care hospital and returns to the same long-term care hospital 

within the applicable fixed-day period specified in regulations under § 412.531(a)(2)(i) 

through (a)(2)(iii).” For a discharge to an acute care hospital, the applicable fixed-day 

period is between 4 and 9 consecutive days; the counting of the days begins on the 

calendar day of discharge from the LTCH and ends on the 9th day when the patient is 

readmitted to the LTCH. For a discharge to an IRF, the applicable fixed-day period is 

between 4 and 27 consecutive days; the counting of the days begins on the calendar day 

of discharge from the LTCH and ends on the 27th day. For a discharge to a SNF, the 

applicable fixed-day period is between 4 and 45 consecutive days; the counting of the 

days begins on the calendar day of discharge from the LTCH and ends on the 45th day. 
 922 

 These timeframes reflect our policy of only paying for more than one discharge if 

the patient’s length of stay exceeds one standard deviation from the average length of 

stay. As we stated in the RY 2003 LTCH PPS final rule, this policy was established with 

the intent of “balanc[ing] the payment incentives of both the LTCH and the acute care 

hospital, IRF, or SNF to which the LTCH patient is discharged before being readmitted to 

the LTCH,” and is intended to ensure “that discharges from LTCHs are based on clinical 

considerations and not financial incentives” (67 FR 56002). As we stated at that time, we 

believed that a threshold of one standard deviation from the average length of stay would 

address the cost-based disincentives inherent in cases that significantly exceed the 

average length of stay. Furthermore, the threshold would “capture the majority of the 

discharges that are similar to the average length of stay for the respective DRG, 

combination CMG and comorbidity tier, or for all Medicare SNF cases.” Specifically, in 

establishing this policy, we calculated the average length of stay plus one standard 

deviation for each inpatient setting in which an “interruption” could occur in order to 

determine a fixed-day threshold. This use of a standard deviation as the justification for 

additional payment is consistent with our use of a standard deviation measure as the 

measure for paying additional amounts for new technologies under the acute care 

hospital inpatient prospective payment system. Under that system, “the cost of a new 

technology must exceed one standard deviation beyond the mean standardized charge for 

all cases in the DRG to which the new technology is assigned in order to receive 

additional payments” (67 FR 56002). 
 923 

 Therefore, if an LTCH readmission occurs within the fixed-day period both 

halves of the LTCH discharge are treated as a single discharge for the purposes of 

payment under the LTCH PPS. In such instances, the beneficiary’s readmittance to the 

LTCH is paid for with a single LTC-DRG payment that covers the initial admission to 

the LTCH, and the subsequent readmission. That is, a single Medicare payment is made 

for the entire two-part discharge. Payment to the acute care hospital, the IRF, or the SNF 

is then made in accordance with the applicable payment policies for those providers when 

the interruption of stay exceeds 3 days. Therefore, we balanced the payment incentives 

of both the LTCH and the acute care hospital, IRF, or SNF to which the LTCH patient 

might be discharged before being readmitted to the LTCH. 

 As we discussed in the RY 2003 LTCH PPS final rule (67 FR 56007), our 

concerns about patient shifting were significantly increased in the context of transfers 

between co-located LTCHS and LTCH satellite facilities, or for LTCH 

hospital-within-hospital transfers. Collectively, we refer to these arrangements as 

transfers to “onsite” providers. In the regulations under § 412.532(b), we define a facility 

that is “co-located or “on-site” as “a hospital, satellite facility, unit, or SNF that occupies 

space in a building also used by another hospital or unit or in one or more buildings on 

the same campus, as defined in § 413.65(a)(2) of this subchapter, as buildings used by 

another hospital or unit.” Under this LTCH PPS policy, if more than 5 percent of the 

Medicare patients discharged from an LTCH during a cost reporting period were 

discharged to an “onsite” SNF, IRF, or psychiatric facility, or to an “onsite” acute care 

hospital, and directly readmitted to the same LTCH, the LTCH would be paid one 
 924 

MS-LTC-DRG payment to cover both LTCH discharges, regardless of the length of the 

interrupted stay. As is the case in regard to the greater than 3-day interruption of stay 

policy, payment to an acute care hospital, an IRF, or a SNF would not be affected under 

the 5-percent policy. We refer readers to the RY 2003 LTCH PPS final rule for a detailed 

description of the 5-percent policy (67 FR 56007 through 56014). 

 Our concern about patient shifting among “onsite” providers did not originate 

with the implementation of the LTCH PPS. The LTCH 5-percent policy under § 412.532 

was recodified from an earlier regulation under § 413.40(a)(3), which applied a payment 

adjustment to hospitals paid under the TEFRA payment system, including LTCHs, to 

address inappropriate discharges of patients to a host hospital paid under the inpatient 

prospective payment system from an excluded hospital-within-a-hospital (such as a 

LTCH) , that culminated in a readmission to the hospital-within-a-hospital. (We refer 

readers to the RY 1999 LTCH PPS final rule (64 FR 41353) and the RY 2003 LTCH PPS 

final rule (67 FR 56007).) In the RY 2003 LTCH PPS final rule, we adopted this 

payment adjustment under the LTCH PPS to “address inappropriate shifting of patients 

among these providers without clinical justification to maximize Medicare payment” due 

to inappropriate incentives to prematurely discharge patients to one of these other onsite 

providers once their lengths of stay at the LTCH exceeded the thresholds established by 

the short-stay outlier policies.” Therefore, we sought to ensure that discharges would not 

be based on “payment considerations rather than on a clinical basis as an extension of the 

normal progression of appropriate patient care.” 
 925 

2. Thresholds Used in Recent Statutory Programs 

 Two previously implemented Medicare initiatives, the Hospital IQR Program, 

established by section 501(b) of the Medicare Prescription Drug, Improvement, and 

Modernization Act (MMA) of 2003, and the Readmission Reduction Program, 

established by section 3025 of the Affordable Care Act, include measures that focus, 

among other things, on the implied relationships between quality patient care and 

payment consequences for the Medicare program resulting from patient readmissions. 

The Hospital IQR Program, which we discuss in detail in section IX.A. of the preamble 

of this proposed rule, publicly reports, among other things, inpatient outcome measures, 

including 30-day readmissions for specific medical conditions (acute myocardial 

infarction, heart failure, pneumonia, total hip/knee arthroplasty, hospital-wide all-cause 

unplanned, stroke, and COPD). The Hospital Readmissions Reduction Program, which 

we discuss in section IV.H. of the preamble of this proposed rule, requires CMS to reduce 

payments to IPPS hospitals with excess readmissions, effective for discharges beginning 

on October 1, 2012. Under that program, we define a “readmission” as an admission to a 

subsection (d) hospital within 30 days of a discharge from the same or another subsection 

(d) hospital. As noted in our response to a public comment in the FY 2012 IPPS/LTCH 

PPS final rule, the “timeframe of 30 days from the date of the initial discharge from the 

index hospitalization is the timeframe that has been NQF[National Quality Forum]-

endorsed as part of the three readmission measures. The timeframe of 30 days is 

considered an acceptable standard [for quality measurement] in both the research and 

measurement communities, as this time period is long enough to capture a substantial 
 926 

proportion of readmissions attributable to an index hospitalization...and yet it is short 

enough that outcomes can be attributed to and influenced by hospital care and the early 

transition to the outpatient setting. The use of the 30-day timeframe is also a clinically 

meaningful period for hospitals to collaborate with their communities in an effort to 

reduce readmissions.” (We refer readers to the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51669 through 51670).) 

 In light of the 30-day threshold established for the Hospital IQR Program and the 

Hospital Readmissions Reduction Program, we conducted an evaluation of our greater 

than 3-day interruption of stay policy. A review of claims data indicates that interrupted 

stays at acute care hospitals constitute the vast majority of the intervening stays under the 

interruption of stay policy. When implementing policies under the Hospital IQR 

Program and the Hospital Readmissions Reduction Program, we have, in effect, asserted 

that a second inpatient episode of care that occurs within 30 days of an initial (index) 

hospitalization is likely linked to the first stay. Under the LTCH PPS, the application of 

the payment adjustment specified in the “greater than 3-day interruption of stay” policy is 

based on the number of days that elapsed between the initial LTCH discharge and the 

beneficiary’s readmission to the same LTCH. An interruption of stay that does not 

exceed the fixed-day threshold would result in one “bundled” discharge-based payment 

to cover both LTCH discharges. An interruption of stay that exceeds the fixed-day 

threshold would currently result in two separate Medicare payments under the LTCH 

PPS. However, we believe that it would be more appropriate to use a 30-day interval as 

the fixed-day threshold under the greater than 3-day interruption of stay policy under the 
 927 

LTCH PPS because that is consistent with the intervals used in the Hospital 

Readmissions Reductions Program and the Hospital Inpatient Quality Reporting 

Program. As such, we are proposing to revise the fixed-day thresholds under the greater 

than 3-day interruption of stay policy to provide for a 30-day fixed threshold as an 

“acceptable standard” for determining a linkage between an index discharge and a 

readmission from an inpatient facility as specified under this policy, that is, an IPPS 

hospital, an IRF, or a SNF. 

3. Proposed Changes to the Greater Than 3-Day Interruption of Stay Policy 

 We are proposing to adopt a 30-day standard as the fixed-day threshold under the 

LTCH PPS “greater than 3-day interruption of stay” policy. To do so, we are proposing 

to amend our regulations by revising §§ 412.531(a)(2) and (b)(4) and adding new 

paragraphs (a)(3) and (b)(5) to reflect this proposed policy change. 

 Under our proposed policy revision, Medicare payments to LTCHs for patients 

discharged on or after October 1, 2014, who are treated in an acute care hospital, IRF, or 

SNF and readmitted to the same LTCH within 30 days of the index LTCH discharge, 

both discharges from the LTCH would be treated as one episode of care and a single 

discharge payment would be made to the LTCH. In addition, because we believe that 

this 30-day fixed-day threshold policy would address “onsite” concerns, we are proposing 

to remove § 412.532, that currently governs discharges from LTCHs to “onsite” 

providers that subsequently readmit the patient to the same LTCH. If we finalize our 

proposal to adopt the 30-day fixed-day threshold under the LTCH PPS greater than 

3-day interruption of stay policy, we no longer believe that the regulatory requirements 
 928 

under § 412.532 are necessary and, therefore, we are proposing to remove that section in 

its entirety. Furthermore, a determination as to whether an LTCH has exceeded its 

5-percent threshold under the LTCH PPS 5-percent policy occurs only upon cost report 

settlement, and as such, reflects an “after the fact” payment adjustment rather than an “up 

front” payment adjustment, such as the payment adjustments that would be applied under 

our proposed greater than 3-day interruption of stay policy. As such, we believe that the 

5-percent policy has a limited impact on provider behavior, and we do not believe that 

retaining it has significant value to the Medicare program. 

 In summary, we are proposing to revise the regulations under §§ 412.531(a)(2) 

and (b)(4) and to add new §§ 412.531(a)(3) and (b)(5) to reflect this proposed payment 

policy revision. In addition, we are proposing to remove § 412.532 in its entirety and 

make a conforming change to § 412.525 by removing and reserving paragraph (d)(3), 

which references payments under § 412.532. 

G. Moratoria on the Establishment of LTCHs and LTCH Satellite Facilities and on the 

Increase in the Number of Beds in Existing LTCHs or LTCH Satellite Facilities 

 As previously noted, Pub. L. 113-67 was enacted on December 26, 2013. Section 

1206(b)(2) of Pub. L. 113-67 amended section 114(d) of the MMSEA of 2007, as 

previously amended by section 4302 of the American Recovery and Reinvestment Act 

(ARRA) of 2009 (Pub. L. 111-5) and sections 3106(b) and 10312(b) of the Affordable 

Care Act (Pub. L. 111-148). As further amended by section 112(b) of the Protecting 

Access to Medicare Act of 2014 (Pub. L. 113-93), section 114(d) of the MMSEA 

includes a “new” statutory moratoria on the establishment of new LTCHs and LTCH 
 929 

satellite facilities, and on the increase in the number of hospital beds in existing LTCHs 

and LTCH satellite facilities, “for the period beginning April 1, 2014 and ending 

September 30, 2017,” which mirrors nearly identical provisions of the “expired” 

moratoria under section 114(d)(1) of the MMSEA, as amended by sections 4302 of the 

ARRA and sections 3106(b) and 10312(b) of the Affordable Care Act. These prior, yet 

nearly identical, provisions of section 114(d)(1) of the MMSEA, as amended by the 

ARRA and the Affordable Care Act, expired on December 28, 2012. For clarity and 

brevity, we will refer to the “expired” moratoria or moratorium to reference those that 

expired on December 28, 2012, and the “new” moratoria or moratorium to reference 

those that began on April 1, 2014, as applicable, throughout this discussion. 

 The primary difference between the “expired” moratoria and the “new” moratoria 

is that, while the “expired moratoria” provided for specific exceptions to both the 

moratorium on the establishment of new LTCHs and LTCH satellite facilities and on 

increases in the number of beds in existing LTCHs and LTCH satellite facilities, the 

“new” moratoria only provides exceptions to the moratorium on the establishment of new 

LTCHs and LTCH satellite facilities. No exceptions are provided under the “new” 

moratorium on increases in the number of hospital beds in existing LTCHs and LTCH 

satellite facilities. (For a detailed description of the “expired” moratoria provisions 

(including the applicable exceptions) that were in effect from December 29, 2007 through 

December 28, 2012, we refer readers to the May 22, 2008 Interim Final Rule with 

Comment Period (73 FR 29705 through 29708). 
 930 

 In light of the expiration date of the “expired” moratoria on December 28, 2012, 

and the effective date of the “new” moratoria on April 1, 2014, there has been a period of 

time in which new LTCHs and LTCH satellite facilities have been allowed to be 

established, and during which time there may have been increases in the number of 

hospital beds in LTCHs and LTCH satellite facilities. In accordance with section 

114(d)(1) of the MMSEA, as amended by section 112(b) of Pub. L. 113-93, for the 

period beginning April 1, 2014 through September 30, 2017, CMS will be unable to 

designate any hospital as an LTCH, unless one of the exceptions (described below) is 

met. 

 Additionally, as of April 1, 2014, in accordance with sections 114(d)(6) and (d)(7) 

of the MMSEA, as amended by section 112(b) of Pub. L. 113-93, an existing LTCH may 

not increase the number of its hospital beds. This moratorium will extend through 

September 30, 2017, and is not subject to any exceptions. 

 To qualify for an exception under the “new” moratorium to establish a new LTCH 

or LTCH satellite facility during the timeframe between April 1, 2014, and 

September 30, 2017, a hospital or entity must meet the following criteria: 

 • The hospital or entity must have begun its qualifying period for payment as an 

LTCH under 42 CFR 412.23(e). 

 • The hospital or entity must have a binding written agreement with an outside, 

unrelated party for the actual construction, renovation, lease, or demolition for an LTCH, 

and must have expended before April 1, 2014, at least 10 percent of the estimated cost of 

the project or, if less, $2,500,000. 
 931 

 • The hospital or entity must have obtained an approved certificate of need in a 

State where one is required. 

 While this exception only applies to the “new” moratorium on the establishment 

of new LTCHs and LTCH satellite facilities under section 114(d)(7) of the MMSEA, as 

amended by section 112(b) of Pub. L. 113-93, the mechanics of the exception are 

analogous to those established under the “expired” moratorium, which ended in 2012. 

The “expired” moratoria were implemented in a May 22, 2008 Interim Final Rule with 

Comment Period (73 FR 29704 through 29707). As discussed in that rule, some of the 

terminology in the statutory provision was internally inconsistent. A strictly literal 

reading of the statutory language under section 114(d)(2) of the MMSEA, as amended by 

section 4302 of the ARRA and sections 3106(b) and 10312(b) of the Affordable Care 

Act, presented practical challenges for implementation in light of the established LTCH 

classification criteria under § 412.23(e) of the regulations. Therefore, we adopted 

interpretations that we believed would reasonably reconcile seemingly inconsistent 

provisions and that would result in a logical and workable mandate. Specifically, as 

drafted, the exception only applies to a hospital or entity when it is already classified as 

an “LTCH.” Such entities would not need an exception to the moratorium on becoming 

an “LTCH” because they would already be an LTCH. As such, we are proposing to 

interpret this provision under the new exception as we interpreted the exceptions to the 

“expired” moratorium. We discuss our interpretations below. 

 At the outset of this discussion, we want to clarify which provisions of section 

114(d) of the MMSEA, as amended, were subject to the “expired” moratoria, and which 
 932 

are subject to the “new” moratoria. Sections 114(d)(2) and (3) of the MMSEA, as 

amended, only address exceptions under the “expired” moratoria. Section (d)(6) of the 

MMSEA, as amended, defines when the exceptions addressed in sections 114(d)(2) and 

(3) expired. Section (d)(7) of the MMSEA addresses the exception under the “new” 

moratorium on the establishment of new LTCHs and LTCH satellite facilities. There are 

no exceptions to the “new” moratorium on the increases in the number of beds in existing 

LTCHs and LTCH satellite facilities, as noted above. 

 Section 114(d)(7)(A) of the MMSEA, as amended, mirrors the expired provisions 

of section 114(d)(2)(A). Both provisions refer to an LTCH that began its qualifying 

period for payment as a “long-term care hospital” on or before a given date. However, a 

hospital would not be classified as an LTCH during that qualifying period; the facility or 

entity would typically be classified as an IPPS hospital. For a full discussion of our 

rationale for interpreting section 114(d)(2)(A) of the MMSEA to refer to an IPPS hospital 

meeting the stated requirements, we refer readers to our May 22, 2008 Interim Final Rule 

with Comment Period (73 FR 20704 through 29707) regarding the implementation of the 

“expired” moratorium. We are proposing to apply the same rationale in regard to the 

interpretation of section 114(d)(7)(A), that is, we are proposing to interpret the provision 

to refer to an acute care hospital meeting the stated requirements as the hospital or entity 

seeks classification as an LTCH. As we did when interpreting the same language under 

the “expired” moratorium exception under section 114(d)(2)(A) of the MMSEA, as 

amended by section 4302 of the ARRA and sections 3106(b) and 10312(b) of the 

Affordable Care Act, we note that the exception under section 114(d)(7)(A) of the 
 933 

MMSEA cannot provide any relief to LTCH satellite facilities because there is no 

“qualifying period” for the establishment of a LTCH satellite facility for payment as a 

LTCH under § 412.23(e). Therefore, an LTCH satellite facility cannot meet the stated 

requirements for an exception under section 114(d)(7)(A) of the MMSEA. 

 Section 114(d)(7)(B) of the MMSEA specifies the conditions for an exception to 

the moratorium on the establishment of new LTCHs and LTCH satellite facilities having: 

(1) a binding written agreement with an outside, unrelated party for the actual 

construction, renovation, lease, or demolition for an LTCH; and (2) expended, before the 

date of enactment of Pub. L. 113-93, April 1, 2014, “at least 10 percent of the estimated 

cost of the project (or, if less, $2,500,000).” As drafted, this provision is also 

problematic. In cases in which a hospital has not yet been built, but there is a binding 

written agreement for the actual construction of a hospital that intends to be classified as 

an LTCH, the entity hiring those who would complete the construction would not be 

classified as an LTCH. Prior to the designation or classification of a hospital or an entity 

as an LTCH, a hospital must first be established and certified and must then complete the 

procedures specified under § 412.23(e) in order to qualify as an LTCH, at which point the 

hospital would be reclassified as an LTCH. 

 In accordance with our interpretation of section 114(d)(2)(B) of the MMSEA, as 

amended by section 4302 of the ARRA and sections 3106(b) and 10312(b) of the 

Affordable Care Act, we are proposing to interpret the contracting and expenditure 

provisions under section 114(d)(7)(B) of the MMSEA, as added by section 112(b) of 

Pub. L. 113-93, to apply to the hospital/entity requesting an exception to the moratorium 
 934 

on the establishment of new LTCHs and LTCH satellite facilities between April 1, 2014, 

and September 30, 2017 – the entity that would be classified as an LTCH if it meets the 

stated requirements. That entity must have a binding written agreement with an outside 

unrelated party for the actual construction, renovation, lease, or demolition for converting 

the hospital to an LTCH, and it must have expended at least 10 percent of the estimated 

cost of the project (or, if less, $2,500,000) by the date of enactment of Pub. L. 113-93--

April 1, 2014. 

 Furthermore, with regard to the first prong, as when we implemented the 

“expired” moratoria, we continue to believe that the use of the term “actual” in the 

context of the “actual construction, renovation, lease, or demolition” indicates that the 

provision focuses only on the specific actions cited in the statute, and does not include 

those actions that are being contemplated or are not yet substantially underway. 

Although we are aware that a hospital or some other type of entity may enter 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, we believe that those services or items are not included 

in what we are permitted to consider under the statutory language of the exception 

requirements. 

 With respect to the second prong, the statute specifies that the hospital or entity 

must have “expended” at least 10 percent of the estimated cost of the project (or, if less, 

$2,500,000) by April 1, 2014. As we did in regard to the interpretation of section 

114(d)(2)(B) of the MMSEA, as amended by section 4302 of the ARRA and section 
 935 

3106(b) and 10312(b) of the Affordable Care Act, we are proposing to interpret the 

phrase “cost of the project” to mean the activities enumerated in the first prong: “the 

actual construction, renovation, lease, or demolition for a long-term care hospital.” That 

is, the statute requires the hospital or entity to have spent the amount specified in the 

statute on the actual construction, renovation, lease, or demolition for the contemplated 

LTCH. Furthermore, as we did previously in regard to the interpretation of section 

114(d)(2)(B) of the MMSEA, as amended by section 4302 of the ARRA and sections 

3106(b) and 10312(b) of the Affordable Care Act, because the statute uses the phrase 

“has expended” (that is, a past tense phrase), we are proposing to limit funds counting 

toward the 10 percent or $2,500,000 minimum to those funds that have actually been 

transferred as payment for the stated aspects of the project prior to April 1, 2014, as 

opposed to merely obligating capital and posting the cost of the project on its books. 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. 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)(7)(B) of the MMSEA. 

The fact that a second requirement is included that involves an expenditure indicates that 

an additional threshold must be met. 
 936 

 Finally, section 114(d)(7)(C) of the MMSEA includes an exception to the 

moratorium if an LTCH, as of April 1, 2014, has “obtained an approved certificate of 

need in a State where one is required”. As discussed above, we are proposing to apply 

this exception requirement to the entity that is requesting approval for an exception to the 

moratorium on the establishment of new LTCHs and LTCH satellite facilities between 

April 1, 2014, and September 30, 2017 – the entity that would be classified as an 

“LTCH” if the stated requirements are met. 

 However, with that said, we are clarifying what kind of certificate of need we are 

proposing to accept under the provisions of section 114(d)(7) of the MMSEA. We 

believe that the certificate of need exception applies to a “hospital” or entity that was 

actively engaged in developing an 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 April 1, 2014, had 

obtained a certificate of need for a hospital by the date of enactment, or an existing 

hospital had obtained a certificate of need to convert the hospital into a new LTCH by 

that date. We are proposing not to apply this exception requirement to a hospital that was 

already in existence prior to the date of enactment of Pub. L. 113-93, and that had 

previously obtained an approved certificate of need for a hospital (other than a LTCH) on 

or before April 1, 2014. We believe that Congress intended the exception to the 

moratorium to save those entities that were already actively engaged in becoming an 

LTCH. The fact that a hospital may have had a certificate of need issued to it years 

before April 1, 2014, to operate a hospital (other than a LTCH) is not indicative of such 

active engagement, and, we believe, is outside of what is contemplated in these 
 937 

LTCH-specific statutory provisions. We are proposing to only apply this exception 

requirement where the certificate of need was specifically for an LTCH. Because 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 April 1, 2014, 

we would consult the applicable State on a case-by-case basis for that determination. 

Decisions regarding the application of these moratoria and exceptions provided 

within the provisions of section 114(d) of the MMSEA will be handled on a case-by-case 

basis by the applicant’s MAC and the CMS Regional Office. 

 In accordance with these proposals, we also are proposing to revise our 

regulations under § 412.23(e)(6) and (e)(7) to include a description of the “new” 

moratoria, which is in effect from April 1, 2014, through September 30, 2017, on the 

establishment of new LTCHs and LTCH satellite facilities (with specific exceptions), and 

on increasing the number of beds in existing LTCHs and existing LTCH satellite 

facilities. 

H. Evaluation and Proposed Treatment of LTCHs Classified under Section 

1886(d)(1)(B)(iv)(II) of the Act 

 Section 1206(d) of the Pathway for SGR Reform Act (Pub. L. 113-67) instructs 

the Secretary to evaluate payments and regulations governing “hospitals which are 

classified under subclause (II) of subsection (d)(1)(B)(iv)...” as part of the annual 

rulemaking for payment rates under subsection (d) of section 1886 of the Act for 

FY 2015 or FY 2016. (We refer to hospitals “classified under subclause (II) of 

subsection (d)(1)(B)(iv)...” as “subclause (II) LTCHs.”) Based on the results of this 
 938 

evaluation, the Secretary is authorized to adjust the payment rates under section 

1886(b)(3) of the Act for this type of hospital (such as by applying a payment adjustment 

such that the payments resemble those under a “TEFRA-payment model”). To 

implement such a payment adjustment, the Secretary would have to propose changes to 

the existing regulations governing subclause (II) LTCHs. 

 For this proposed rule, under the requirements of section 1206(d)(1) of Pub. L. 

113-67 to evaluate the payment rates and regulations governing subclause (II) LTCHs, 

we have reviewed Medicare data from the only hospital meeting the statutory definition 

of a subclause (II) LTCH. As a result of these analyses, we are proposing to apply a 

payment adjustment to subclause (II) LTCHs beginning in FY 2015, which would result 

in payments for this category of LTCHs that resemble a payment based upon a TEFRA 

payment model (that is, a reasonable cost payment, subject to a ceiling). 

 Section 4417(b) of the BBA established the meaning of “subsection (d) 

hospitals,” which are paid under the IPPS, and in doing so, excluded two categories of 

hospitals that experience extended average inpatient length of stays. It also authorized 

the Secretary to define how an average inpatient length of stay would be calculated for 

these excluded hospitals. These provisions are included under sections 

1886(d)(1)(B)(iv)(I) and (d)(1)(B)(iv)(II) of the Act, and the two categories of hospitals 

are generally referred to as subclause (I) and subclause (II) LTCHs. 

 Subclause (I) LTCHs are required to have an average inpatient length of stay that 

is greater than 25 days. Subclause (II) LTCHs are only required to have an average 

inpatient length of stay of greater than 20 days. The subclause (II) LTCH definition 
 939 

further limited the classification of a subclause (II) LTCH by including the requirement 

that the LTCH must have been first excluded from the IPPS in CY 1986, and treated a 

Medicare inpatient population in which 80 percent of the discharges in the 12-month 

reporting period ending in Federal FY 1997 had a principal diagnosis that reflected a 

finding of neoplastic disease. This statutory requirement is implemented under 

42 CFR 412.23(e)(2)(ii). 

 In establishing the category of subclause (II) LTCHs, Congress essentially 

authorized special treatment of a hospital that, since 1986, had focused on the provision 

of palliative care to Medicare beneficiaries diagnosed with end-stage cancer. In 

consideration of the distinction between hospitals qualifying as LTCHs, either as a 

subclause (I) LTCH or a subclause (II) LTCH, we established different standards for 

counting the average inpatient length of stay values for these two categories of LTCHs. 

We calculate the greater than 25-day average length of stay criteria using only Medicare 

claims data for subclause (I) LTCHs. However, for subclause (II) LTCHs, we calculate 

the average length of stay based on its entire patient population. We refer readers to the 

RY 2003 LTCH PPS final rule (67 FR 55974) for a full discussion of our rationale for 

implementing these average length of stay calculation methodologies. 

 The theoretical foundations of any PPS are based on a system of averages, where 

the costs of some cases may exceed the payment, while other cases’ costs will be less 

than the payment, creating an adequate balance in payments. Therefore, it is assumed 

that a hospital paid under a PPS would be able to maintain a balance of patients that will 

allow the hospital to achieve fiscal stability. With that said, in developing the LTCH PPS 
 940 

we were aware that a per discharge PPS system that pays the same amount for every case 

in a specific MS-LTC-DRG could encourage hospitals to make decisions based on 

financial considerations (such as prematurely discharging patients to reduce the cost of 

such cases). As per discharge payments under the LTCH PPS are based on the extended 

lengths of stay that characterize LTCHs, at the outset of the LTCH PPS, we established a 

short-stay outlier (SSO) policy under which we apply a payment adjustment for LTCH 

discharges with lengths of stay that do not exceed 5/6 of the geometric average length of 

stay of the MS-LTC-DRG. Equally, we were aware that there would be exceptionally 

expensive cases that could create financial disincentives to treat such patients and, 

therefore, we adopted a high-cost outlier (HCO) policy as well. However, given the 

nature of a subclause (II) LTCH’s patient population, it may not be reasonable to expect a 

balancing of more and less costly cases, as these LTCHs are generally only treating a 

subset of very sick patients. As such, we modified our original SSO payment policy for 

subclause (II) LTCHs, and we exempted this category of LTCHs from additional changes 

to the SSO policy to account for the extremely high percentage of cases that our data 

analysis revealed would have been subject to our SSO policy if that policy were to be 

applied to subclause (II) LTCHs. 

 In accordance with the requirements of section 1206(d)(1) of Pub. L. 113-67, we 

conducted an evaluation of the payment rates and regulations governing subclause (II) 

LTCHs. We analyzed MedPAR claims data for FY 2010 and estimated Medicare costs 

incurred by the one LTCH currently classified as a subclause (II) LTCH, a 225-bed 

LTCH located in New York. We also evaluated the same metrics for two comparison 
 941 

groups of LTCHs, that is, approximately 40 LTCHs located in the same census region 

(that is, the Northeast Census Region, which includes Connecticut, Maine, New Jersey, 

and Pennsylvania), and approximately 25 LTCHs with the same bed size category (that 

is, between 150 and 250 beds) in order to assess the distinctions between a subclause (I) 

LTCH and a subclause (II) LTCH. For purposes of this analysis, LTCH PPS payments 

were calculated from the payment field in the MedPAR claims data, and the estimated 

costs for those claims were calculated using the covered charges and CCRs in the 

Provider-Specific File (PSF) that correlate to the discharge date on each claim. We 

calculated the aggregate average margins (ratio of payment to costs) for the subclause (II) 

LTCH and for the two sets of comparison groups of LTCHs using the calculated FY 2010 

costs and payments. Our analysis found that, under current LTCH PPS payment policy, 

the subclause (II) LTCH has much lower margins than comparable LTCHs located in the 

Northeast Census Region or LTCHs with 150-250 beds. Specifically, the subclause (II) 

LTCH had a negative margin for its Medicare patients paid under LTCH PPS in 

FY 2010, while both the Northeast Census Region LTCHs and LTCHs with 150-250 

beds had positive aggregate margins for its Medicare patients paid under LTCH PPS for 

the same period. 

 In our evaluation of subclause (II) LTCHs under the LTCH PPS, in accordance 

with the requirements of section 1206(d) of Pub. L. 113-67, we also compared the types 

of patients treated at subclause (I) and subclause (II) LTCHs. The top five 

MS-LTC-DRGs for patients treated at the subclause (II) LTCH in FY 2010 account for 

almost one-third of all of its Medicare discharges. Four of the top five MS-LTC-DRGs 
 942 

for the subclause (II) LTCH involve a neoplastic disease, and its case-mix differs 

significantly from the subclause (I) LTCHs, which had large proportions of ventilator and 

respiratory patients. The five most common MS-LTC-DRGs for the subclause (I) 

LTCHs were: Respiratory system diagnosis with ventilator support 96+ hours 

(MS-LTC-DRG 207); Pulmonary edema and respiratory failure (MS-LTC-DRG 189); 

Septicemia or severe sepsis without ventilator support 96+ hours with MCC 

(MS-LTC-DRG 870); Skin ulcers with MCC (MS-LTC-DRG 592); and Respiratory 

system diagnosis with ventilator support < 96 hours (MS-LTC-DRG 208). In 

comparison, for the subclause (II) LTCH, the five most common MS-LTC-DRGs were: 

Respiratory neoplasms with CC (MS-LTC-DRG 181); Digestive malignancy with CC 

(MS-LTC-DRG 375); Respiratory neoplasms with MCC (MS-LTC-DRG 180); Organic 

disturbances & mental retardation (MS-LTC-DRG 884); and Malignancy, female 

reproductive system w CC (MS-LTC-DRG 755). These data highlight significant 

differences between a subclause (I) LTCH and a subclause (II) LTCH based on patientmix and Medicare margins, notwithstanding the considerations that have been made in 

structuring the current LTCH regulations to acknowledge the uniqueness of an LTCH 

meeting the statutory definition of a subclause (II) LTCH. 

 In evaluating “both the payment rates and regulations governing hospitals which 

are classified under subclause (II)...,” as required by section 1206(d) of Pub. L. 113-67, 

we also analyzed the impacts of upcoming changes to the LTCH PPS under section 

1206(a) of Pub. L. 113-67. In discussing these analyses, we note that, as discussed in 

section VII.I.2. of the preamble of this proposed rule, we are not proposing any specific 
 943 

policy and payment changes in this proposed rule to implement the provisions of section 

1206(a) of Pub. L. 113-67. We intend to establish policies related to the types of LTCH 

cases expected to meet the legislative patient-level criteria for the “standard LTCH PPS 

payment” and cases expected to meet the criteria for the “site neutral” payments under 

the LTCH PPS in the FY 2016 rulemaking cycle. Although we are not making any 

proposals in this proposed rule related to the provisions of section 1206(a) of 

Pub. L. 113-67 at this time, we discuss these provisions in this section because they relate 

to our analysis of the LTCH PPS payment rates and regulations governing subclause (II) 

LTCHs. 

 Absent policy proposals for the implementation of section 1206(d) of 

Pub. L. 113-67, the payment changes required by section 1206(a) of Pub. L. 113-67 

would apply to subclause (II) LTCHs beginning with discharges occurring in cost 

reporting periods beginning on or after October 1, 2015 (that is, FY 2016 and beyond). 

Due to the changes required by the provisions of section 1206(a) of Pub. L. 113-67 

(discussed at greater length under section VII.I. of the preamble of this proposed rule), 

beginning in FY 2016, only those LTCH discharges meeting specified patient-level 

clinical criteria will be paid a “standard LTCH PPS payment amount.” Discharges not 

meeting those criteria will be paid based on a “site neutral” payment amount (the lesser 

of the “IPPS comparable” amount, as applied under our SSO policy at § 412.529, or 100 

percent of the estimated costs of the case). The statutory requirements to be paid the 

“standard LTCH PPS payment amount” are that the LTCH discharge does not have a 

principal diagnosis relating to a psychiatric diagnosis or to rehabilitation, and: 
 944 

● The stay in the LTCH was immediately preceded by a discharge from an acute 

care hospital that included at least 3 days in an intensive care unit (ICU); or 

● The stay in the LTCH was immediately preceded by a discharge from an acute 

care hospital and the patient’s LTCH stay is assigned to an MS-LTC-DRG based on the 

receipt of ventilator services of at least 96 hours. 

 Furthermore, section 1206(a)(1)(C)(ii)(II) of Pub. L. 113-67 specifies that, 

effective with cost reporting periods beginning on or after FY 2020, any LTCH with an 

“LTCH discharge payment percentage” that demonstrates that more than 50 percent of 

that LTCH’s discharges were paid for based on the “site neutral” payment rate will 

subsequently be paid for all discharges at the rate “...that would apply under subsection 

(d) for the discharge if the hospital were a subsection (d) hospital.” We refer readers to 

section VII.I. of the preamble of this proposed rule for a further discussion of the 

provisions of section 1206(a) of Pub. L. 113-67. 

 In light of these forthcoming statutory changes, we evaluated MedPAR claims 

data from the only hospital meeting the statutory definition of a subclause (II) LTCH for 

FY 2010 to project the impact of the revisions to the LTCH PPS made by section 1206(a) 

of Pub. L. 113-67. Our simulations included analyses of the potential financial impact of 

applying the patient-level criteria and “site neutral” payment policies to a subclause (II) 

LTCH, and the financial impact on payments if that LTCH were to be paid for more than 

50 percent of its discharges at the “site neutral” payment rate. In conducting this analysis 

in the absence of rules implementing the changes mandated by section 1206(a) of 

Pub. L. 113-67, we assumed that there would be no changes in LTCH admission patterns 
 945 

in response to the LTCH PPS payment changes required by section 1206(a) of 

Pub. L. 113-67. Furthermore, we used the FY 2010 claims data for the subclause (II) 

LTCH and the two LTCH comparison groups described above in order to compare the 

potential effects of the payment changes under the LTCH PPS required by section 

1206(a) of Pub. L. 113-67 between subclause (I) LTCHs and subclause (II) LTCHs. We 

simulated payments for those discharges that would be expected to meet the legislative 

patient-level criteria for the “standard LTCH PPS payment” and for discharges that 

would be expected to receive “site neutral” payments under the LTCH PPS. Our analysis 

found that the subclause (II) LTCH would be expected to have significantly fewer 

(approximately 5 times fewer) discharges that would be expected meet the legislative 

patient-level criteria for the “standard LTCH PPS payment” than the comparison groups 

of subclause (I) LTCHs (that is, Northeast Census Region LTCHs and LTCHs with 150-

250 beds). 

 Additionally, we analyzed the potential effects of the “LTCH discharge payment 

percentage” provision under the requirements of section 1206(a)(1)(C)(ii)(II) of Pub. L. 

113-67, as noted above. We evaluated FY 2010 claims data from the subclause (II) 

LTCH to project the potential impact of this provision. Based on our simulations in 

which we projected which FY 2010 LTCH claims would be expected to receive “site 

neutral” payments under the LTCH PPS (as described above), and having found a 

significant number, we project that a significant negative financial impact would be 

imposed upon the subclause (II) LTCH’s payments. Without considerable behavioral 

changes, the subclause (II) LTCH would be expected to have more than 50 percent of its 
 946 

discharges paid based on a “site neutral” payment and, therefore, would receive a 

payment adjustment under the provisions of section 1206(a)(1)(C)(ii)(II) of 

Pub. L. 113-67 for all of its discharges. Furthermore, our analysis revealed that, given 

the particular medical profile of their patient population, that the “subsection (d)” 

comparable payment amount under the payment adjustment required by section 

1206(a)(1)(C)(ii)(II) of Pub. L. 113-67 would not likely cover the costs for a significant 

number of their discharges. Consequently, our analysis shows that the subclause (II) 

LTCH is projected to experience a large negative aggregate average margin for its 

Medicare discharges under the payment changes required by section 1206(a) of 

Pub. L. 113-67. 

 Based on our findings under our evaluation of payments to subclause (II) LTCHs 

under the LTCH PPS and consistent with the provisions of section 1206(d) of 

Pub. L. 113-67, we evaluated adjustments that could be applied to ensure appropriate 

payments under the LTCH PPS for a subclause (II) LTCH under the LTCH PPS. This 

analysis included consideration of a reasonable-cost based model, such as the TEFRA 

payment system under which certain PPS-excluded hospitals (such as children’s and 

cancer hospitals) are currently paid. The TEFRA payment system, which was established 

under the provisions of Pub. L. 97-248, is implemented under the regulations at 

42 CFR 413.40. 

 In addition to governing the current payment of certain PPS-excluded hospitals, 

the TEFRA payment system was also previously used to pay LTCHs prior to the 

implementation of the LTCH PPS. As described in the RY 2003 LTCH PPS final rule 
 947 

(67 FR 55957), the TEFRA payment system was “...established [to make] payments 

based on hospital-specific limits for inpatient operating costs. A ceiling on payments to 

such hospitals is determined by calculating the product of a facility’s base year costs (the 

year on which its target reimbursement limit is based) per discharge, updated to the 

current year by a rate-of-increase percentage, and multiplied by the number of total 

current year discharges.” (A detailed discussion of target amount payment limits under 

Public Law 97-248 can be found in the September 1, 1983 final rule published in the 

Federal Register (48 FR 39746).)” Under the TEFRA payment system, in accordance 

with section 1886(g) of the Act, Medicare allowable capital costs are paid on a 

reasonable cost basis. 

 To evaluate reasonable cost-based payments under a TEFRA-payment model for 

subclause (II) LTCHs, we estimated operating and capital payments under the TEFRA 

payment system principles using FY 2010 cost report data for the one LTCH currently 

classified as a subclause (II) LTCH (the 225-bed LTCH located in New York noted 

previously). As described above, payments for operating costs under the TEFRA 

payment system are based on hospital-specific limits (that is, a ceiling). The ceiling on 

payments is determined as the product of a hospital’s base year costs (the year on which 

its target reimbursement limit is based) per discharge (“target amount per discharge”), 

updated to the current year by a rate-of-increase percentage, and multiplied by the 

number of its Medicare discharges for the year. For purposes of this analysis, we 

determined the subclause (II) LTCH’s TEFRA-based target amount per discharge by 

updating its FY 2000 target amount per discharge (prior to the implementation of the 
 948 

LTCH PPS) using the annual update factors as established under § 413.40(c)(3). We 

used the FY 2000 target amount per discharge in order to calculate a target amount per 

discharge that does not include the increased target amounts and caps on the target 

amounts provided to LTCHs under section 307(a) of the BIPA. Specifically, section 

307(a) of the BIPA provided a 2-percent increase to the wage-adjusted 75th percentile 

cap on the TEFRA target amounts for existing LTCHs for cost reporting periods 

beginning in FY 2001, and a 25-percent increase to the hospital-specific TEFRA target 

amounts for LTCHs, subject to the increased 75th percentile cap. These provisions were 

promulgated prior to the implementation of the LTCH PPS. However, as required by 

section 307(a)(2) of the BIPA, the 2-percent increase to the 75th percentile cap and the 

25-percent increase to the TEFRA target amounts were not to be taken into account in the 

development and implementation of the LTCH PPS. To ensure that these increases 

would not be included in the LTCH PPS payments to subclause (II) LTCHs, consistent 

with the statutory requirement under section 307(a)(2) of the BIPA, for purposes of our 

analysis, we determined the subclause (II) LTCH’s updated target amount by starting 

with its target amount from the FY 2000 cost report, the year prior to when these 

increases were effective. Then we updated its FY 2000 target amount per discharge 

using the annual update factors established under § 413.40. This approach is consistent 

with the methodology we used to estimate each LTCH’s FY 2003 payment per discharge 

for inpatient operating costs under the TEFRA payment system in determining the 

one-time prospective adjustment under § 412.523(d)(3) in the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53498). For payments for capital-related costs, we used the hospital’s 
 949 

capital cost data from Worksheets D, Parts I and II, as reported on their FY 2000 cost 

report. As described previously, Medicare allowable capital costs are paid on a 

reasonable cost basis under the TEFRA payment system, in accordance with the 

regulations under§ 413.40. This approach is also consistent with the methodology we 

used to estimate each LTCH’s FY 2003 payment per discharge for inpatient 

capital-related costs under the TEFRA payment system in determining the one-time 

prospective adjustment at § 412.523(d)(3), in the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53499). Our analysis of the subclause (II) LTCH’s projected payments under a 

TEFRA-payment model indicated that such payments would reasonably cover the costs 

for most of their discharges, and consequently, the subclause (II) LTCH is not projected 

to experience a negative aggregate margin for its Medicare discharges, unlike our 

projections under both the current LTCH PPS and the forthcoming payment changes to 

the LTCH PPS required by section 1206(a) of Pub. L. 113-67. 

 In the above analyses, we evaluated the current regulations as well as anticipated 

payment rates under various statutorily mandated policies for FY 2016 on a subclause (II) 

LTCH under the LTCH PPS based on FY 2010 discharge data, including payments, costs 

and case-mix. As discussed above, our evaluation indicates that, given the required 

patient-mix for a subclause (II) LTCH, the forthcoming changes to the LTCH PPS are 

likely to result in a financial situation that is not sustainable for the subclause (II) LTCH 

evaluated above. Furthermore, our analysis also shows that current LTCH PPS payments 

for a subclause (II) LTCH, even with taking into account the considerations that have 

been made in structuring current LTCH PPS policies to acknowledge the uniqueness of a 
 950 

subclause (II) LTCH, may not be sufficient to cover the costs incurred for the treatment 

of patients of the particular medical profile of the subclause (II) patient population 

prescribed by the statute. Furthermore, we believe that in establishing subclause (II) 

LTCHs, Congress endorsed the support of the unique mission of this particular category 

of hospital. In fact, while mandating a significant revision to the LTCH PPS under 

section 1206(a) of Pub. L. 113-67, under section 1206(d) of the same statute, Congress 

directed the Secretary to evaluate the impact of the LTCH PPS on subclause (II) LTCHs, 

and, based on those findings, authorized the Secretary to adjust payment rates and other 

regulations, as appropriate, for this category of LTCHs. 

 Accordingly, in recognition of the subclause (II) LTCH’s current estimated 

payment-to-cost ratio under the LTCH PPS and further anticipated losses that would 

likely otherwise occur under the forthcoming statutory changes to the LTCH PPS, which 

would render this type of specially recognized facility fiscally untenable, we believe that 

it is appropriate to exercise the authority under section 1206(d)(2) of Pub. L. 113-67. 

Therefore, in this proposed rule, for cost reporting periods beginning on or after 

October 1, 2014 (FY 2015 and beyond), we are proposing to apply a payment adjustment 

to subclause (II) LTCH payments under the LTCH PPS such that these LTCH PPS 

payments would resemble payments made under the reasonable cost-based TEFRA 

payment system. We believe that it would be appropriate to apply this proposed payment 

adjustment for a subclause (II) LTCH’s first cost reporting period beginning on or after 

October 1, 2014, rather than discharges occurring on or after October 1, 2014, because it 

is consistent with the annual update of the hospital-specific limits (ceiling) for inpatient 
 951 

operating costs under the TEFRA payment system (as described below). We are 

proposing to implement this proposed payment adjustment for subclause (II) LTCHs in 

the regulations by adding new § 412.526 under 42 CFR Part 412, Subpart O. 

 Specifically, we are proposing to establish new regulations under § 412.526 that 

would provide that, for cost reporting periods beginning on or after October 1, 2014, 

payments to a “subclause (II)” LTCH that are made under the LTCH PPS and under 

Subpart O of Part 412, as adjusted. This adjusted payment amount would generally be 

equivalent to an amount determined under the reasonable cost-based reimbursement rules 

for both operating and capital-related costs under 42 CFR Part 413. As described above, 

Medicare payments for inpatient operating costs under the reasonable-cost based TEFRA 

payment system are subject to a hospital-specific ceiling on payments that is determined 

as the product of a hospital’s base year costs per discharge (“target amount per 

discharge”), updated to the current year by a rate-of-increase percentage, and multiplied 

by the number of its Medicare discharges for the year. Medicare allowable inpatient 

capital-related costs are paid on a reasonable cost basis, in accordance with section 

1886(g) of the Act. 

 Under this proposed payment adjustment under new § 412.526 for inpatient 

operating costs, the adjusted payment amount would generally be determined in 

accordance with the cited provisions of § 413.40. Accordingly, we are proposing to 

establish a “target amount” for a subclause (II) LTCH for purposes of calculating a 

hospital-specific ceiling on payments for inpatient operating costs under this proposed 

payment adjustment. We are proposing to determine such a target amount based on the 
 952 

subclause (II) LTCH’s target amount that was used to determine its payments for 

inpatient operating costs under the TEFRA payment system prior to the implementation 

of the LTCH PPS, updated by the TEFRA payment system rate-of-increase percentages 

under § 413.40(c)(3). Furthermore, in determining a subclause (II) LTCH’s target 

amount for purposes of this proposed payment adjustment, consistent with the statute (as 

explained below), we are proposing not to include the increases to LTCHs’ TEFRA target 

amounts and caps provided for by section 307(a) of the BIPA. As discussed previously, 

prior to the implementation of the LTCH PPS, section 307(a) of the BIPA provided a 

2-percent increase to the wage-adjusted 75th percentile cap on the TEFRA target amounts 

for existing LTCHs for cost reporting periods beginning in FY 2001 and a 25-percent 

increase to the hospital-specific TEFRA target amounts for LTCHs, subject to the 

increased 75th percentile cap. Section 307(a)(2) of the BIPA also specifies that the 

2-percent increase to the 75th percentile cap and the 25-percent increase to the TEFRA 

target amounts were not to be taken into account in the development and implementation 

of the LTCH PPS. Therefore, consistent with the statutory requirement under section 

307(a)(2) of the BIPA, under new § 412.526, we are proposing to determine a subclause 

(II) LTCH’s updated target amount based on its FY 2000 TEFRA payment system target 

amount, the year prior to when the increases under section 307(a) of the BIPA were 

effective. Using its FY 2000 TEFRA payment system target amount would ensure that 

the increases provided for by section 307(a) of the BIPA would not be included in the 

LTCH PPS payments to subclause (II) LTCHs under this proposed LTCH PPS payment 

adjustment. This approach for excluding those increases to the TEFRA payment system 
 953 

target amounts is consistent with the methodology that was used to develop the one-time 

prospective adjustment to the standard Federal rate in which we calculated what amount 

would have been paid under the TEFRA payment system had the LTCH PPS not been 

implemented (77 FR 53497 through 53500). Therefore, under the proposed payment 

adjustment for subclause (II) LTCHs under new § 412.526, we are proposing to 

determine a FY 2015 TEFRA-based target amount by updating the subclause (II) 

LTCH’s FY 2000 TEFRA target amount using the applicable rate-of-increase 

percentages for FYs 2001 through 2015 established under § 413.40(c)(3). 

 In addition to payment for inpatient operating costs, the proposed adjusted 

payment amount for subclause (II) LTCHs that would be equivalent to an amount 

determined under the reasonable cost-based reimbursement rules under 42 CFR Part 413 

would also include payment for inpatient capital-related costs. Under the TEFRA 

payment system, in accordance with the regulations under 42 CFR Part 413, Medicare 

allowable capital costs are paid on a reasonable cost basis, consistent with section 

1886(g) of the Act. Therefore, we are proposing that the payment adjustment to 

subclause (II) LTCHs under new § 412.526 would include reasonable cost-based 

payments for capital-related costs. Payments under the LTCH PPS encompass both 

inpatient operating and capital-related costs of furnishing covered inpatient LTCH 

services, including routine and ancillary costs (67 FR 55983). Accordingly, under new 

§ 412.526, the proposed adjusted payment amount that would be equivalent to an amount 

determined under the reasonable cost-based reimbursement rules is based only on 

inpatient operating and capital-related costs incurred by the subclause (II) LTCH for 
 954 

furnishing covered inpatient LTCH services, and does not include any other TEFRA 

system payment amounts, such as bonus and relief payments, continuous improvement 

bonus payments, or adjustments to the rate-of-increase limits. 

 In summary, for cost reporting periods beginning on or after October 1, 2014, we 

are proposing that payment to a “subclause (II)” LTCH be made under the LTCH PPS, as 

adjusted. The adjusted payment amount would be equivalent to an amount determined 

under the reasonable cost-based reimbursement rules for both operating and 

capital-related costs in accordance with the cited portions of Part 413. Under this 

proposed payment adjustment, Medicare inpatient operating costs would be reimbursed 

on a reasonable cost basis, subject to a ceiling; that is, an aggregate upper limit on the 

amount of a hospital's net Medicare inpatient operating costs that would be recognized 

for payment purposes. For each cost reporting period, the ceiling on payments for 

Medicare inpatient operating costs would be determined by multiplying the updated 

target amount for that period by the number of LTCH PPS discharges during that period. 

For cost reporting periods beginning during FY 2015, the target amount would be equal 

to the hospital’s target amount determined under § 413.40(c)(4) for its cost reporting 

period beginning during FY 2000, updated by the applicable annual rate-of-increase 

percentages specified in § 413.40(c)(3) to the subject period (that is, for FYs 2001 

through 2015). For subsequent cost reporting periods, the target amount would equal the 

hospital's target amount for the previous cost reporting period updated by the applicable 

annual rate-of-increase percentage specified in § 413.40(c)(3) for the subject cost 

reporting period. Payment for Medicare allowable inpatient capital-related costs under 
 955 

this proposed payment adjustment would be paid on a reasonable cost basis, in 

accordance with the cited portions of 42 CFR Part 413. We are proposing to codify the 

provisions of this proposed payment adjustment to subclause (II) LTCHs under new 

§ 412.526 of the regulations. In addition, we are proposing to make conforming changes 

to § 412.521(a)(2) to refer to this proposed payment adjustment under new § 412.526. 
 956 

I. Description of Statutory Framework for Patient-Level Criteria-Based Payment 

Adjustment under the LTCH PPS under Pub. L. 113-67 

1. Overview 

 In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27668 through 27676), we 

presented a description of our research on the development of patient-level and 

facility-level criteria for LTCHs and a potential framework for developing changes to the 

LTCH PPS. The framework was based on the preliminary findings of two projects 

conducted by Kennell and Associates (Kennell) and its subcontractor, RTI, under the 

guidance of CMS’ Center for Medicare and Medicaid Innovation (the Innovation Center). 

We stated that we believed that the findings from these projects, in large part, could be 

used to identify the subpopulation of Medicare beneficiaries that should form the core 

group of patients under the LTCH PPS (that is, a chronically critical ill/medically ill 

(CCI/MC) framework for the LTCH PPS). Although this research was not completed at 

the time of issuance of the FY 2014 IPPS/LTCH PPS proposed rule, we solicited 

feedback from LTCH stakeholders in the FY 2014 IPPS/LTCH PPS proposed rule on the 

description of the interim framework, and indicated that any public comments submitted 

would be evaluated and considered by our contractors with the expectation of formulating 

a proposal for FY 2015 based on this research (78 FR 27668 through 27676). 

 Section 1206(a) of Pub. L. 113-67 amended section 1886(m) of the Act by adding 

paragraph (6), which establishes patient-level criteria for payments under the LTCH PPS 

for implementation beginning in FY 2016. Therefore, our prior intention to present a 

proposal for a CCI/MC framework for the LTCH PPS (as discussed in the FY 2014 
 957 

IPPS/LTCH PPS proposed and final rules) in this FY 2015 IPPS/LTCH PPS proposed 

rule has been superseded. Accordingly, we are not proposing revisions to the LTCH PPS 

based upon the Kennell/RTI framework for FY 2015. Rather, we intend to propose to 

implement the requirements established by section 1206(a) of Pub. L. 113-67 in the 

FY 2016 LTCH PPS rulemaking cycle. (We note that the final report on the CCI/MC 

framework developed by Kennell/RTI under our research contract is expected to be 

available later this year and will be made available to the public through a Web site.) 

 In section VII.I.2. of the preamble of this proposed rule, we summarize the 

statutory provisions of section 1206(a) of Pub. L. 113-67, and in section VII.I.3. of the 

preamble of this proposed rule, we discuss several significant issues arising from these 

statutory changes to the LTCH PPS, on which we are interested in receiving stakeholder 

feedback prior to developing our proposals for FY 2016 implementation. 

2. Provisions of Section 1206(a) of Pub. L. 113-67 

 Section 1206(a) of Pub. L. 113-67 added a new section 1886(m)(6), which 

establishes patient-level clinical criteria that must be met in order for a standard LTCH 

PPS payment to be made and provides that patients stays that do not meet those criteria 

that will be paid based on an adjusted or “site neutral” payment rate. The provisions of 

section 1206(a) are effective for LTCH discharges occurring during cost reporting 

periods beginning on or after October 1, 2015 (FY 2016). 

 Specifically, the patient-level clinical criteria that must be met in order for a 

standard LTCH PPS payment to be made under section 1886(m)(6) of the Act, as added 

by section 1206(a) of Pub. L. 113-67, are that: 
 958 

● The stay in the LTCH is immediately preceded by a discharge from an acute 

care hospital that included at least 3 days in an intensive care unit (ICU); or the stay in 

the LTCH is immediately preceded by a discharge from an acute care hospital and the 

patient’s LTCH stay was assigned to an MS-LTC-DRG based on the receipt of ventilator 

services of at least 96 hours; and 

● The LTCH discharge does not have a principal diagnosis relating to a 

psychiatric diagnosis or to rehabilitation. 

 Section 1886(m)(6)(A) of the Act, as added by section 1206(a) of Pub. L. 113-67, 

specifies that payments for LTCH discharges that do not meet the clinical criteria will be 

made at the applicable “site neutral payment rate.” The statute defines “site neutral 

payment rate” as the lower of the “IPPS comparable” amount or 100 percent of the 

“estimated cost” of the case. The “IPPS comparable” amount, which the statute specifies 

is calculated based on the methodology applied under the short stay outlier (SSO) policy 

at 42 CFR 412.529(d)(4), is an amount comparable to the hospital inpatient prospective 

payment system per diem capped at an amount comparable to the full MS-DRG payment 

rate, including any applicable outlier payments under § 412.525. We expect to propose 

calculating the “cost of the case,” as specified in the regulations at § 412.529(d)(2), by 

multiplying the applicable hospital-specific CCR by the Medicare allowable charges for a 

case, consistent with how we currently estimate the cost of the case under both the SSO 

and high-cost outlier policies. 

 Section 1886(m)(6)(B) of the Act also requires a phase-in of this payment policy 

change under the LTCH PPS over 2 years. Therefore, for LTCH discharges occurring in 
 959 

cost reporting periods during FYs 2016 and 2017 that do not meet the patient level 

clinical criteria, the total payment amount for LTCH services will be based on one-half of 

the calculated “site neutral” payment rate and one-half of the standard LTCH PPS 

payment rate. The full payment adjustment based on the requirements of Pub. L. 113-67 

will begin to effect payments to LTCHs and LTCH satellite facilities for discharges 

beginning with LTCHs’ and LTCH satellite facilities’ FY 2018 cost reporting period. 

Therefore, for cost reporting periods beginning during FY 2018, LTCHs will be paid the 

standard LTCH PPS payment amount only for LTCH discharges that meet the statutory 

clinical criteria under section 1886(m)(6) of the Act. LTCH discharges that do not meet 

the clinical criteria will be paid based on the “site neutral” payment rate. 

 Section 1886(m)(6)(C) of the Act, as added by section 1206(a)(1) of 

Pub. L. 113-67, also includes a limit on payments for all hospital discharges occurring in 

cost reporting periods during or after FY 2021 if a hospital fails to meet the applicable 

LTCH discharge threshold. In anticipation of this limit on payments, section 

1886(m)(6)(C)(i) of the Act specifies that, for cost reporting periods beginning on or after 

October 1, 2015 (FY 2016), the Secretary is required to notify each LTCH of its 

“discharge payment percentage,” which is defined under section 1886(m)(6)(C)(iv) of the 

Act as the percentage resulting from the ratio of the LTCH’s discharges paid based on the 

standard LTCH PPS payment amount to the LTCH’s total discharges for each cost 

reporting period. 

 Section 1886(m)(6)(C)(ii) of the Act specifies that, for cost reporting periods 

during or after FY 2020, the Secretary is required to provide notice to LTCHs with a 
 960 

“discharge payment percentage” that indicates that the LTCH does not meet the “at least 

50 percent” threshold. An LTCH that does not meet the required threshold for a cost 

reporting period in FY 2020 will be paid for services as if the hospital were an acute care 

hospital until such time as that facility is reinstated under section 1886(m)(6)(C)(iii) of 

the Act. Specifically, section 1886(m)(6)(C)(ii) of the Act provides that LTCHs that are 

determined to be treating a Medicare population with less than 50 percent of patients for 

whom a standard LTCH PPS payment is made, that is, LTCHs for whom 50 percent or 

more Medicare beneficiary discharges are paid at the “site neutral” payment rate will 

receive “...the payment amount that would apply under subsection (d) for all discharges 

as if the hospital were a subsection (d) hospital.” In other words, LTCHs failing to meet 

the applicable discharge threshold will be paid an IPPS equivalent payment rate. 

 Section 1886(m)(6)(C)(iii) of the Act provides that the Secretary is authorized to 

establish a “reinstatement” process through which an LTCH that fails to meet the 

required discharge threshold percentage can be “reinstated” and resume receiving 

payments under the new payment policy for LTCH services established by section 

1206(a)(1) of Pub. L. 113-67, that is, standard LTCH PPS payments or “site neutral” 

payments, as applicable. 

 Section 1886(m)(6)(D) of the Act, as added by section 1206(a)(1) of 

Pub. L. 113-67, specifies that subsection (d) hospitals in Puerto Rico are deemed to be 

included in any reference in section 1886(m) of the Act to a subsection (d) hospital. 

 Section 1206(a)(3) of Pub. L. 113-67 revised the existing policy for calculating 

whether an LTCH or LTCH satellite facility meets the greater than 25-day average length 
 961 

of stay requirement in sections 1886(d)(1)(B)(iv)(I) and 1861(ccc)(2) of the Act, which is 

implemented in the regulations at § 412.23(e)(2) and (e)(3). Specifically, section 

1206(a)(3) provides that cases for which Medicare paid the provider under the “site 

neutral” rate, as well as any paid under a Medicare Advantage plan (that is, Medicare 

Part C) shall be excluded from the calculations of the average length of stay of an LTCH 

or an LTCH satellite facility. LTCHs that had not attained their LTCH designation by 

December 10, 2013, are exempt from this statutorily mandated change. 

 As previously stated, section 1206(a)(1) of Pub. L 113-67 provides for “site 

neutral” payments to an LTCH for certain specified patient discharges effective for 

discharges occurring in cost reporting periods beginning on or after October 1, 2015. We 

intend to propose the specific policy and payment changes that will be necessary to 

implement the Pub. L. 113-67 provisions for cost reporting periods beginning on or after 

October 1, 2015, during the FY 2016 rulemaking cycle. Although we are not proposing 

the changes mandated by section 1206(a)(1) of Pub. L. 113-67 in this proposed rule, in 

light of the degree of forthcoming changes, in section VII.I.3. we discuss some of the 

changes in this proposed rule, and request public feedback to inform our proposals for 

FY 2016. 

3. Additional LTCH PPS Issues 

 The LTCH PPS was originally established for cost reporting periods beginning on 

or after October 1, 2002, by section 123(a) of the BBRA (Pub. L. 106-113) and section 

307(b) of the BIPA (Pub. L. 106-554). (We also refer readers to section 1886(m) of the 

Act, as added by section 114(e) of the MMSEA.) Section 307(b) of the BIPA granted the 
 962 

Secretary considerable authority in developing the LTCH PPS, specifying that the 

Secretary shall “...examine and may provide for appropriate adjustments to the long-term 

hospital payment system, including adjustments to DRG weights, area wage adjustments, 

geographic reclassification, outliers, updates, and a disproportionate share adjustment....” 

 Accordingly, as we evaluate the revisions to the LTCH PPS required by section 

1206(a)(1) of Pub. L. 113-67, we believe that the broad authority permitted by the 

original statutory mandates continues to grant us the authority to modify, if appropriate, 

methodologies for our payment determinations under the LTCH PPS. (We refer readers 

to the RY 2003 LTCH PPS final rule (67 FR 55954), which describes the development 

and implementation of the LTCH PPS for FY 2003.) Specifically, section 1206(a) of 

Pub. L. 113-67 establishes two distinct payment groups for LTCH discharges under the 

revised system: discharges meeting specified patient-level criteria that will be paid under 

the “standard LTCH PPS payment amount” and all other patient discharges that will be 

paid under the “site neutral” payment rate and methodology (discussed above). In setting 

the payment rates and factors under the LTCH PPS as required by section 1206(a) of 

Pub. L. 113-67 for certain LTCH PPS payment adjustments, such as the MS-LTC-DRG 

relative weights and high-cost outlier payments, we plan to evaluate whether it would be 

appropriate to modify our historical methodology to account for the establishment of the 

two distinct payment methodologies for LTCHs. For example, we intend to examine 

whether, beginning in FY 2016, it is still appropriate to include data for all LTCH PPS 

cases, including “site neutral” payment cases, in our methodology for setting relative 

payment weights for MS-LTC-DRGs. We also intend to explore the need for changes to 
 963 

the LTCH PPS high-cost outlier payment policies. Given the fact that, for a number of 

LTCH patients, payment will be made based on the lower of the “IPPS comparable” per 

diem payment and the estimated cost of the case, we will need to decide whether to 

maintain a single high-cost outlier “target” for all LTCH PPS cases (including “site 

neutral” payment cases) or whether it may be more appropriate to establish separate 

high-cost outlier “targets” for each of the two payment groups under the revised LTCH 

PPS. Our existing methodology for calculating the MS-LTC-DRG relative weights is 

discussed during the annual rulemaking cycle and was, most recently, included in the 

FY 2014 IPPS/LTCH final rule (78 FR 50753 through 50760). Our detailed description 

of our existing high-cost outlier payment policy, which has remained the same since 

being implemented, can be found in the RY 2003 LTCH PPS final rule (67 FR 56022 

through 56027). (We note that our proposed methodology for calculating the 

MS-LTC-DRG relative payment weights for FY 2015 can be found in section VII.B.3. of 

the preamble of this proposed rule, and our proposals under the high-cost outlier payment 

policy for FY 2015 can be found in section V.D. of the Addendum to this proposed rule.) 

 We are interested in receiving feedback from LTCH stakeholders on our plans to 

evaluate whether it would be appropriate to modify any of our historical methodologies 

as we implement the payment changes to the LTCH PPS under section 1206(a) of 

Pub. L. 113-67. In particular, we are interested in public feedback on the issues 

mentioned earlier (that is, policies relating to establishing the relative payment weights 

and high-cost outliers) so that we may evaluate various options in preparation for 

developing proposals to implement the statutory changes beginning in FY 2016. 
 964 

J. Proposed Technical Change 

 In this proposed rule, we are proposing to update the legislative basis for the 

regulations governing the LTCH PPS under Subpart O of Part 412. Specifically, we are 

proposing to add references under new paragraphs (a)(4), (a)(5), and (a)(6) of § 412.500 

of the regulations to the revisions to the Act made by section 4302(a) of Pub. L. 111-5, 

sections 3106(a) and 10312(a) of Pub. L. 111-148, and section 1206 of Pub. L. 113-67, 

respectively.
 965 

VIII. Appropriate Claims in Provider Cost Reports; Administrative Appeals by 

Providers and Judicial Review

 In this proposed rule, we are proposing to revise the cost reporting regulations in 

42 CFR Part 413, Subpart B by requiring a provider to include an appropriate claim for a 

specific item in its Medicare cost report in order to receive or potentially qualify for 

Medicare payment for the specific item. If the provider’s cost report does not include an 

appropriate claim for a specific item, payment for the item will not be included in the 

notice of program reimbursement (NPR) issued by the Medicare Administrative 

Contractor (MAC) (formerly known as fiscal intermediary and herein referred to as 

“contractor”) or in any decision or order issued by a reviewing entity (as defined in 

42 CFR 405.1801(a) of the regulations) in an administrative appeal filed by the provider. 

In addition, we are proposing to revise the appeals regulations in 42 CFR Part 405, 

Subpart R, by eliminating the requirement that a provider must include an appropriate 

claim for a specific item in its cost report in order to meet the dissatisfaction requirement 

for jurisdiction before the Provider Reimbursement Review Board (Board), and by 

specifying the procedures for Board review of whether the provider’s cost report meets 

the proposed substantive reimbursement requirement of an appropriate cost report claim 

for a specific item. We also are proposing technical revisions to other Board appeal 

regulations to conform those regulations to the main revisions (described above) to the 

cost reporting regulations and the provider appeal regulations, in addition to proposing 

similar revisions to the Part 405, Subpart R regulations for appeals before the contractor 

hearing officers. In addition, we are proposing to conform the terminology in Part 405, 
 966 

Subpart R and all subparts of Part 413 from “intermediary” or “fiscal intermediary” to 

“contractor” pursuant to sections 1816, 1874A and 1878 of the Act. All of these 

proposed revisions to the cost reporting regulations and the provider appeals regulations 

would apply to provider cost reporting periods beginning on or after the effective date of 

the final IPPS annual update rule. 

A. Background 

1. Payments and Cost Reporting Requirements 

 For cost reporting years beginning before October 1, 1983, all providers were 

reimbursed on a reasonable cost basis for Part A (hospital insurance) covered items and 

services that were furnished to Medicare beneficiaries. Reasonable cost is defined at 

section 1861(v)(1)(A) of the Act and implementing regulations at 42 CFR Part 413. In 

the Social Security Amendments of 1983 (Pub. L. 98-21), Congress added section 

1886(d) to the Act, which, effective with cost reporting periods beginning on or after 

October 1, 1983, changed the payment method for inpatient hospital services furnished 

by short-term acute care hospitals to a prospective payment system (PPS). In accordance 

with section 1886(d) of the Act and implementing regulations at 42 CFR Part 412, a PPS 

payment is made at a predetermined specific rate for each hospital discharge (classified 

according to a list of diagnosis-related groups (DRGs)), excluding certain costs that are 

paid on a reasonable cost basis. 

 Later statutory amendments expanded the types of providers and services that are 

subject to a PPS. The various prospective payment systems for inpatient hospital services 

are summarized in § 412.1 of the regulations. Other prospective payment systems for 
 967 

different types of providers and services are summarized in §§ 413.170, 413.300, 

413.330, and 419.1 of the regulations. As explained in § 413.1(b) of the regulations, if a 

service is not subject to a PPS when it is furnished, the provider is paid on the basis of 

reasonable cost. (For ease of reference, we will use the terms “reimbursement” and 

“payment” interchangeably unless a particular context calls for the use of one of these 

terms instead of the other.) 

 Before October 1, 2005, payments to providers were ordinarily made through 

private organizations known as fiscal intermediaries, under contracts with the Secretary. 

After a 6-year transition period (§ 421.400(a)), the claims processing and payment 

functions of the fiscal intermediaries are now performed by MACs, under contracts with 

the Secretary. 

 For covered items and services paid on a reasonable cost basis, the contractor 

pays a provider during its cost reporting period interim payments that approximate the 

provider’s actual costs. Under a PPS, providers are generally paid for each patient 

discharge after a bill is submitted. 

 Sections 1815(a) and 1833(e) of the Act provide that no payments will be made to 

a provider unless it has furnished the information, requested by the Secretary, needed to 

determine the amount of payments due the provider under the Medicare program. In 

general, providers submit this information through annual cost reports that cover a 

12-month period of time. 

 All providers participating in the Medicare program are required under 

§ 413.20(a) to “maintain sufficient financial records and statistical data for proper 
 968 

determination of costs.” Moreover, providers must use standardized definitions and 

follow accounting, statistical, and reporting practices that are widely accepted in the 

hospital and related fields. Under the provisions of §§ 413.20(b) and 413.24(f), providers 

are required to submit cost reports annually, with the reporting period based on the 

provider’s accounting year. For cost years beginning on or after October 1, 1989, section 

1886(f)(1) of the Act and § 413.24(f)(4) of the regulations require hospitals to submit 

cost reports in a standardized electronic format, and the same requirement was later 

imposed for other types of providers. In addition, § 412.52 of the regulations requires all 

PPS hospitals to meet the recordkeeping and cost reporting requirements of §§ 413.20 

and 413.24, which include submitting a cost report for each 12-month period. 

2. Administrative Appeals by Providers and Judicial Review 

 Upon receipt of a provider’s cost report, the contractor reviews or audits the cost 

report, makes any necessary adjustments to the provider’s Medicare reimbursement for 

the cost reporting period, and finally determines the total amount of payment due the 

provider. This year-end reconciliation of Medicare payment for the provider’s cost 

reporting period constitutes a contractor determination, as defined in § 405.1801(a). 

Under §§ 405.1801(a)(1), (2) and 405.1803, the contractor must give the provider written 

notice of the final contractor determination for the cost period in a notice of the total 

amount of program reimbursement (NPR). The NPR is an appealable determination, and 

the contractor determination is final and binding unless it is revised on appeal or 

reopening (§ 405.1807). 
 969 

 Under section 1878(a) of the Act, a provider that has submitted a timely cost 

report may appeal to the Provider Reimbursement Review Board (the Board) a final 

determination of program reimbursement made by a contractor, as well as certain final 

determinations by the Secretary involving payment under the IPPS. The Secretary’s 

delegate, the Administrator of CMS, may review certain Board decisions under section 

1878(f)(1) of the Act and § 405.1875 of the regulations. The final decision of the Board 

or the Administrator is subject to judicial review under section 1878(f)(1) of the Act and 

§ 405.1877 of the regulations. In addition, by regulation, providers are given the right to 

appeal to the Board or to contractor hearing officers certain other determinations. A 

CMS reviewing official may review some contractor hearing officer decisions under 

§ 405.1834 of the regulations, but there is no judicial review of decisions by contractor 

hearing officers or a CMS reviewing official. 

 Under sections 1878(a)(1)(A), (a)(2), and (a)(3) of the Act, and § 405.1835(a)(1), 

(a)(2), and (a)(3)(i) of the regulations, a provider may obtain a Board hearing if: (1) the 

provider is “dissatisfied” with a final determination of the contractor [formerly 

intermediary] or the Secretary; (2) the amount in controversy is at least $10,000; and (3) 

the provider files a request for a hearing to the Board within 180 days of notice of the 

final determination of the contractor or the Secretary. The same jurisdictional 

requirements govern provider appeals to contractor hearing officers under 

§ 405.1811(a)(1), (a)(2), and (a)(3)(i) of the regulations, except that the amount in 

controversy requirement is at least $1,000 but less than $10,000. 
 970 

 However, the statutory requirements for Board jurisdiction are somewhat different 

if the provider does not receive a final determination of the contractor on a timely basis. 

Under sections 1878(a)(1)(B), (a)(2), and (a)(3) of the Act, a provider may obtain a 

Board hearing if: (1) the provider does not receive a final determination of the contractor 

on a timely basis, after the provider filed a cost report that complied with the cost 

reporting regulations; (2) the amount in controversy is at least $10,000; and (3) the 

provider files a request for a hearing to the Board within 180 days after notice of the 

contractor’s final determination would have been received if such contractor 

determination had been issued on a timely basis. Moreover, § 405.1835(a)(3)(ii) of the 

regulations provides that a contractor determination is not timely if it is not issued, 

through no fault of the provider, within 12 months of the contractor’s receipt of the 

provider’s perfected cost report or amended cost report (as specified in § 413.24(f) of the 

regulations). The same jurisdictional requirements govern provider appeals to contractor 

hearing officers, based on an untimely contractor determination, under § 405.1811(a), 

except that the amount in controversy requirement is at least $1,000 but less than 

$10,000. 

3. Appropriate Claims in Provider Cost Reports 

 Under longstanding Medicare policy as set forth in § 413.24 of the regulations 

and section 115 of the Provider Reimbursement Manual (PRM), Part 2 (CMS Pub. 15-2), 

a provider must make an appropriate cost report claim for a specific item in order to be 

reimbursed for the item, whether through the NPR issued by the contractor or as the 

result of an administrative appeal or judicial review. For example, as set forth in 
 971 

§ 413.24, providers receiving payment on the basis of reimbursable cost are required to 

provide adequate cost data to the contractor to support payments made for services 

furnished to beneficiaries. In addition, as set forth in section 115 of the PRM, Part 2, we 

also require that providers make a specific claim for an item in its cost report, in order to 

meet the dissatisfaction requirement for Board jurisdiction. The Medicare cost report has 

always included particular “lines” for specific allowable costs such as interest expense 

and depreciation. If a provider makes a cost report claim for a cost that is allowable, and 

reimbursement is claimed in accordance with Medicare payment policy, the NPR will 

include appropriate reimbursement for the cost. (For ease of reference, we will use the 

terms “specific item” or “item” to refer to a particular aspect of reasonable cost-based 

payment or a specific aspect of payment under a prospective payment system unless a 

particular context calls for the use of more specific terms (for example, the term 

“allowable cost” as used in determining reasonable cost-based payment).) 

 If the NPR does not include reimbursement for a specific item or if the provider 

believes it should have received more reimbursement for the item, the provider can 

request a hearing before the Board or the contractor hearing officers (if the amount in 

controversy is at least $1,000 but less than $10,000). However, our longstanding policy 

is that an appropriate cost report claim is a jurisdictional requirement for an appeal to the 

Board or the contractor hearing officers. As explained above, section 1878(a)(1)(A) of 

the Act provides for a hearing before the Board if the provider has filed a timely cost 

report with the contractor, and the provider is “dissatisfied” with a final determination of 

the contractor or the Secretary. Our view has been that, in order for a provider to be 
 972 

dissatisfied with a specific aspect of the contractor determination, the provider must 

include an appropriate cost report claim for the specific item so that the contractor can 

respond to the provider’s claim in the NPR and thereby potentially produce a specific 

reimbursement result about which the provider is dissatisfied. 

 Under our policy for Board jurisdiction, we required a provider to make a specific 

claim for an item in its cost report, in order to meet the dissatisfaction requirement for 

Board jurisdiction. We did not permit a provider to “self-disallow” a specific item, even 

if the Medicare contractor had no discretion to award payment for the item. (In 

self-disallowing an item, the provider submits a cost report that complies with Medicare 

policy for the item and then appeals the item to the Board; the contractor’s NPR then 

would not include any disallowance of the item, and therefore the provider would 

effectively self-disallow the item.) However, the Supreme Court rejected our 

longstanding policy in Bethesda Hospital Association v. Bowen, 485 U.S. 399 (1988). 

The Court held that, despite the providers’ failure to claim all the reimbursement they 

believed should have been made, the plain language of the dissatisfaction requirement in 

section 1878(a)(1)(A) of the Act supported Board jurisdiction because the contractor had 

no authority to award reimbursement in excess of a regulation by which it was bound, 

and thus it would have been futile for the providers to try to persuade the contractor 

otherwise. The Court also stated in dicta, however, that the dissatisfaction requirement 

might not be met if providers were to “bypass a clearly prescribed exhaustion 

requirement or . . . fail to request from the intermediary reimbursement for all costs to 

which they are entitled under applicable rules” (Bethesda Hosp., 485 U.S. at 404-05). 
 973 

 Following the Bethesda decision, we no longer required providers to make a cost 

report claim for reimbursement of items for which the contractor did not have the 

discretion to award payment due to a regulation or manual provision but, consistent with 

the dicta in Bethesda, we continued to require providers to include cost report claims for 

allowable costs. However, our policy, as revised in response to Bethesda, was also 

challenged in the courts, and a “circuit split” resulted. Compare Little Co. of Mary Hosp. 

v. Shalala, 165 F.3d 1162 (7th Cir. 1999) (sustaining our interpretation of the statutory 

dissatisfaction requirement for Board jurisdiction) with Loma Linda Univ. Med. Ctr. v. 

Leavitt, 492 F.3d 1065 (9th Cir. 2007) (rejecting our interpretation of the dissatisfaction 

requirement); Maine General Med. Ctr. v. Shalala, 205 F.3d 493 (1st Cir. 2000) (same). 

 In response to the Supreme Court’s Bethesda decision and the ensuing circuit 

split, we then addressed the dissatisfaction requirement in notice and comment 

rulemaking. In a 2008 final rule, we revised § 405.1811(a)(1) and § 405.1835(a)(1) for 

contractor and Board hearings, respectively (73 FR 30190, 30195 through 30200, 30244 

through 30245, 30249 through 30250 (May 23, 2008)). Under the revised regulations, in 

order to preserve its appeal rights, a provider must either claim an item in its cost report 

where it is seeking reimbursement that it believes to be in accordance with Medicare 

policy, or self-disallow the item if it is seeking reimbursement that it believes may not 

comport with Medicare policy (for example, where the contractor does not have the 

discretion to award the reimbursement sought by the provider). In order to self-disallow 

an item, the provider must follow the applicable procedures for filing a cost report under 

protest, which are contained currently in section 115 of the PRM, Part 2. 
 974 

 As explained in the preamble to the 2008 final rule, we believe the revised 

dissatisfaction policy set forth in § 405.1835(a)(1) is a reasonable interpretation of the 

dissatisfaction requirement for Board jurisdiction in section 1878(a)(1)(A) of the Act 

(73 FR 30195 through 30200). The dissatisfaction requirement in § 405.1835(a)(1) 

comports with the Supreme Court’s statement (discussed above) that the statutory 

dissatisfaction requirement might not be met if a provider bypassed a clearly prescribed 

exhaustion requirement or failed to ask the contractor for reimbursement of all costs to 

which it is entitled under applicable rules. (Bethesda Hosp., 485 U.S. at 404-05; Little 

Co. of Mary, 165 F.3d 1162 (sustaining our interpretation of the statutory dissatisfaction 

requirement for Board jurisdiction on the basis of the forgoing statements by the Supreme 

Court); Little Co. of Mary Hosp. v. Shalala, 24 F.3d 984 (7th Cir. 1994) (same). 

 Upon further reflection, however, we believe that the requirement that a provider 

either claim reimbursement for a specific cost, or expressly self-disallow the cost, in its 

cost report is more appropriately treated as a cost reporting requirement under sections 

1815(a) and 1833(e) of the Act, as the agency cannot make payments to a provider 

without sufficient information on all claims for which the provider believes it should be 

paid. Indeed, it is eminently reasonable for the Secretary to require a provider to make an 

appropriate cost report claim for a specific item if the provider wants to be paid for the 

item. As we explain in detail in the next section, requiring a cost report claim for full 

reimbursement or an express self-disallowance of the cost enables the contractor to 

review and audit the claim, make any adjustments that seem appropriate, and include 

final payment for the cost as part of the NPR. Accordingly, we are proposing to revise 
 975 

the cost reporting regulations in Part 413, Subpart B by adding the substantive 

reimbursement requirement that a provider must include an appropriate claim for an item 

in its cost report. The failure to account appropriately for the item in its cost report will 

foreclose payment for the item in the NPR issued by the contractor and in any decision, 

order, or other action by a reviewing entity (as defined in § 405.1801(a) of the 

regulations) in an administrative appeal filed by the provider. 

 However, we recognize that the proposed addition to the cost reporting 

regulations of the substantive reimbursement requirement of an appropriate cost report 

claim for a specific item would be potentially duplicative of the existing jurisdictional 

requirement in the Board appeals regulations of an appropriate cost report claim. In order 

to avoid such duplication, we also are proposing to revise the appeals regulations in Part 

405, Subpart R by eliminating the requirement that a provider must include an 

appropriate claim for an item in its cost report in order to meet the dissatisfaction 

requirement for Board jurisdiction. Our longstanding requirement of an appropriate cost 

report claim would be made a substantive reimbursement requirement in the cost 

reporting regulations and the existing Board jurisdiction requirement of an appropriate 

cost report claim would be eliminated. These proposed revisions to the cost reporting 

regulations and the provider appeals regulations would apply on a prospective-only basis, 

to provider cost reporting periods beginning on or after the effective date of the final 

IPPS annual update rule. 
 976 

B. Proposed Changes Regarding the Claims Required in Provider Cost Reports, and for 

Provider Administrative Appeals 

1. Proposed Addition to the Cost Reporting Regulations of the Substantive 

Reimbursement Requirement of an Appropriate Cost Report Claim 

a. Specific Provisions of Proposed Paragraph (j) of § 413.24 

 We are proposing to add a new paragraph (j) to § 413.24 of the regulations. 

Proposed paragraph (j)(1) of § 413.24 provides that in order to receive or potentially 

qualify for payment for a specific item, the provider must include in its cost report an 

appropriate claim for the specific item. In order to make an appropriate claim for an item 

in its cost report, the provider must either claim payment for the item in its cost report 

where it is seeking payment that it believes is consistent with Medicare policy, or 

self-disallow the item if the provider is seeking payment that it believes may not comport 

with Medicare policy (for example, where the contractor does not have the authority or 

discretion to award the payment sought by the provider). In order to self-disallow a 

specific item, the provider would have to follow the applicable procedures for filing a 

cost report under protest, which are now contained in section 115 of the PRM, Part 2 and 

are included in proposed paragraph (j)(2) of § 413.24. Specifically, the provider would 

have to include an estimated payment amount for each self-disallowed item in the 

“protested amount” line of the cost report, and attach a worksheet explaining why a 

self-disallowance is necessary (instead of claiming payment for the item in its cost report) 

and describing how it determined the estimated payment amount for each self-disallowed 

item. 
 977 

 Proposed paragraph (j)(3) of § 413.24 specifies the procedures for determining 

whether there is an appropriate cost report claim for a specific item. The default rule is 

that the question of whether the provider’s cost report includes an appropriate claim for 

the specific item must be determined by reference to the cost report that the provider 

submits originally to, and is accepted by, the contractor, unless one of three exceptions 

applies. The first exception is that if the provider submits an amended cost report that is 

accepted by the contractor, the question of whether there is an appropriate cost report 

claim for the specific item must be determined by reference to such amended cost report, 

unless one of the two remaining exceptions applies. The second exception is that if the 

contractor adjusts the provider’s cost report, as submitted originally by the provider and 

accepted by the contractor or as amended by the provider and accepted by the contractor, 

whichever is applicable, with respect to the specific item, the question of whether there is 

an appropriate cost report claim for the specific item must be determined by reference to 

the provider’s cost report, as such cost report is adjusted for the specific item in the 

contractor’s initial determination (as defined in § 405.1801(a)), unless the remaining 

exception applies. The third exception is that if the contractor reopens either the initial 

contractor determination for the provider’s cost reporting period (pursuant to § 405.1885) 

or a revised contractor determination for such period (issued pursuant to § 405.1889) and 

adjusts the provider’s cost report with respect to the specific item, the question of 

whether there is an appropriate cost report claim for the specific item must be determined 

by reference to the provider’s cost report, as such cost report is adjusted for the specific 

item in the contractor’s most recent revised contractor determination for such period. 
 978 

 Providers should make every effort to comply with the default rule set forth in 

proposed paragraph (j)(3) of § 413.24, even though one of the exceptions to the default 

rule might come into play later. In order to ensure compliance with the substantive 

requirement of an appropriate cost report claim for a specific item, the provider should 

either claim full payment for, or properly self-disallow, the item in the cost report that the 

provider submits originally to the contractor. However, failure to include an appropriate 

claim for the specific item in the provider’s original “as submitted” cost report does not 

necessarily foreclose any further opportunity to meet the requirement of an appropriate 

cost report claim for the specific item. Under the first exception to the default rule under 

proposed paragraph (j)(3), the provider could include an appropriate cost report claim for 

the specific item in an amended cost report, but the contractor has discretion whether to 

accept an amended cost report by the provider. Under the second and third exceptions to 

the default rule under proposed paragraph (j)(3), the requirement of an appropriate cost 

report claim could be met through the contractor’s adjustment of the provider’s cost 

report, either in the contractor’s initial determination for the provider’s cost reporting 

period (as defined in § 405.1801(a)) or, if the initial contractor determination is reopened, 

in the contractor’s revised determination. However, in preparing the initial contractor 

determination for a provider’s cost reporting period, the contractor has discretion whether 

to adjust the provider’s cost report with respect to the specific item and, if so, how to 

adjust the cost report for such item. Similarly, after the initial contractor determination is 

issued, the contractor has discretion whether to reopen the initial contractor determination 
 979 

and, if the specific item is reopened, whether to adjust the cost report for such item and 

how to make any such adjustment. 

 In order to exemplify the workings of proposed paragraph (j)(3) of § 413.24, 

consider a hospital that seeks a Medicare DSH payment adjustment that, on the 

provider’s view, should be calculated on the basis of 2,000 Medicaid eligible patient days 

in the numerator of the DSH Medicaid fraction (42 CFR 412.106(b)(4)). If the hospital’s 

as submitted cost report claimed only 1,000 Medicaid eligible patient days for the 

numerator of the DSH Medicaid fraction, and the number of Medicaid eligible patient 

days was not changed in an amended cost report by the provider or through adjustments 

to the cost report by the contractor, the hospital would have made an appropriate cost 

report claim for only 1,000 Medicaid eligible patient days (instead of 2,000 such days). 

However, if the provider submitted, and the contractor accepted, an amended cost report 

that claimed a total of 1,500 Medicaid eligible patient days, the provider would have 

made a valid cost report claim for 1,500 Medicaid eligible patient days (instead of 2,000 

such days). However, if the hospital asked the contractor, during the contractor’s review 

and settlement of the provider’s cost report, to count 250 more Medicaid eligible patient 

days, and the contractor agreed to consider those days in the contractor’s initial 

intermediary determination, the provider would have made a valid cost report claim of 

1,750 Medicaid eligible patient days (instead of 2,000 such days). Finally, if the provider 

next requested, or the contractor initiated on its own motion, the reopening of the initial 

contractor determination on the specific issue of the number of Medicaid eligible patient 

days for the DSH Medicaid fraction’s numerator, and the contractor did reopen for that 
 980 

specific issue, the provider would have a valid cost report claim of 2,000 Medicaid 

eligible patient days. At that juncture, the hospital would have met the requirement of an 

appropriate cost report claim for all of the 2,000 Medicaid eligible patient days, which is 

the number of such days that the provider believed from the outset should be used in 

determining the numerator of the DSH Medicaid fraction. 

 We believe proposed paragraph (j)(3) of § 413.24 appropriately reflects the usual 

process in which a cost report claim that is first made in the cost report that is submitted 

originally to, and accepted by, the contractor, might be altered through an amended cost 

report by the provider (if the amended cost report is accepted by the contractor) or 

through adjustments of the provider’s cost report claim that are made in the contractor’s 

initial determination or, in the event of a reopening, in the contractor’s revised 

determination. This process enables a provider to ensure compliance with the substantive 

requirement of an appropriate cost report claim for a specific item, by including in the 

cost report that the provider submits originally to, and is accepted by, the contractor, 

either a full claim for payment for a specific item or a proper self-disallowance of the 

item. In addition, this process gives a provider additional opportunities to meet the 

requirement of an appropriate cost report claim through an amended cost report by the 

provider (if the amended cost report is accepted by the contractor) and adjustments to the 

provider’s cost report claim that are included in the contractor’s initial contractor 

determination or, if there is a reopening, in the revised contractor determination. Unlike 

with the provider’s original as submitted cost report, however, the contractor has 

discretion whether to accept an amended cost report; whether to include particular cost 
 981 

report claim adjustments in the initial contractor determination and, if so, how to 

determine such adjustments; and whether to reopen a contractor determination and, if 

there is a reopening, how to determine any cost report claim adjustments that may be 

included in the revised contractor determination. This “back and forth” process between 

the provider and the contractor, which is reflected in proposed paragraph (j)(3) of 

§ 413.24, facilitates appropriate determinations of program payment and enhances 

administrative efficiency. Each of the Medicare contractors has substantial experience in 

reviewing and auditing cost reports and in properly determining payment amounts. The 

back and forth process between the provider and the contractor eliminates, or minimizes 

and sharpens, potential disagreements, which obviates the need to file some 

administrative appeals or narrows the issues in many cases. 

 In addition, proposed paragraph (j)(4) of § 413.24 provides that, to the extent a 

provider fails to claim a specific item appropriately in its cost report, the final contractor 

determination (as defined in § 405.1801(a)) may not include payment for the item. 

However, if the contractor determines that the provider made an appropriate cost report 

claim for a specific item but the contractor disagrees with material aspects of the 

provider’s claim for the item, the contractor must make appropriate adjustments to the 

provider’s cost report and include payment for the specific item in the final contractor 

determination in accordance with the contractor’s adjustments to the cost report and to 

the extent permitted by program policy. 

 Proposed paragraph (j)(5) of § 413.24 provides that if a party to an administrative 

appeal questions whether the provider’s cost report included an appropriate claim for the 
 982 

specific item under appeal, the reviewing entity (as defined in § 405.1801(a)) must follow 

the procedures (which we discuss in detail below) that are set forth in proposed 

§ 405.1873 (if the appeal was filed originally with the Board), or the procedures in 

§ 405.1832 (if the appeal was filed initially with the contractor), for review of whether 

the substantive reimbursement requirement of an appropriate cost report claim for the 

specific item is satisfied. Those regulations require the reviewing entity to follow the 

procedures (discussed above) that are set forth in paragraph (j)(3) of this section for 

determining whether the provider’s cost report included an appropriate claim for the 

specific item under appeal. Also, the reviewing entity may permit payment for the 

specific item under appeal solely to the extent authorized by § 405.1873(f) (if the appeal 

was filed originally with the Board) or by § 405.1832(f) (if the appeal was filed initially 

with the contractor). 

b. Statutory and Policy Bases for Proposed Paragraph (j) of § 413.24 

 We believe the Medicare statute provides ample authority for the above-described 

proposal to add a new paragraph (j) to § 413.24 of the regulations. This proposal is well 

within the Secretary’s general rulemaking authority under sections 1102 and 1871 of the 

Act. Moreover, proposed § 413.24(j) is an appropriate exercise of the Secretary’s broad 

authority under sections 1815(a), 1833(e), and 1886(f)(1) of the Act to require providers 

to furnish the information needed to determine the amount of payment due a provider 

under the Medicare program. As described above, we have relied on these particular 

statutory provisions in adopting regulations that require providers to submit annual cost 

reports; specify the requisite contents of cost reports; and impose various procedural 
 983 

requirements for cost reports (such as time periods for timely submission of cost reports 

and certification requirements for cost reports). Moreover, we have invoked the same 

statutory provisions in requiring providers to report other specific information as a 

condition for Medicare payment (we refer readers to, for example, Community Hosp. of 

Monterey Peninsula v. Thompson, 323 F.3d 782, 790, 795-800 (9th Cir. 2003) (sustaining 

Medicare’s policy that providers must bill “crossover bad debts” to the State Medicaid 

agency because 42 U.S.C. 1395g(a) (that is, section 1815(a) of the Act) “specifically 

granted the Secretary broad discretion as to what information to require as a condition of 

payment to providers under the Medicare program”). Indeed, as explained above, the 

Secretary’s broad discretion with respect to cost reporting requirements is also reflected 

in the Board appeals provisions of section 1878(a) of the Act, which makes provider 

compliance with cost reporting requirements a prerequisite of Board jurisdiction. 

 In addition to the plainly sufficient statutory authority for proposed § 413.24(j), 

we believe there are sound policy reasons for requiring a provider to include an 

appropriate claim for an item in its cost report by either claiming payment for the item 

(where the provider believes such claim would comport with Medicare policy), or by 

self-disallowing the item (if the provider is seeking payment that it believes may not be 

consistent with Medicare policy). This proposal has three main parts, each of which we 

address separately. 

 First, we believe that if a cost is allowable and the provider does not disagree with 

how Medicare determines payment for the cost, the provider’s cost report should include 

a claim for full payment of the cost in accordance with the program’s payment policy. In 
 984 

such cases, a cost report claim for full payment of the cost enables the contractor to 

review the claim, make any adjustments that seem appropriate, and include final payment 

for the cost as part of the NPR. Requiring a cost report claim for full payment of 

allowable costs (where the provider does not disagree with how Medicare determines 

payment for the cost) facilitates the contractor’s discharge of some of its principal 

responsibilities, which include using the contractor’s expertise and experience to review 

and audit payment claims, make any necessary adjustments, and include final payment 

for the cost in the NPR. Absent some misstep by the contractor in reviewing such a cost 

report claim and determining final payment for the item, there would be no need for the 

provider to later request reopening or to file an administrative appeal regarding the item. 

Even if the provider disagreed with some aspect of the contractor’s payment 

determination for the specific item, any such disagreement would be narrowed and 

delineated more precisely because our proposal, to require a full cost report claim for 

payment of allowable costs, will give the contractor an opportunity to review and audit 

the claim and determine the extent to which (if at all) to include payment for the claim in 

the NPR. Therefore, the interests of administrative finality and efficiency will be 

advanced if providers are required to include a cost report claim for full payment of 

allowable costs. 

 Proposed § 413.24(j)’s requirement of a cost report claim for full payment of 

allowable cost also comports with the division of responsibilities between the contractors 

and the Board and the other reviewing entities (as defined in § 405.1801(a)). At present, 

there are 12 contractors, each of which has a fairly large staff with substantial experience 
 985 

and expertise in reviewing and auditing cost reports and determining final payment in 

accordance with Medicare policy. By contrast, the Board has only five members and a 

relatively small staff. We believe it is a waste of scarce resources and very inefficient for 

a provider to first raise a clearly allowable cost in an appeal to the Board when the 

contractor could have reviewed and finally determined payment for such an allowable 

cost in the NPR, if the provider had simply made a timely cost report claim for full 

payment of the allowable cost. As indicated by the very name of the Provider 

Reimbursement Review Board, it is a “Review Board” or administrative appeals tribunal, 

not the Medicare program’s front line auditors charged with making the initial 

determination of program reimbursement for such allowable costs. 

 Second, there are also sound policy reasons for proposing, under a new paragraph 

(j) in § 413.24, that a provider must self-disallow a specific item if it is seeking payment 

that it believes may not comport with Medicare policy (for example, because the provider 

believes the contractor does not have the discretion to make the payment sought by the 

provider), by following the applicable procedures for filing a cost report under protest 

(procedures that, as explained above, are now contained in section 115 of the PRM, 

Part 2 and would be set forth in proposed paragraph (j)(2) of § 413.24). When a provider 

self-disallows an item by accounting for it appropriately in the “protested amount” line of 

the cost report (instead of claiming payment for the item), the contractor has an 

opportunity to correct any misconceptions that the provider may have had about the item. 

For example, the contractor could determine, contrary to the provider’s apparent 

understanding in self-disallowing a specific item, that the item in question is actually an 
 986 

allowable cost that is reimbursable in accordance with program policy. Another 

example: the contractor might determine, despite the provider’s understanding of 

Medicare policy and its concomitant self-disallowance, that program policy has changed 

and the item is now an allowable cost or a new payment policy now applies that permits 

the payment methodology used by the provider in support of its self-disallowance of the 

item (for example, 75 FR 50042; 50275 through 50286 (August 16, 2010) (discussing 

CMS Ruling 1498-R, which revised Medicare disproportionate share hospital (DSH) 

payment policy in response to adverse judicial precedent, and made such revisions 

applicable to open cost reports and certain pending administrative appeals). In such 

cases, the contractor’s deep expertise and experience and its resources can be brought to 

bear in reviewing self-disallowed items, making any necessary corrections, and finally 

allowing payment for corrected items in the NPR. Indeed, these kinds of contractor 

actions comport with section 1874A(a)(4) of the Act and § 413.20(b) of the regulations, 

which require the contractors to furnish providers with consultative services, education, 

training, information and instructions, and technical assistance regarding the 

interpretation and application of payment principles and other program policies; be 

available to address provider questions and problems on a daily basis; and facilitate 

communication between the agency and providers. Accordingly, we believe our 

proposed addition of a self-disallowance requirement to the cost reporting regulations 

will facilitate exhaustion of administrative remedies through the contractor’s review and 

final settlement of the provider’s cost report, and when the contractor corrects errors in a 

provider’s self-disallowance, the erstwhile need to appeal to the Board or request 
 987 

reopening could be obviated (we refer readers to Little Co. of Mary Hosp. v. Shalala, 165 

F.3d 1162, 1165 (7th Cir. 1999) (the Secretary’s requirement of an appropriate cost report 

claim for an item ensures that the contractor will have the “first shot” at determining any 

reimbursement for the item, before any appeal to the Board need be filed). 

 By requiring the self-disallowance of items that providers believe may not 

comport with Medicare policy, proposed § 413.24(j) would also contribute importantly to 

other aspects of program administration. For example, this proposal would facilitate 

provider compliance with the existing requirements in § 413.24(f) that each provider 

submit a complete, accurate, and timely cost report, and that the provider’s administrator 

or chief financial officer certify that the submitted cost report is complete and accurate. 

Our proposed self-disallowance requirement would also enhance CMS’ ability to 

accurately estimate the program’s potential liabilities (for example, for purposes of the 

agency’s preparation of required financial statements). Similarly, this proposal would 

improve the contractors’ ability to establish audit and other workload priorities. The 

proposed addition of a self-disallowance requirement (for items that providers believe 

may not comport with Medicare policy) to the cost reporting regulations would also 

enable us to better monitor Medicare policy and potentially adjust our policies in 

response to a pattern of provider self-disallowances of a given item. Indeed, the 

importance of requiring complete and accurate cost report information is highlighted by 

the fact that we use cost report data for a wide variety of purposes such as setting and 

refining prospective payment rates; establishing hospital market basket weights; 

calculating Medicare and total facility margins; determining payment for graduate 
 988 

medical education (GME) and indirect medical education (IME); creating projections for 

the President’s annual budget and for the annual Medicare Trustees Report; for various 

research projects; and for responding to requests from the public, the Congress, the 

Executive Office of Management and Budget (EOMB), and other parts of the 

Administration. 

 Third, we believe there also are sound reasons for our proposal that, under a new 

§ 413.24(j), if a provider fails to account appropriately for an item in its cost report (by 

making a full claim for payment for the item or self-disallowing the item if the provider 

believes a payment claim would not comport with Medicare policy), the NPR issued by 

the contractor may not include payment for the item and payment also may not be 

permitted in any decision, order, or other action by a reviewing entity (as defined in 

§ 405.1801(a)) in an administrative appeal filed by the provider. Under existing 

§§ 405.1835(a)(1) and 405.1840(b)(3), the consequence of not making an appropriate 

cost report claim for an item is that the Board would not have jurisdiction over the 

provider’s appeal of the item. (Similarly, under §§ 405.1811(a)(1) and 405.1814(b)(3), 

the contractor hearing officers would lack jurisdiction for an item if the provider did not 

make an appropriate cost report claim for the item.) As explained below, however, we 

are proposing to eliminate the jurisdictional requirement of an appropriate cost report 

claim in existing §§ 405.1835(a)(1) and 405.1840(b)(3) for Board appeals (and the 

corresponding jurisdictional requirement in §§ 405.1811(a)(1) and 405.1814(b)(3) for 

contractor hearing officer appeals), because we believe it is a requirement more 

appropriately placed in the cost reporting regulations. Given that our longstanding policy 
 989 

of requiring an appropriate cost report claim for an item would be added to the cost 

reporting regulations, in proposed paragraph (j) of § 413.24, this provision is a natural 

place to spell out the consequences of not abiding by this cost reporting requirement. In 

this regard, we note that the proposed addition of a new paragraph (j) to § 413.24 is like 

the existing paragraph (e) in § 413.20, which provides for the suspension of Medicare 

payments if a provider fails to maintain the records necessary for proper determination of 

Medicare reimbursement. Similarly, if a provider fails to include an appropriate claim 

for an item in its cost report, the NPR issued by the contractor will not include payment 

for the item and payment also will not be permitted in any decision, order, or other action 

by a reviewing entity (as defined in § 405.1801(a)) in an administrative appeal filed by 

the provider. 

2. Proposed Revisions to the Provider Reimbursement Appeal Regulations 

a. Elimination of the Jurisdictional Requirement of an Appropriate Cost Report Claim 

In this proposed rule, we are proposing to eliminate the requirement in existing 

§§ 405.1835(a)(1) and 405.1840(b)(3) of the regulations that a provider must include an 

appropriate claim for an item in its cost report in order to meet the dissatisfaction 

requirement for Board jurisdiction. We believe there is a sound basis in law and policy 

for this proposal. Our proposal to eliminate an appropriate cost report claim as a 

requirement for Board jurisdiction is well within the Secretary’s general rulemaking 

authority under sections 1102 and 1871 of the Act. Moreover, this specific proposal is a 

reasonable interpretation of the “dissatisfied” provision in section 1878(a)(1)(A) of the 

Act. In our view, this statutory provision is ambiguous and the interpretation in the 
 990 

existing appeal regulations, which requires providers to make appropriate cost report 

claims in order to meet the dissatisfaction prerequisite of Board jurisdiction with respect 

to a specific item, is a permissible interpretation of the statute. As described above, 

however, providers have challenged our interpretation of the statutory dissatisfaction 

provision in litigation spanning more than 30 years, and in public comments on current 

§§ 405.1835(a)(1) and 405.1840(b)(3) of the regulations which were adopted in the 

FY 2008 IPPS final rule (73 FR 30195 through 30200; CMS’ response to public 

comments on the current Board appeals regulations that are based on our interpretation of 

the statutory dissatisfaction provision). Providers have maintained throughout this 

litigation and in the referenced public comments that the statutory dissatisfaction 

provision does not support our policy of requiring an appropriate cost report claim as a 

prerequisite of Board jurisdiction. We continue to disagree with this view of the statute, 

and still believe that the existing Board appeals regulations are based on a permissible 

interpretation of the statutory dissatisfaction provision. As explained above, existing 

§ 405.1835(a)(1) comports with the Supreme Court’s statement that the statutory 

dissatisfaction requirement might not be met if a provider bypassed a clearly prescribed 

exhaustion requirement or failed to ask the contractor for payment of all costs to which it 

is entitled under applicable rules (Bethesda Hosp., 485 U.S. at 404-05). Furthermore, the 

U.S. Court of Appeals for the Seventh Circuit has twice sustained our interpretation of 

the statutory dissatisfaction provision, on the basis of the forgoing statements by the 

Supreme Court (Little Co. of Mary,, 165 F.3d 1162; Little Co. of Mary, 24 F.3d 984). 

Nonetheless, we believe our proposal, to eliminate § 405.1835(a)(1)’s jurisdictional 
 991 

requirement of an appropriate cost report claim certainly does not conflict with the 

“dissatisfied” provision in section 1878(a)(1)(A) of the Act. 

 This particular proposal is supported by section 1878(a)(1)(B) of the Act, which 

authorizes certain Board appeals if the provider does not receive a final contractor 

determination on a timely basis. (Section 405.1835(a)(3)(ii) of the regulations specifies 

the time period and other conditions for Board appeals where the provider does not 

receive a final contractor determination on a timely basis.) Section 1878(a)(1)(B) of the 

Act does not include an express dissatisfaction provision. Thus, our proposal, to 

eliminate existing § 405.1835(a)(1)’s dissatisfaction jurisdictional requirement of an 

appropriate cost report claim, would result in Board appeals regulations that more closely 

track the express terms of section 1878(a)(1)(B) of the Act. 

 In addition to the sufficient statutory authority for our proposed elimination of an 

appropriate cost report claim as a requirement for Board jurisdiction, there are sound 

policy reasons for this proposal. As explained above, we believe that, by requiring 

appropriate cost report claims in proposed § 413.24(j), complete and accurate 

determinations of provider reimbursement will be facilitated as will the many other 

important aspects of program administration. Thus, because we would require an 

appropriate cost report claim in proposed § 413.24(j), it is reasonable to eliminate the 

Board jurisdiction requirement in existing §§ 405.1835(a)(1) and 405.1840(b)(3) of an 

appropriate cost report claim. We note that once this amendment to the Board appeals 

regulations becomes effective, this proposal will facilitate an orderly end to any litigation 

regarding the Board jurisdiction requirement of an appropriate cost report claim. 
 992 

 As explained above, our proposed revisions to the cost reporting regulations and 

the provider appeals regulations would apply on a prospective-only basis, to provider cost 

reporting periods beginning on or after the effective date of the final IPPS annual update 

rule. Until these proposed regulations take effect, however, the requirement of an 

appropriate cost report claim in §§ 405.1835(a)(1) and 405.1840(b)(3) of the regulations 

will continue to be a requirement for Board jurisdiction. Thus, until these proposed 

regulations become effective, the Board and the Administrator of CMS will continue to 

determine Board jurisdiction by reference to the appropriate cost report claim 

requirements of §§ 405.1835(a)(1) and 405.1840(b)(3), along with other applicable 

jurisdictional provisions of section 1878 of the Act and §§ 405.1835 and 405.1840 of the 

regulations. We believe that, because it is essential to require appropriate cost report 

claims for the various reasons that we discussed above, it is necessary and proper to 

continue to require an appropriate cost report claim as a prerequisite of Board jurisdiction 

under §§ 405.1835(a)(1) and 405.1840(b)(3) until the proposed addition to the cost 

reporting regulations, of the substantive reimbursement requirement of an appropriate 

cost report claim, takes effect. 

b. Proposed Addition of § 405.1873 Regarding Board Review of Compliance with Cost 

Report Claim Requirements in Proposed § 413.24(j) 

 We are proposing to add a new § 405.1873 to the Board appeal regulations, which 

will address how the Board should proceed when any party to an appeal questions 

whether a provider made an appropriate cost report claim (as required by proposed 

§ 413.24(j)) for a specific item under appeal. We believe this new regulation is necessary 
 993 

to forestall potential confusion about how the substantive reimbursement requirement in 

proposed § 413.24(j) of an appropriate cost report claim for a specific item will pertain to 

Board appeals of the same item. 

 Under paragraph (b)(1) of proposed new § 405.1873, the Board will consider 

timely submitted factual evidence and legal argument on, and then prepare written 

specific findings of fact and conclusions of law regarding, the question of whether the 

provider’s cost report complied with proposed § 413.24(j). The Board will give these 

written specific factual findings and legal conclusions to each party to the appeal, and 

they must be included in the record of administrative proceedings for the appeal. 

Paragraph (b)(2) of proposed § 405.1873 provides that, upon giving the parties to the 

appeal the Board’s written factual findings and legal conclusions on the question of 

whether the provider’s cost report included an appropriate cost claim for the specific item 

under appeal, the Board then must proceed to issue one of four types of overall decisions 

with respect to such item. As discussed below, paragraph (d) of proposed § 405.1873 

provides that, if the Board issues either of two types of overall Board decisions regarding 

the specific item under appeal (that is, a hearing decision or an expedited judicial review 

(EJR) decision where EJR is granted), the Board’s written specific factual findings and 

legal conclusions (reached under proposed § 405.1873(b)) about whether there was an 

appropriate cost report claim for the item, must be included in such overall Board 

decision regarding the specific item, along with the other matters that are already required 

for a Board hearing decision or a Board EJR decision where EJR is granted. However, 

under paragraph (e) of proposed § 405.1873, if the Board issues either of two other types 
 994 

of overall Board decisions regarding the specific item under appeal (that is, a 

jurisdictional dismissal decision or an EJR decision where EJR is denied), the Board’s 

written specific factual findings and legal conclusions (pursuant to proposed 

§ 405.1873(b)) must not be included in the overall Board decision regarding the specific 

item. In any event, the Board’s factual findings and legal conclusions about whether 

there was an appropriate cost report claim for the item must be included in the record of 

administrative proceedings for the appeal in accordance with § 405.1865 of the 

regulations. 

 We believe that, in order to ensure full and appropriate implementation of both 

the addition of the substantive reimbursement requirement of an appropriate cost report 

claim (in proposed § 413.24(j)) and the elimination of the Board jurisdiction requirement 

of an appropriate cost report claim (in existing §§ 405.1835(a)(1) and 405.1840(b)(3)), it 

is necessary to foreclose certain types of Board decisions, orders, and other actions. 

Accordingly, in order to give full force and effect to our proposed elimination of the 

Board jurisdiction requirement of an appropriate cost report claim, paragraph (c)(1) of 

new § 405.1873 would prohibit a denial of jurisdiction, a declination to exercise 

jurisdiction, the imposition of a sanction, and various other actions by the Board, if any 

such jurisdictional decision, order, sanction, or other specified action is based on (in 

whole or in part) the Board’s determination that the provider’s cost report did not meet 

proposed § 413.24(j)’s substantive reimbursement requirement of an appropriate cost 

report claim for the specific item. 
 995 

 In some cases, the Board jurisdiction requirement of an appropriate cost report 

claim has been addressed in different but related terms. For example, Board jurisdiction 

has been denied based on the absence, in the final contractor determination or Secretary 

determination under appeal, of an adjustment, revision, correction, or other change to the 

specific item under appeal. Another example: Board jurisdiction has also been denied 

due to the lack of a particular determination by the contractor or the Secretary regarding 

the specific item under appeal, in the final contractor determination or Secretary 

determination under appeal. We believe that, in order to give full force and effect to the 

proposed elimination of the Board jurisdiction requirement of an appropriate cost report 

claim, it is also necessary to address related terms such as the absence of specific 

adjustments and the lack of particular determinations regarding the specific item under 

appeal. Accordingly, paragraph (c)(2) of proposed new § 405.1873 would prohibit a 

denial of jurisdiction, a declination to exercise jurisdiction, the imposition of a sanction, 

and various other actions by the Board, if any such jurisdictional decision, sanction, or 

other specified action is based on (in whole or in part) the absence, in the final contractor 

determination or Secretary determination under appeal, of an adjustment, revision, 

correction, or other change to the specific item under appeal, or the lack of a particular 

determination by the contractor or the Secretary regarding the specific item in the final 

contractor determination or Secretary determination under appeal. However, paragraph 

(c)(2)(i)(A) of proposed new § 405.1873 would provide for an important exception: if 

the provider’s appeal of the specific item is based on the reopening of such item 

(pursuant to § 405.1885 of the regulations) where the specific item is not revised, 
 996 

adjusted, corrected, or otherwise changed in a revised final contractor determination or 

Secretary determination, the Board must deny jurisdiction over the specific item under 

appeal (as prescribed in §§ 405.1887(d) and 405.1889(b) of the regulations). The 

reopening regulations are an exercise of the Secretary’s general rulemaking authority 

under sections 1102 and 1872 of the Act, and this exception (in proposed 

§ 405.1873(c)(2)(i)(A)) is necessary to ensure consistency with the above-referenced 

reopening regulations, our longstanding “issue specific” interpretation of the reopening 

regulations, and the interests of administrative finality and efficiency (we refer readers, 

for example, to HCA Health Servs. of Okla. v. Shalala, 27 F.3d 614 (D.C. Cir. 1994) (the 

reopening regulations are based on the Secretary’s general rulemaking authority, and the 

issue specific interpretation of the reopening rules is reasonable and supportive of 

administrative finality). 

 Under paragraph (d) of proposed § 405.1873, there are two types of Board 

decisions that must include any specific findings of fact and conclusions of law by the 

Board (reached under paragraph (b) of proposed § 405.1873), on the question of whether 

the provider’s cost report included an appropriate claim for the specific item under 

appeal. First, paragraph (d)(1) of proposed § 405.1873 provides that, if the Board issues 

a hearing decision on the specific item under appeal (pursuant to § 405.1871 of the 

regulations), the Board’s specific findings of fact and conclusions of law about whether 

there was an appropriate cost report claim for the specific item, must be included in such 

a hearing decision along with the other matters prescribed in existing § 405.1871(a). A 

Board hearing decision addresses whether the provider has established that it should 
 997 

receive relief on the matter at issue (as specified in § 405.1871(a)(3)). Under proposed 

§ 413.24(j), the requirement of an appropriate cost report claim is a substantive 

prerequisite of any payment for the specific item, which applies in addition to other 

payment requirements for the particular item (for example, the specific requirements for 

payment of interest expense under § 413.153 of the regulations). We believe that, 

because a Board hearing decision addresses whether the provider has established that it 

meets the substantive requirements for payment of the item under appeal whereas an 

appropriate cost report claim is a substantive prerequisite of any payment for the specific 

item (under proposed § 413.24(j)), any factual findings and legal conclusions about 

whether there was an appropriate cost report claim should be included in any hearing 

decision that might be issued by the Board regarding the specific item. In addition, we 

note that if the Board elects to issue a hearing decision that also includes factual findings 

and legal conclusions about whether the other payment requirements for the specific item 

were satisfied (in addition to the Board’s findings and conclusions about whether there 

was an appropriate cost report claim for the item), such a hearing decision (addressing all 

the substantive reimbursement requirements for the specific item) will safeguard against 

piecemeal proceedings before the Board and potentially before the Administrator of CMS 

and a Federal court. However, paragraph (d)(1)(ii) of proposed § 405.1873 provides that, 

if the Board determines that the provider’s cost report did not include an appropriate 

claim for the specific item under appeal, the Board has discretion whether or not to 

address in its hearing decision whether the other substantive reimbursement requirements 

for the specific item are also satisfied. 
 998 

 Second, paragraph (d)(2) of proposed § 405.1873 provides that, if the Board 

issues an expedited judicial review (EJR) decision where EJR is granted regarding the 

specific item under appeal (pursuant to § 405.1842(f)(1) of the regulations), any specific 

findings of fact and conclusions of law by the Board (reached under paragraph (b) of 

proposed § 405.1873) about whether there was an appropriate cost report claim for the 

specific item, must be included in such an EJR decision. Section 1878(f)(1) of the Act 

and § 405.1842 of the regulations authorize EJR if the requirements for Board 

jurisdiction over a specific item are satisfied, and the Board determines that it lacks the 

authority to decide a legal question that is relevant to the specific item under appeal. The 

Administrator of CMS may review the Board’s determination as to whether there is 

Board jurisdiction over the specific item, but the Administrator may not review the 

Board’s determination as to whether it has the authority to decide a relevant legal 

question. We believe that paragraph (d)(2) of proposed § 405.1873 will also safeguard 

against piecemeal proceedings before the Board, the Administrator of CMS, and a 

Federal court. By requiring a Board EJR decision that grants EJR to include any factual 

findings and legal conclusions (reached under proposed § 405.1873(b)) about whether 

there was an appropriate cost report claim for the specific item under appeal, along with 

the Board’s determinations that the two requirements for EJR were satisfied (that is, a 

finding of Board jurisdiction plus the Board’s determination that it lacks the authority to 

decide a legal question relevant to the specific item under appeal), piecemeal proceedings 

would be minimized or eliminated because the Board EJR decision will encompass both 

the question of whether there was an appropriate cost report claim for the specific item 
 999 

and the relevant legal question for which EJR was granted (and for which the Board 

determined that it has no authority to decide such legal question). Piecemeal proceedings 

before the Administrator of CMS would also be minimized or eliminated because, under 

proposed § 405.1875(a)(2)(v) (which we discuss separately below), if the Administrator 

reviews and issues an EJR decision on the question of whether there is Board jurisdiction 

over the specific item under appeal, the Administrator will also review, and any decision 

will address, the Board’s specific findings of fact and conclusions of law about whether 

there was an appropriate cost report claim for the specific item. In turn, our proposal to 

require an EJR decision that grants EJR to include any specific factual findings and legal 

conclusions under proposed § 405.1873(b) would ensure that when a Federal court 

exercises its EJR authority under section 1878(f)(1) of the Act and § 405.1842 of the 

regulations by reviewing a relevant legal question (for which the Board determined it has 

no decisional authority), the court’s review can also potentially encompass the final 

specific findings of fact and conclusions of law by the Board or the Administrator, as 

applicable, about whether there was an appropriate cost report claim for the specific item. 

If it is determined, in a final EJR decision that grants EJR, that there was an appropriate 

cost report claim for the specific item under appeal, the court may have no occasion to 

review the final specific findings of fact and conclusions of law on the question of 

whether there was an appropriate cost report claim for the specific item. However, if it is 

instead determined, in a final EJR decision that grants EJR, that the provider’s cost report 

did not include an appropriate claim for the specific item under appeal, the court can 

potentially review in one proceeding the final specific findings of fact and conclusions of 
 1000 

law about whether there was an appropriate cost report claim for the specific item, along 

with the relevant legal question for which EJR was granted (and for which the Board 

determined that it has no authority to decide such legal question). 

 However, paragraph (e) of proposed new § 405.1873 would provide that there are 

two other types of Board decisions that must not include any specific findings of fact and 

conclusions of law by the Board (reached under proposed § 405.1873(b)), on the question 

of whether the provider’s cost report included an appropriate claim for the specific item 

under appeal. On the one hand, paragraph (e)(1) of proposed new § 405.1873 would 

provide that if the Board issues a jurisdictional dismissal decision on the specific item 

under appeal (pursuant to § 405.1840(c)), the Board’s specific findings of fact and 

conclusions of law about whether there was an appropriate cost report claim for the 

specific item must not be included in such a jurisdictional dismissal decision. When the 

Board issues a jurisdictional dismissal decision on a specific item under appeal, the 

Board’s denial of jurisdiction obviates any need to address the question of whether the 

substantive reimbursement requirements that are specific to the particular item (for 

example, the specific requirements for payment for certain depreciation under § 413.134) 

are satisfied. Because the requirement of an appropriate cost report claim for each 

specific item is also a substantive prerequisite of any payment for the specific item (as 

prescribed in proposed § 413.24(j)), a denial of jurisdiction over the specific item also 

obviates any need to address the substantive reimbursement requirement of an 

appropriate cost report claim in the Board’s jurisdictional dismissal decision. 
 1001 

 Similarly, under paragraph (e)(2) of proposed new § 405.1873, if the Board issues 

an EJR decision where EJR is denied on the specific item under appeal (pursuant to 

§ 405.1842(f)(2)), the Board’s specific findings of fact and conclusions of law (reached 

under paragraph (b) of proposed new § 405.1873) about whether there was an appropriate 

cost report claim for the specific item, must not be included in such an EJR decision. If 

EJR is denied solely because the Board determines that it does have the authority to 

decide the legal question relevant to the specific item under appeal, the Board would 

conduct further proceedings and issue another decision (as specified in 

§ 405.1842(h)(2)(i)). If such further decision is a hearing decision, under proposed 

§ 405.1873(d)(1), the Board’s factual findings and legal conclusions (under proposed 

§ 405.1873(b)) about whether there was an appropriate cost report claim must be 

included in the Board’s hearing decision; if the Board elects to also include in the hearing 

decision its factual findings and legal conclusions about whether the other reimbursement 

requirements for the specific item are satisfied, piecemeal proceedings before the Board 

and potentially before the Administrator of CMS and a Federal court would be minimized 

or eliminated. However, if EJR is denied because the Board lacked jurisdiction over the 

specific item under appeal, the Board’s factual findings and legal conclusions about 

whether there was an appropriate cost report claim must not be included in such an EJR 

decision; as explained above regarding Board jurisdictional dismissal decisions, the 

denial of Board jurisdiction in such an EJR decision obviates the need to address the 

substantive reimbursement requirement of an appropriate cost report claim, just as there 

is no need to consider other payment requirements for the particular item under appeal. 
 1002 

 Paragraph (f) of proposed new § 405.1873 addresses the various effects of the 

Board’s factual findings and legal conclusions (reached under paragraph (b) of proposed 

§ 405.1873) regarding whether there was an appropriate cost report claim in the two 

types of Board decisions where such factual findings and legal conclusions must be 

included: Board hearing decisions, and Board EJR decisions where EJR is granted. An 

appropriate cost report claim for a specific item is a necessary, but not sufficient, 

condition for Medicare payment for the specific item. This is because the requirement of 

an appropriate cost report claim for each specific item is a substantive prerequisite of any 

payment for the specific item (as prescribed in proposed § 413.24(j)), but all other 

payment requirements (for example, the particular requirements for payment for certain 

bad debts under § 413.89) also must be satisfied. Accordingly, under paragraph (f)(1) of 

proposed new § 405.1873, if the Board determines, as part of a final hearing decision, 

that the provider’s cost report included an appropriate claim for the specific item under 

appeal (as prescribed in § 413.24(j)), payment for the specific item is made in accordance 

with Medicare policy, but only if the Board further determines in such hearing decision 

that all the other substantive reimbursement requirements for the specific item are also 

satisfied. Conversely, if the Board determines, in a final hearing decision, that the cost 

report lacked an appropriate claim for the specific item under appeal, payment for the 

specific item is not made, regardless of whether the Board further determines in such 

hearing decision that the other substantive reimbursement requirements for the specific 

item are satisfied. 
 1003 

 Similarly, paragraph (f)(2) of proposed new § 405.1873 provides that, if the 

Board or the Administrator of CMS (as applicable) determines, as part of a final EJR 

decision where EJR is granted, the provider’s cost report included an appropriate claim 

for the specific item under appeal (as prescribed in § 413.24(j)), payment for the specific 

item is made in accordance with Medicare policy, but only to the extent permitted by the 

final decision of a Federal court pursuant to the EJR provisions of section 1878(f)(1) of 

the Act (see also §§ 405.1842 and 405.1877) regarding the legal question that is relevant 

to the specific item (but for which the Board determined it has no decisional authority). 

By contrast, if the Board or the Administrator of CMS (as applicable) determines, in a 

final EJR decision where EJR is granted, that the cost report lacked an appropriate claim 

for the specific item under appeal, payment for the specific item is not made unless: 

(i) the specific factual findings and legal conclusions by the Board or the Administrator 

of CMS, as applicable, about whether there was an appropriate cost report claim for the 

specific item are reversed or modified by the final decision of a Federal court (pursuant to 

section 1878(f)(1) of the Act and § 405.1877 of the regulations)); and (ii) only to the 

extent permitted by the final decision of a Federal court pursuant to the EJR provisions of 

section 1878(f)(1) of the Act (see also §§ 405.1842 and 405.1877 of the regulations) 

regarding the legal question that is relevant to the specific item (but for which the Board 

determined it has no decisional authority). 

c. Related Proposed Revisions to § 405.1875 Regarding Administrator Review 

 We are proposing two revisions to § 405.1875 of the regulations, which provides 

for review by the Administrator of CMS of certain Board decisions, orders, and other 
 1004 

actions. We believe these revisions will facilitate the full and appropriate implementation 

of our proposals (discussed above) to add the substantive reimbursement requirement of 

an appropriate cost report claim (in proposed § 413.24(j)), eliminate the Board 

jurisdiction requirement of an appropriate cost report claim (in existing §§ 405.1835(a)(1) 

and 405.1840(b)(3)), and to add specific procedures for Board review of questions about 

compliance with the substantive reimbursement requirement of an appropriate cost report 

claim (in proposed new § 405.1873). 

 First, under existing § 405.1875(a)(2) of the regulations, the Administrator may 

review a Board hearing decision, a Board dismissal decision, the Board’s jurisdictional 

determination in an EJR decision (but not the Board’s determination, in an EJR decision, 

of whether it has the authority to decide a relevant legal question), and any other Board 

decision or action deemed to be final by the Administrator. We are proposing to add a 

new paragraph (a)(2)(v) to § 405.1875, which would provide that if the Administrator 

reviews a Board hearing decision, or the jurisdictional component of a Board EJR 

decision where EJR is granted, regarding a specific item, the Administrator’s review of 

such a hearing decision or such an EJR decision, as applicable, will include, and any 

decision issued by the Administrator under § 405.1875(e) of the regulations will address, 

the Board’s specific findings of fact and conclusions of law in such hearing decision or 

EJR decision (as prescribed in proposed § 405.1873(b) and (d)) on the question of 

whether the provider’s cost report included an appropriate claim for the specific item 

under appeal (as prescribed in § 413.24(j)). We believe this proposed revision to 

§ 405.1875(a)(2) is an important additional safeguard against piecemeal administrative 
 1005 

appeal proceedings and potentially before a Federal court. As explained above with 

respect to proposed § 405.1873(d)(1), if the Board elects to issue a hearing decision that 

also includes factual findings and legal conclusions about whether the other payment 

requirements for the specific item were satisfied (in addition to the Board’s findings and 

conclusions about whether there was an appropriate cost report claim for the item), all of 

the payment requirements for the specific item will be presented in one Board hearing 

decision for purposes of any review by the Administrator under proposed 

§ 405.1875(a)(2)(v) and a Federal court. Moreover, for the specific reasons set forth 

above regarding proposed § 405.1873(d)(2), our proposal to require that the Board’s 

factual findings and legal conclusions about whether there was an appropriate cost report 

claim for the item be included in an EJR decision where EJR is granted will also 

minimize or eliminate piecemeal proceedings before the Board and, given the proposed 

addition of § 405.1875(a)(2)(v), before the Administrator of CMS and a Federal court. 

 Second, existing § 405.1875(a) requires the Board to promptly send copies of 

hearing decisions and EJR decisions to the Office of the Attorney Advisor. Although the 

Board often (perhaps typically) sends copies of dismissal decisions to the Office of the 

Attorney Advisor, the Board is not required to so. We are proposing to amend the last 

sentence of paragraph (a) of § 405.1875 by requiring the Board to promptly send copies 

of dismissal decisions to the Office of the Attorney Advisor. This revision will facilitate 

the Administrator’s exercise of her discretion under § 405.1875(a)(2)(ii) as to whether to 

review specific Board dismissal decisions. Also, given our proposals to eliminate the 

Board jurisdiction requirement of an appropriate cost report claim (in existing 
 1006 

§§ 405.1835(a)(1) and 405.1840(b)(3)) and to add procedures for Board review of 

compliance with the substantive reimbursement requirement of an appropriate cost report 

claim (in proposed § 405.1873)), our further proposal to require the Board to promptly 

send copies of dismissal decisions to the Office of the Attorney Advisor will enhance the 

Administrator’s ability to ensure full and appropriate implementation of our proposed 

revisions to the Board appeal regulations. 

C. Proposed Conforming Changes to the Board Appeal Regulations and Corresponding 

Revisions to the Contractor Hearing Regulations 

 We are proposing technical revisions to several other Board appeal regulations. 

We believe these other technical revisions are necessary and appropriate to maintain 

consistency with our principal proposals (discussed above) to add the substantive 

reimbursement requirement of an appropriate cost report claim (in proposed § 413.24(j)); 

eliminate the Board jurisdiction requirement of an appropriate cost report claim (in 

existing §§ 405.1835(a)(1) and 405.1840(b)(3)); and add procedures for Board review of 

compliance with the substantive reimbursement requirement of an appropriate cost report 

claim (in proposed § 405.1873)). Finally, we are proposing similar revisions to the 

existing regulations for appeals to the contractor hearing officers. Specifically, we are 

proposing to eliminate an appropriate cost report claim as a jurisdictional requirement for 

contractor hearing officer appeals (in existing §§ 405.1811(a)(1) and 405.1814(b)(3)); 

add a new § 405.1832 that (like new § 405.1873 for Board appeals) will detail the 

procedures for contractor hearing officer review of compliance with the substantive 

reimbursement requirement of an appropriate cost report claim (as prescribed in proposed 
 1007 

§ 413.24(j)). These proposed revisions to the existing regulations for appeals to the 

contractor hearing officers comport with our usual practice of adopting similar 

regulations for both Board appeals and for contractor hearing officer appeals unless there 

is a sufficient reason to do otherwise. 

1. Technical Corrections and Conforming Changes to §§ 405.1801 and 405.1803 

 We are proposing to revise the definition of “intermediary determination” in 

§ 405.1801(a) to clarify that the determination is final as set forth in 1878(a) of the Act 

and to reflect the conforming technical correction to “contractor determination”. We are 

proposing to revise § 405.1801(b) to more appropriately refer to § 413.24 generally 

(following the proposed addition of paragraph (j) to § 413.24). We are proposing to 

revise § 405.1803 to refer to the final contractor (instead of intermediary) determination 

as set forth in § 405.1801 and to appropriately cross-reference the proposed newly 

revised § 405.1835(a). 

2. Technical Corrections and Conforming Changes to §§ 405.1811, 405.1813, and 

405.1814 

 As we are proposing to eliminate the jurisdictional requirement of an appropriate 

cost report claim in existing §§ 405.1835(a)(1) and 405.1840(b)(3) for Board appeals, we 

are similarly proposing to eliminate the corresponding jurisdictional requirement in 

§§ 405.1811(a)(1) and 405.1814(b)(3) for contractor hearing officer appeals. 

Specifically, we are proposing to eliminate an appropriate cost report claim as a 

jurisdictional requirement for contractor hearing officer appeals. In addition, we are 

proposing to revise § 405.1813 to add an appropriate cross-reference to § 405.1811, 
 1008 

pursuant to the proposed technical correction in § 405.1811. We are proposing technical 

corrections to §§ 405.1836 and 405.1837 in conformance with the proposed revision to 

§ 405.1835(a)(1) to eliminate the reference to the jurisdictional requirement of an 

appropriate cost report claim. 

3. Proposed New § 405.1832 

 We are proposing to add new § 405.1832 which will detail the procedures for 

contractor hearing officer review of compliance with the substantive reimbursement 

requirement of an appropriate cost report claim (as prescribed in proposed § 413.24(j)) in 

appeals first filed with contractor hearing officers. 

4. Proposed Revisions to § 405.1834 

 We are proposing to amend § 405.1834, which provides for review of contractor 

hearing officer decisions by the CMS reviewing official, by adding a new paragraph 

(b)(2)(iii). Under proposed § 405.1834(b)(2)(iii), the CMS reviewing official will 

review, and address in any decision, the specific factual findings and legal conclusions of 

contractor hearing officers regarding compliance with the substantive requirement of an 

appropriate cost report claim (as prescribed in proposed § 413.24(j)), as part of the CMS 

reviewing official’s review of a contractor hearing decision. 
 1009 

5. Technical Corrections and Conforming Changes to §§ 405.1836, 405.1837, and 

405.1839 

 We are proposing technical and conforming changes to §§ 405.1836, 405.1837, 

and 405.1839 to comport and maintain consistency with the principal proposed regulation 

changes discussed above. 

6. Technical Corrections to 42 CFR Part 405, Subpart R and All Subparts of 

42 CFR Part 413 

 We are proposing to conform the terminology in 42 CFR Part 405 Subpart R and 

all subparts of 42 CFR Part 413 by replacing the term “intermediary” and its various 

deviations to “contractor”, and its various deviations, pursuant to sections 1816, 1874A, 

and 1878 of the Act.
 1010 

IX. Proposed Quality Data Reporting Requirements for Specific Providers and 

Suppliers 

 We seek to promote higher quality and more efficient health care for Medicare 

beneficiaries. This effort is supported by the adoption of widely agreed-upon quality 

measures. We have worked with relevant stakeholders to define quality measures for 

most settings and to measure various aspects of care for most Medicare beneficiaries. 

These measures assess structural aspects of care, clinical processes, patient experiences 

with care, and, increasingly, outcomes. 

 We have implemented quality reporting programs for multiple care settings, 

including: 

● Hospital inpatient services under the Hospital Inpatient Quality Reporting 

(IQR) Program (formerly referred to as the Reporting Hospital Quality Data for Annual 

Payment Update (RHQDAPU) Program); 

● Hospital outpatient services under the Hospital Outpatient Quality Reporting 

(OQR) Program (formerly referred to as the Hospital Outpatient Quality Data Reporting 

Program (HOP QDRP)); 

● Care furnished by physicians and other eligible professionals under the 

Physician Quality Reporting System (PQRS, formerly referred to as the Physician 

Quality Reporting Program Initiative (PQRI)); 

● Inpatient rehabilitation facilities under the Inpatient Rehabilitation Facility 

Quality Reporting Program (IRF QRP); 
 1011 

● Long-term care hospitals under the Long-Term Care Hospital Quality 

Reporting (LTCHQR) Program; 

● PPS-exempt cancer hospitals under the PPS-Exempt Cancer Hospital Quality 

Reporting (PCHQR) Program; 

● Ambulatory surgical centers under the Ambulatory Surgical Center Quality 

Reporting (ASCQR) Program; 

● Inpatient psychiatric facilities under the Inpatient Psychiatric Facilities Quality 

Reporting (IPFQR) Program; 

● Home health agencies under the home health quality reporting program (HH 

QRP); and, 

● Hospice facilities under the Hospice Quality Reporting Program. 

 We have also implemented the End-Stage Renal Disease Quality Incentive 

Program and Hospital Value-Based Purchasing Program (described further below) that 

link payment to performance. 

 In implementing the Hospital IQR Program and other quality reporting programs, 

we have focused on measures that have high impact and support CMS and HHS priorities 

for improved quality and efficiency of care for Medicare beneficiaries. Our goal for the 

future is to align the clinical quality measure requirements of the Hospital IQR Program 

with various other Medicare and Medicaid programs, including those authorized by the 

Health Information Technology for Economic and Clinical Health (HITECH) Act, so that 

the reporting burden on providers will be reduced. As appropriate, we will consider the 

adoption of clinical quality measures with electronic specifications so that the electronic 
 1012 

collection of performance information is part of care delivery. Establishing such a 

system will require interoperability between EHRs and CMS data collection systems, 

additional infrastructural development on the part of hospitals and CMS, and adoption of 

standards for capturing, formatting, and transmitting the data elements that make up the 

measures. However, once these activities are accomplished, adoption of many measures 

that rely on data obtained directly from EHRs will enable us to expand the Hospital IQR 

Program measure set with less cost and reporting burden to hospitals. We believe that in 

the near future, collection and reporting of data elements for many measures through 

EHRs will greatly simplify and streamline reporting for various CMS quality reporting 

programs, and that hospitals will be able to switch primarily to EHR-based data reporting 

for many measures that are currently manually chart-abstracted and submitted to CMS for 

the Hospital IQR Program. 

 We also have implemented a Hospital Value-Based Purchasing (VBP) Program 

under section 1886(o) of the Act. In 2011, we issued the Hospital Inpatient VBP 

Program final rule (76 FR 26490 through 26547). We most recently adopted additional 

policies for the Hospital VBP Program in section XIV. of the CY 2014 OPPS/ASC final 

rule with comment period (78 FR 75120 through 75121). We are proposing additional 

policies for this program in section IV.I. of the preamble of this proposed rule. Under the 

Hospital VBP Program, hospitals will receive value-based incentive payments based on 

their quality performance with respect to performance standards for a performance period 

for the fiscal year involved. The measures under the Hospital VBP Program must be 
 1013 

selected from the measures (other than readmission measures) specified under the 

Hospital IQR Program as required by section 1886(o)(2)(A) of the Act. 

 In selecting measures for the Hospital IQR Program, we are mindful of the 

conceptual framework we have described for the Hospital VBP Program. The Hospital 

IQR Program is linked with the Hospital VBP Program because many of the measures 

and the reporting infrastructure for the programs overlap. We view the Hospital VBP 

Program as the next step in promoting higher quality care for Medicare beneficiaries by 

transforming Medicare from a passive payer of claims into an active purchaser of quality 

healthcare for its beneficiaries. Value-based purchasing is an important step to 

revamping how care and services are paid for, moving increasingly toward rewarding 

better value, outcomes, and innovations instead of merely volume. 

 We also view the Hospital-Acquired Condition (HAC) payment adjustment 

program authorized by section 1886(p) of the Act, as added by section 3008 of the 

Affordable Care Act, and the Hospital VBP Program, as related but separate efforts to 

reduce HACs. The Hospital VBP Program is an incentive program that awards payments 

to hospitals based on quality performance on a wide variety of measures, while the HAC 

Reduction Program creates a payment adjustment resulting in payment reductions for the 

lowest performing hospitals based on their rates of HACs. Proposed policies for the 

Hospital VBP Program are included in section IV.I. of the preamble of this proposed rule. 

Proposed policies for the HAC Reduction Program are included in section IV.J. of the 

preamble of this proposed rule. 
 1014 

 Although we intend to monitor the various interactions of programs authorized by 

the Affordable Care Act and their overall impact on providers and suppliers, we also 

view programs that could potentially affect a hospital’s Medicaid payment as separate 

from programs that could potentially affect a hospital’s Medicare payment. 

 In the preamble of this proposed rule, we are proposing changes to the following 

Medicare quality reporting systems: 

● In section IX.A., the Hospital IQR Program. 

● In section IX.B., the PCHQR Program. 

● In section IX.C., the LTCHQR Program. 

 In addition, in section IX.D. of the preamble of this proposed rule, we are 

proposing changes to the Medicare EHR Incentive Program. 

A. Hospital Inpatient Quality Reporting (IQR) Program 

1. Background 

a. History of the Hospital IQR Program 

 We refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule 

(74 FR 43860 through 43861) and the FY 2011 IPPS/LTCH PPS final rule (75 FR 50180 

through 50181) for detailed discussions of the history of the Hospital IQR Program, 

including the statutory history, and to the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50789 through 50807) for the measures we have adopted for the Hospital IQR 

measure set through the FY 2016 payment determination and subsequent years. 
 1015 

b. Maintenance of Technical Specifications for Quality Measures 

 The technical specifications for the Hospital IQR Program measures, or links to 

Web sites hosting technical specifications, are contained in the CMS/The Joint 

Commission (TJC) Specifications Manual for National Hospital Quality Measures 

(specifications manual). This Specifications Manual is posted on the QualityNet Web 

site at http://www.qualitynet.org/. We generally update the Specifications Manual on a 

semiannual basis and include in the updates detailed instructions and calculation 

algorithms for hospitals to use when collecting and submitting data on required measures. 

These semiannual updates are accompanied by notifications to users, providing sufficient 

time between the change and the effective date in order to allow users to incorporate 

changes and updates to the specifications into data collection systems. 

 The technical specifications for the HCAHPS patient experience of care survey 

are contained in the current HCAHPS Quality Assurance Guidelines manual, which is 

available at the HCAHPS On-Line Web site, http://www.hcahpsonline.org. We maintain 

the HCAHPS technical specifications by updating the HCAHPS Quality Assurance 

Guidelines manual annually, and include detailed instructions on survey implementation, 

data collection, data submission and other relevant topics. As necessary, HCAHPS 

Bulletins are issued to provide notice of changes and updates to technical specifications 

in HCAHPS data collection systems. 

 Many of the quality measures used in different Medicare and Medicaid reporting 

programs are endorsed by the National Quality Forum (NQF). As part of its regular 

maintenance process for endorsed performance measures, the NQF requires measure 
 1016 

stewards to submit annual measure maintenance updates and undergo maintenance of 

endorsement review every 3 years. In the measure maintenance process, the measure 

steward (owner/developer) is responsible for updating and maintaining the currency and 

relevance of the measure and will confirm existing or minor specification changes with 

NQF on an annual basis. NQF solicits information from measure stewards for annual 

reviews, and it reviews measures for continued endorsement in a specific 3-year cycle. 

 The NQF regularly maintains its endorsed measures through annual and triennial 

reviews, which may result in the NQF making updates to the measures. We believe that 

it is important to have in place a subregulatory process to incorporate nonsubstantive 

updates made by the NQF into the measure specifications we have adopted for the 

Hospital IQR Program so that these measures remain up-to-date. We also recognize that 

some changes the NQF might make to its endorsed measures are substantive in nature 

and might not be appropriate for adoption using a subregulatory process. 

 Therefore, In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53504 through 

53505), we finalized a policy under which we use a subregulatory process to make 

nonsubstantive updates to measures used for the Hospital IQR Program. With respect to 

what constitutes substantive versus nonsubstantive changes, we expect to make this 

determination on a case-by-case basis. Examples of nonsubstantive changes to measures 

might include updated diagnosis or procedure codes, medication updates for categories of 

medications, broadening of age ranges, and exclusions for a measure (such as the 

addition of a hospice exclusion to the 30-day mortality measures). We believe that 
 1017 

nonsubstantive changes may include updates to NQF-endorsed measures based upon 

changes to guidelines upon which the measures are based. 

 We will continue to use rulemaking to adopt substantive updates made to 

measures we have adopted for the Hospital IQR Program. Examples of changes that we 

might consider to be substantive would be those in which the changes are so significant 

that the measure is no longer the same measure, or when a standard of performance 

assessed by a measure becomes more stringent (for example: changes in acceptable 

timing of medication, procedure/process, or test administration). Another example of a 

substantive change would be where the NQF has extended its endorsement of a 

previously endorsed measure to a new setting, such as extending a measure from the 

inpatient setting to hospice. These policies regarding what is considered substantive 

versus nonsubstantive would apply to all measures in the Hospital IQR Program. We 

also note that the NQF process incorporates an opportunity for public comment and 

engagement in the measure maintenance process. 

 We believe this policy adequately balances our need to incorporate updates to 

Hospital IQR Program measures in the most expeditious manner possible while 

preserving the public’s ability to comment on updates that so fundamentally change an 

endorsed measure that it is no longer the same measure that we originally adopted. 

c. Public Display of Quality Measures 

 Section 1886(b)(3)(B)(viii)(VII) of the Act, as amended by section 3001(a)(2) of 

the Affordable Care Act, requires that the Secretary establish procedures for making 

information regarding measures submitted available to the public after ensuring that a 
 1018 

hospital has the opportunity to review its data before they are made public. In this 

proposed rule, we are not proposing to change our current policy of reporting data from 

the Hospital IQR Program as soon as it is feasible on CMS Web sites such as the 

Hospital Compare Web site (http://www.medicare.gov/hospitalcompare) and/or the 

interactive https://data.medicare.gov Web site, after a preview period. 

 The Hospital Compare Web site is an interactive Web tool that assists 

beneficiaries by providing information on hospital quality of care to those who need to 

select a hospital. For more information on measures reported to Hospital Compare, 

please see http://www.medicare.gov/hospitalcompare. Other information not reported to 

Hospital Compare may be made available on other CMS Web sites such as 

http://www.cms.hhs.gov/HospitalQualityInits/ or https://data.medicare.gov. 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50777 through 50778) we 

responded to public comments on what additional quality measures and information 

featured on Hospital Compare may be highly relevant to patients and other consumers of 

health care, and how we may better display this information on the Hospital Compare

Web site. 

2. Removal and Suspension of Hospital IQR Program Measures 

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

 As discussed further below, we generally retain measures from the previous 

year’s Hospital IQR Program measure set for subsequent years’ measure sets except 

when we specifically propose to remove or replace them. As we stated in the FY 2011 

IPPS/LTCH PPS final rule (75 FR 50185), the criteria that we consider when determining 
 1019 

whether to remove Hospital IQR Program measures are the following: (1) Measure 

performance among hospitals is so high and unvarying that meaningful distinctions and 

improvements in performance can no longer be made (‘‘topped out’’ measures); 

(2) availability of alternative measures with a stronger relationship to patient outcomes; 

(3) a measure does not align with current clinical guidelines or practice; (4) the 

availability of a more broadly applicable (across settings, populations, or the availability 

of a measure that is more proximal in time to desired patient outcomes for the particular 

topic; (6) the availability of a measure that is more strongly associated with desired 

patient outcomes for the particular topic; and (7) collection or public reporting of a 

measure leads to negative unintended consequences other than patient harm. We also 

take into account the views of the Measure Applications Partnership (MAP) when 

determining when a measure should be removed, and we strive to eliminate redundancy 

of similar measures (77 FR 53505 through 53506). 

 In this proposed rule, we are proposing to change the criteria for determining 

when a measure is “topped-out.” A measure is “topped-out” when measure performance 

among hospitals is so high and unvarying that meaningful distinctions and improvements 

in performance can no longer be made (‘‘topped out’’ measures) (77 FR 53505 through 

53506). We do not believe that measuring hospital performance on “topped-out” 

measures provides meaningful information on the quality of care provided by hospitals. 

We further believe that quality measures, once “topped out,” represent care standards that 

have been widely adopted by hospitals. We believe such measures should be considered 
 1020 

for removal from the Hospital IQR Program because their associated reporting burden 

may outweigh the value of the quality information they provide. 

 In order to determine “topped out” status, we are proposing to apply the following 

two criteria, the first of which was previously adopted by the HVBP Program in the 

Hospital Inpatient VBP Program final rule (76 FR 26496 through 26497), to Hospital 

IQR measures. The second criterion is a modified version of what was previously 

adopted by the Hospital VBP Program in the above mentioned final rule, with the change 

from the “less than” operator (<) to the “less than or equal to” operator (≤): 

● Statistically indistinguishable performance at the 75th and 90th percentiles; and 

● Truncated coefficient of variation ≤ 0.10. 

The coefficient of variation (CV) is a common statistic that expresses the standard 

deviation as a percentage of the sample mean in a way that is independent of the units of 

observation. Applied to this analysis, a large CV would indicate a broad distribution of 

individual hospital scores, with large and presumably meaningful differences between 

hospitals in relative performance. A small CV would indicate that the distribution of 

individual hospital scores is clustered tightly around the mean value, suggesting that it is 

not useful to draw distinctions among individual hospitals’ measure performance. By 

adopting “less than or equal to” in our “topped out” test, we are clarifying the 

interpretation of the CV when a tie at 0.1 occurs due to rounding. We believe that the 

proposed criteria distinguish measures with significant variation in performance among 

hospitals. 
 1021 

 In the Hospital VBP Program context, we used a modified version of the CV, 

namely a truncated CV, for each measure, in which the 5 percent of hospitals with the 

lowest scores, and the 5 percent of hospitals with highest scores were first truncated (set 

aside) before calculating the CV. This was done to avoid undue effects of the highest and 

lowest outlier hospitals, which if included, would tend to greatly widen the dispersion of 

the distribution and make the measure appear to be more reliable or discerning. 

 We welcome public comments on this proposal. 

b. Proposed Removal of Hospital IQR Program Measures for the FY 2017 Payment 

Determination and Subsequent Years 

 As we continue moving towards including more clinical outcomes measures as 

opposed to process-of-care measures in the Hospital IQR Program measure set, we have 

considered removing additional measures using our previously-adopted removal criteria. 

We are proposing to remove five measures from the Hospital IQR Program for the 

FY 2017 payment determination and subsequent years, which begins in the CY 2015 

reporting period: (1) AMI-1 Aspirin at arrival (NQF #0132); (2) AMI-3 ACEI/ARB for 

left ventricular systolic dysfunction (NQF #0137); (3) AMI-5 Beta-blocker prescribed at 

discharge (NQF #0160); (4) SCIP INF-6 Appropriate Hair Removal; and (5) Participation 

in a systematic database for cardiac surgery (NQF #0113). 

 We are proposing to remove the first four process measures because they were 

previously determined to be “topped out” and suspended (77 FR 53509). We are 

proposing to remove the fifth measure because the MAP recommended the measure’s 

removal in its MAP Pre-Rulemaking Report: 2014 Recommendations on Measures for 
 1022 

More than 20 Federal Programs, which is available at available at: 

http://www.qualityforum.org/Publications/2014/01/MAP_PreRulemaking_Report__2014_Recommendations_on_Measures_for_More_than_20_Feder

al_Programs.aspx. The MAP report states that the measure’s NQF endorsement has been 

placed on reserve status because the measure is “topped-out.” The purpose of reserve 

status is to retain endorsement of reliable and valid quality performance measures that 

have overall high levels of performance with little variability so that performance could 

be monitored in the future if necessary to ensure that performance does not decline. This 

status would apply only to highly credible, reliable, and valid measures that have high 

levels of performance due to quality improvement actions (often facilitated or motivated 

through public reporting and other accountability programs). More information about 

NQF reserve status is available at: 

https://www.qualityforum.org/docs/Reserve_Endorsement_Status.aspx . 

 By removing these measures, we would alleviate the maintenance costs and 

administrative burden to hospitals associated with retaining them. Should we determine 

that hospital adherence to these practices has unacceptably declined, we would propose to 

resume data collection in future rulemaking. In addition, we would comply with any 

requirements imposed by the Paperwork Reduction Act before re-proposing these 

measures. 

 We also analyzed the remainder of the Hospital IQR measure set for other 

potential “topped out” measures using the previously adopted criteria. The analysis was 

based on the most recent two quarters of clinical process of care data available in the 
 1023 

CMS Clinical Data Warehouse for IPPS eligible hospitals, which covers a measurement 

period from 01/01/2013 to 06/30/2013 (Q1 2013 – Q2 2013). Based on this analysis and 

using the previously adopted criteria, we believe that an additional 15 chart-abstracted 

measures are “topped out,” and we are proposing to remove them from the measure set 

for the FY 2017 payment determination and subsequent years. However, we are 

proposing to retain the electronic clinical quality measure version of 10 of these chartabstracted measures for Hospital IQR Program reporting as discussed further in section 

IX.A.7.f. of the preamble of this proposed rule. We believe that retaining “topped out” 

measures under certain circumstances enables us to continue monitoring the clinical topic 

covered by the measure to ensure that hospitals continue to maintain high levels of 

performance. Further, we believe the additional reporting burden associated with 

retaining these measures is mitigated by retaining electronic versions of those measures, 

which are more easily reported by hospitals. These 10 measures are denoted in the chart 

below by an asterisk. 

“Topped Out” Chart-Abstracted Measures Proposed for Removal for the FY 2017 

Payment Determination 

● AMI-1: Aspirin at Arrival (previously suspended) 

● AMI-3: ACEI or ARB for left ventricular systolic dysfunction- Acute Myocardial 

Infarction (AMI) Patients (previously suspended) (NQF #0137) 

● AMI-5: Beta-Blocker Prescribed at Discharge for AMI (previously suspended) (NQF 

#0160) 

● AMI-8a: Primary PCI received within 90 minutes of hospital arrival * (NQF #0163) 

● HF-2: Evaluation of left ventricular systolic function (NQF #0135) 

● PN-6: Initial antibiotic selection for community-acquired pneumonia (CAP) in 

immunocompetent patients* (NQF #0147) 

● SCIP-Inf-1: Prophylactic antibiotic received within one hour prior to surgical 

incision* (NQF #0527) 

● SCIP-Inf-2: Prophylactic antibiotic selection for surgical patients* (NQF #0528) 
 1024 

“Topped Out” Chart-Abstracted Measures Proposed for Removal for the FY 2017 

Payment Determination 

● SCIP-Inf-3: Prophylactic antibiotics discontinued within 24 hours after surgery end 

time (48 hours for cardiac surgery) (NQF #0529) 

● SCIP-Inf-4: Cardiac surgery patients with controlled postoperative blood glucose 

(NQF #0300) 

● SCIP-Inf-6: Surgery patients with appropriate hair removal (previously suspended) 

(NQF #0301) 

● SCIP-Inf-9: Urinary catheter removed on Postoperative Day 1 (POD1) or 

Postoperative Day 2 (POD2) with day of surgery being day zero.* (NQF #0453) 

● SCIP-Card-2: Surgery patients on beta blocker therapy prior to arrival who received a 

beta blocker during the perioperative period (NQF #0284) 

● SCIP-VTE-2: Surgery Patients Who Received Appropriate Venous 

Thromboembolism (VTE) Prophylaxis Within 24 Hours Prior to Surgery to 24 Hours 

After Surgery (NQF #0218) 

● STK-2: Discharged on antithrombotic therapy * (NQF #0435) 

● STK-3: Anticoagulation therapy for atrial fibrillation/flutter* (NQF #0436) 

● STK-5: Antithrombotic therapy by the end of hospital day two* (NQF #0438) 

● STK-10: Assessed for rehabilitation* (NQF #0441) 

● VTE-4: Patients receiving un-fractionated Heparin with doses/labs monitored by 

protocol* 

● Participation in a systematic database for cardiac surgery (NQF #0113) 

* Proposed to be retained as an electronic clinical quality measure 

 We welcome public comments on our proposal to remove these measures. 

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

Subsequent Payment Determinations 

 We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53512 

through 53513), for our finalized measure retention policy. When we adopt measures for 

the Hospital IQR Program beginning with a particular payment determination, these 

measures are automatically adopted for all subsequent payment determinations unless we 

propose to remove, suspend, or replace the measures. 
 1025 

 We are not proposing any changes to our policy for retaining previously adopted 

measures for subsequent payment determinations. 

4. Additional Considerations in Expanding and Updating Quality Measures Under the 

Hospital IQR Program 

 We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53510 

through 53512) for a discussion of the considerations we use to expand and update 

quality measures under the Hospital IQR Program. We are not proposing any changes to 

the considerations in expanding or updating quality measures. 

5. Previously Adopted Hospital IQR Program Measures for the FY 2016 Payment 

Determination and Subsequent Years 

 For currently adopted and future condition-specific, claims-based measures, 

beginning with the FY 2017 payment determination and subsequent years, we would like 

to propose to use 3 years of data to calculate measures unless otherwise specified. In 

other words, this reporting period would apply to all future calculations of condition 

specific measures already adopted in the Hospital IQR Program and any conditionspecific measures that may be subsequently adopted in future years. The currently 

adopted, applicable measures are: 

● Hospital 30-day, all-cause, risk-standardized mortality rate (RSMR) following acute 

myocardial infarction (AMI) hospitalization for patients 18 and older (NQF #0230) 

● Hospital 30-day, all-cause, risk-standardized mortality rate (RSMR) following 

heart failure (HF) hospitalization for patients 18 and older (NQF #0229) 
 1026 

● Hospital 30-day, all-cause, risk-standardized mortality rate (RSMR) following 

pneumonia hospitalization (NQF #0468) 

● Stroke 30-day mortality rate 

● Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) 

following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization (NQF #1893) 

● 30-day all-cause, Acute Myocardial Infarction (AMI) 30-day risk standardized 

readmission rate (RSMR) following Acute Myocardial Infarction (AMI) hospitalization 

(NQF #0505) 

● 30-day all-cause, risk standardized readmission rate (RSMR) following Heart 

Failure (HF) hospitalization (NQF #0330) 

● 30-day all-cause, risk standardized readmission rate (RSMR) following 

Pneumonia (PN) hospitalization (NQF #0506) 

● 30-day risk standardized readmission rate (RSMR) following Total Hip/Total 

Knee Arthroplasty (NQF #1551) 

● 30-day risk standardized readmission rate (RSMR) following Stroke 

hospitalization 

● 30-day risk standardized readmission rate (RSMR) following COPD 

hospitalization (NQF #1891) 

● Hip/Knee Complication: Hospital-level Risk-Standardized Complication Rate 

(RSCR) following Elective Primary Total Hip Arthroplasty (NQF #1550) 

 We welcome public comments on our proposal to use 3 years of data to calculate 

current and future condition-specific, claims-based measures. 
 1027 

 The Influenza Vaccination Coverage Among Healthcare Personnel (HCP) (NQF 

#0431) was finalized for the Hospital IQR program in the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51633) and the Hospital Outpatient Quality Reporting (HOQR) in the 

CY 2014 OPPS/ASC final rule (78 FR 75099). We received public comments regarding 

the burden of separately collecting and reporting HCP influenza vaccination statuses for 

both the inpatient and outpatient settings. In response to these concerns, we clarified that 

beginning with the 2014-2015 influenza season (CY 2014 reporting period and FY 2016 

payment determination), facilities should collect and report a single vaccination count for 

each healthcare facility by CMS Certification Number (CCN), instead of separately by 

inpatient or outpatient setting, in order to reduce burden. We announced this clarification 

regarding how to designate HCP for this measure in an Operational Guidance document 

which can be found on our on our Web page at: 

http://origin.glb.cdc.gov/nhsn/PDFs/HCP/Operational-Guidance-ACH-HCP-Flu.pdf. 

Using the CCN will allow healthcare facilities with multiple care settings to simplify data 

collection and submit a single count applicable across the inpatient and outpatient 

settings. We will then publicly report the percentage of HCP who received an influenza 

vaccination per CCN. This single count per CCN will inform the public of the 

percentage of vaccinated HCP at a particular healthcare facility, which would still 

provide meaningful data and help to improve the quality of care. Specific details on data 

submission for this measure can be found at: http://www.cdc.gov/nhsn/acute-carehospital/hcp-vaccination/ and at http://www.cdc.gov/nhsn/acute-care-hospital/index.html. 
 1028 

 The following table shows measures currently adopted for the Hospital IQR 

Program, including suspended measures. 

Topic Hospital IQR Program Measures Previously Adopted for the 

FY 2016 Payment Determination and Subsequent Years 

Acute Myocardial Infarction (AMI) Measures 

● AMI-1: Aspirin at Arrival (previously suspended) 

● AMI-3: ACEI or ARB for left ventricular systolic dysfunctionAcute Myocardial Infarction (AMI) Patients (previously suspended) 

(NQF #0137) 

● AMI-5: Beta-Blocker Prescribed at Discharge for AMI (previously 

suspended) (NQF #0160) 

● AMI-7a Fibrinolytic therapy received within 30 minutes of hospital 

arrival (NQF #0164) 

● AMI-8a : Primary PCI received within 90 minutes of hospital 

arrival (NQF #0163) * 

Heart Failure (HF) Measure 

● HF-2 Evaluation of left ventricular systolic function (NQF #0135) * 

Stroke (STK) Measure Set 

● STK-1 Venous thromboembolism (VTE) prophylaxis (NQF #0434) 

● STK-2 Discharged on antithrombotic therapy (NQF #0435) * 

● STK-3 Anticoagulation therapy for atrial fibrillation/flutter (NQF 

#0436) * 

● STK-4 Thrombolytic therapy (NQF #0437) 

● STK-5 Antithrombotic therapy by the end of hospital day two (NQF 

#0438) 

● STK-6 Discharged on statin medication (NQF #0439) 

● STK-8 Stroke education 

● STK-10 Assessed for rehabilitation (NQF #0441) 

Venous Thromboembolism (VTE) Measure Set 

● VTE-1 Venous thromboembolism prophylaxis (NQF #0371) 

● VTE-2 Intensive care unit venous thromboembolism prophylaxis 

(NQF #0372) 

● VTE-3 Venous thromboembolism patients with anticoagulation 

overlap therapy (NQF #0373) 

● VTE-4 Patients receiving un-fractionated Heparin with doses/labs 

monitored by protocol 

● VTE-5 VTE discharge instructions 

● VTE-6 Incidence of potentially preventable VTE 
 1029 

Topic Hospital IQR Program Measures Previously Adopted for the 

FY 2016 Payment Determination and Subsequent Years 

Pneumonia (PN) Measure 

● PN-6 Initial antibiotic selection for community-acquired pneumonia 

(CAP) in immunocompetent patients (NQF #0147) 

Surgical Care Improvement Project (SCIP) Measures 

● SCIP INF-1 Prophylactic antibiotic received within one hour prior to 

surgical incision (NQF #0527) * 

● SCIP INF-2 Prophylactic antibiotic selection for surgical patients 

(NQF #0528) 

● SCIP INF-3 Prophylactic antibiotics discontinued within 24 hours 

after surgery end time (48 hours for cardiac surgery) (NQF #0529) 

● SCIP INF-4 Cardiac surgery patients with controlled postoperative 

blood glucose (NQF #0300) 

● SCIP INF-9 Urinary catheter removed on Postoperative Day 1 

(POD1) or Postoperative Day 2 (POD2) with day of surgery being day 

zero (NQF #0453) 

● SCIP Card-2 Surgery patients on beta blocker therapy prior to 

arrival who received a beta blocker during the perioperative period 

(NQF #0284) 

● SCIP-VTE-2 Surgery Patients Who Received Appropriate Venous 

Thromboembolism (VTE) Prophylaxis Within 24 Hours Prior to 

Surgery to 24 Hours After Surgery (NQF #0218) 

Mortality Measures 

● Hospital 30-day, all-cause, risk-standardized mortality rate (RSMR) 

following acute myocardial infarction (AMI) hospitalization for 

patients 18 and older (NQF #0230) 

● Hospital 30-day, all-cause, risk-standardized mortality rate (RSMR) 

following heart failure (HF) hospitalization for patients 18 and older 

(NQF #0229) 

● Hospital 30-day, all-cause, risk-standardized mortality rate (RSMR) 

following pneumonia hospitalization (NQF #0468) 

● Stroke 30-day mortality rate 

● Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate 

(RSMR) following Chronic Obstructive Pulmonary Disease (COPD) 

Hospitalization (NQF #1893) 

Patient Experience of Care Measure 

● HCAHPS survey (NQF #0166) (expanded to include two new 

“About You” items and the 3-item Care Transition Measure) 

(NQF #0228) 

Readmission Measures 

● Hospital 30-day all-cause risk-standardized readmission rate 

(RSRR) following acute myocardial infarction (AMI) hospitalization
 1030 

Topic Hospital IQR Program Measures Previously Adopted for the 

FY 2016 Payment Determination and Subsequent Years 

(NQF #0505) 

● Hospital 30-day, all-cause, risk-standardized readmission rate 

(RSRR) following heart failure hospitalization (NQF #0330) 

● Hospital 30-day, all-cause, risk-standardized readmission rate 

(RSRR) following pneumonia hospitalization (NQF #0506) 

● Hospital-level 30-day, all-cause risk-standardized readmission rate 

(RSRR) following elective primary total hip arthroplasty (THA) and/or 

total knee arthroplasty (TKA) (NQF #1551) 

● Hospital-Wide All-Cause Unplanned Readmission (HWR) 

(NQF #1789) 

● 30-day risk standardized readmission rate (RSMR) following Stroke 

hospitalization 

● Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate 

(RSRR) following Chronic Obstructive Pulmonary Disease (COPD) 

Hospitalization (NQF #1891) 

AHRQ Patient Safety Indicators (PSIs) Composite Measure 

● PSI-90 Patient safety for selected indicators (composite) 

(NQF #0531) 

AHRQ PSI and Nursing Sensitive Care Measure 

● PSI-4 Death among surgical inpatients with serious treatable 

complications (NQF #0351) 

Structural Measures 

● Participation in a Systematic Database for Cardiac Surgery 

(NQF #0113) 

● Participation in a Systematic Clinical Database Registry for Nursing 

Sensitive Care 

● Participation in a Systematic Clinical Database Registry for General 

Surgery 

● Safe Surgery Checklist Use 

Healthcare-Associated Infections (HAI) Measures 

● National Healthcare Safety Network (NHSN) Central lineassociated Bloodstream Infection (CLABSI) Outcome Measure 

(NQF #0139) 

● American College of Surgeons – Centers for Disease Control and 

Prevention (ACS-CDC) Harmonized Procedure Specific Surgical Site 

Infection (SSI) Outcome Measure (NQF #0753) 

 - SSI following Colon Surgery 

 - SSI following Abdominal Hysterectomy 

● National Healthcare Safety Network (NHSN) Catheter-associated 

Urinary Tract Infection (CAUTI) Outcome Measure (NQF #0138) 

● National Healthcare Safety Network (NHSN) Facility-wide 

Inpatient Hospital-onset Methicillin-resistant Staphylococcus aureus 
 1031 

Topic Hospital IQR Program Measures Previously Adopted for the 

FY 2016 Payment Determination and Subsequent Years 

(MRSA) Bacteremia Outcome Measure (NQF #1716) 

● National Healthcare Safety Network (NHSN) Facility-wide 

Inpatient Hospital-onset Clostridium difficile Infection (CDI) Outcome 

Measure (NQF #1717) 

● Influenza vaccination coverage among healthcare personnel (HCP) 

(NQF #0431) 

Surgical Complications Measures 

● Hospital-level risk-standardized complication rate (RSCR) 

following elective primary total hip arthroplasty (THA) and/or total 

knee arthroplasty (TKA) (NQF #1550) 

Emergency Department (ED) Throughput Measures 

● ED-1 Median time from ED arrival to ED departure for admitted ED 

patients (NQF #0495) 

● ED-2 Admit Decision Time to ED Departure Time for Admitted 

Patients (NQF #0497)

Prevention: Global Immunization (IMM) Measures 

● IMM-1 Pneumococcal Immunization (previously suspended) 

(NQF #1653) 

● IMM-2 Influenza Immunization (NQF #1659)

Cost Efficiency Measures 

● Payment-Standardized Medicare Spending Per Beneficiary (MSPB) 

(NQF #2158)

● AMI Payment per Episode of Care 

Perinatal Care (PC) Measure 

● PC-01 Elective delivery (NQF #0469) 

*Measures proposed for removal for the FY 2016 payment determination and subsequent years. 

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

 We are proposing to incorporate refinements for several measures that were 

previously adopted in the Hospital IQR Program. These refinements have either arisen 

out of the NQF endorsement maintenance process, or during our internal efforts to 

harmonize measure approaches. The measure refinements include the following: (1)

refining the planned readmission algorithm for all seven readmission measures included 

in the Hospital IQR Program; (2) modifying the hip/knee readmission and complication 
 1032 

measure cohorts to exclude index admissions with a secondary fracture diagnosis; and 

(3) modifying the hip/knee complication measure to not count as complications coded as 

“present on admission” (POA) during the index admission. 

a. Proposed Refinement of Planned Readmission Algorithm for 30-Day Readmission 

Measures 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50785 through 50787) we 

adopted the CMS Planned Readmission Algorithm Version 2.1 (the Algorithm) for the 

Hospital IQR Program. In the same final rule (78 FR 50785 through 50787, 50790 

through 50792, and 50794 through 50798), we also finalized the use of the CMS Planned 

Readmission Algorithm Version 2.1 in the AMI, HF, PN, THA/TKA, HWR, and COPD 

measures. This algorithm identifies readmissions that are planned and occur within 30 

days of discharge from the hospital. A complete description of the Algorithm, which 

includes lists of planned diagnoses and procedures, is available at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html in the “Planned 

Readmission” folder. NQF has endorsed the use of the Algorithm for these measures. 

 In that final rule (78 FR 50652), in response to comments, we agreed to 

continually review the Algorithm and make updates as needed. Since its development, 

we have identified and made improvements. As a result, we are now proposing to use an 

updated, revised version, the CMS Planned Readmission Algorithm Version 3.0, for the 

AMI, HF, PN, THA/TKA, HWR, COPD, and Stroke readmission measures for the 

FY 2015 payment determination and subsequent years. As discussed further below, we 
 1033 

are also proposing to use Version 3.0 of this algorithm for the CABG readmission 

measure that we are proposing to include in the Hospital IQR Program starting in 

FY 2017, proposed in section IX.A.7.a. of the preamble of this proposed rule. 

 Version 3.0 incorporates improvements made based on a validation study of the 

algorithm. Researchers reviewed 634 patients’ charts at 7 hospitals, classified 

readmission as planned or unplanned based on the chart review, and compared the results 

to the claims-based algorithm’s classification of the readmissions. The findings 

suggested the algorithm was working well but could be improved. 

 Specifically, the study suggested the need to make small changes to the tables of 

procedures and conditions used in the algorithm to classify readmission as planned or 

unplanned. The algorithm uses the Agency for Healthcare Research and Quality’s 

(AHRQ’s) Clinical Classification Software (CCS) to group thousands of procedure and 

diagnosis codes into fewer categories of related procedures or diagnoses. The algorithm 

then uses four tables of procedures and diagnoses categories and a flow diagram to 

classify tables as planned or unplanned. Additional information on this software is 

available at: http://www.hcup-us.ahrq.gov/toolssoftware/ccs/ccs.jsp. For all measures, 

the first table identifies procedures that, if present in a readmission, classify the 

readmission as planned. The second table identifies primary discharge diagnoses that 

always classify readmissions as planned. Because almost all planned admissions are for 

procedures or surgeries, a third table identifies procedures for which patients are typically 

admitted; if any of these procedures is coded in the readmission, we classify a readmission 

as planned as long as that readmission does not have an acute (unplanned) primary 
 1034 

discharge diagnosis. The fourth table lists the acute (unplanned) primary discharge 

diagnoses that disqualify readmissions that include one or more of the potentially planned 

procedure in the third table as planned. These tables are structured the same across all 

measures but the specific procedure and conditions they contain vary slightly for certain 

measures based on clinical considerations for each cohort. The current tables for each 

measure can be found in the measure methodology reports at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. 

 Version 3.0 modifies two of these tables by removing or adding procedures or 

conditions to improve the accuracy of the algorithm. First, the validation study revealed 

that the algorithm could be improved by removing two procedure CCS categories from 

the third table, the potentially planned procedure table: CCS 211 – Therapeutic Radiation 

and CCS 224 – Cancer Chemotherapy. Typically, patients do not require admission for 

scheduled Therapeutic Radiation treatments (CCS 211). The study found that 

readmissions that were classified as planned because they included Therapeutic Radiation 

were largely unplanned. 

 The algorithm was also more accurate when CCS 224 – Cancer Chemotherapy 

was removed from the potentially planned procedure table. The second table of the 

algorithm classifies all readmissions with a principal diagnosis of Maintenance 

Chemotherapy as planned. Most patients who receive cancer chemotherapy have both a 

code for Cancer Chemotherapy (CCS 224) and a principal discharge diagnosis of 

Maintenance Chemotherapy (CCS 45). In the validation study, the readmissions for 
 1035 

patients who received Cancer Chemotherapy (CCS 224) but who did not have a principal 

diagnosis of Maintenance Chemotherapy were largely unplanned, therefore removing 

CCS 224 from the potentially planned procedure table improved the algorithm’s 

accuracy. Therefore, Version 3.0 removes CCS 211 and CCS 224 from the list of 

potentially planned procedures to improve the accuracy of algorithm. 

 As noted above, the algorithm uses a table of acute principal discharge diagnoses 

to help identify unplanned readmissions. Readmissions that have a principal diagnosis 

listed in the table are classified as unplanned, regardless of whether they include a 

procedure in the potentially planned procedure table. The validation study identified one 

diagnosis CCS that should be added to the table of acute diagnoses to more accurately 

identify truly unplanned admissions as unplanned: Hypertension with Complications 

(CCS 99). Hypertension with complications is a diagnosis that is rarely associated with 

planned readmissions. 

 In addition, the validation study identified a subset of ICD-9 diagnosis codes 

within two CCS diagnosis categories that should be added to the acute diagnosis table to 

improve the algorithm. CCS 149, Pancreatic Disorders, includes the code for acute 

pancreatitis; clinically there is no situation in which a patient with this acute condition 

would be admitted for a planned procedure. Therefore, Version 3.0 adds the ICD-9 code 

for acute pancreatitis, 577.0, to the acute primary diagnosis table to better identify 

unplanned readmissions. Finally, CCS 149, Biliary Tract Disease, is a mix of acute and 

non-acute diagnoses. Adding the subset of ICD-9 codes within this CCS group that are 

for acute diagnoses to the list of acute conditions improves the accuracy of the algorithm 
 1036 

for these acute conditions while still ensuring that readmissions for planned procedures, 

like cholecystectomies, are counted accurately as planned. For more detailed information 

on how the algorithm is structured and the use of tables to identify planned procedures 

and diagnoses, we refer readers to CMS’s Planned Readmission Algorithm Version 2.1: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. As noted above, readers 

can find the specific Version 3.0 tables for each measure in the measure updates and 

specifications reports at the above link. 

 We invite public comment on our proposal to use the CMS Planned 

Readmission Algorithm Version 3.0, for the AMI, HF, PN, THA/TKA, HWR, COPD, 

and Stroke readmission measures for the FY 2015 payment determination and subsequent 

years. 

b. Proposed Refinement of Total Hip Arthroplasty and Total Knee Arthroplasty 

(THA/TKA) 30-Day Complication and Readmission Measures 

 In this proposed rule, for the FY 2015 payment determination and subsequent 

years, we are proposing to refine: 1) the measure outcome and cohort for the Elective 

Primary THA/TKA All-Cause 30-Day Risk-Standardized Complication Measure (NQF 

#1550); and 2) the measure cohort for the Elective Primary THA/TKA All-Cause 

Unplanned 30-Day Risk-Standardized Readmission Measure (NQF #1551). 

 As part of measure implementation, CMS conducted a dry run for both the 

THA/TKA readmission and complication measures in September/October of 2012. More 

information on the dry run is available at: 
 1037 

https://www.qualitynet.org/dcs/BlobServer?blobkey=id&blobnocache=true&blobwhere=

1228889945763&blobheader=multipart%2Foctet-stream&blobheadername1=ContentDisposition&blobheadervalue1=attachment%3Bfilename%3DDryRun_HWRHK_SummRept_122112.pdf&blobcol=urldata&blobtable=MungoBlobs. 

During the dry run, several commenters suggested CMS evaluate the use of 

Present on Admission (POA) codes for both the hip/knee readmission and complication 

measures. We agreed with the suggestion and have been monitoring POA data collection 

and testing its readiness for use in claims-based measures. We also noted our intent to 

evaluate the use of POA codes in Hospital IQR Program measures, such as the stroke 

mortality rate measure, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50801). We 

have since tested the use of the POA codes and propose to incorporate POA codes into 

the hip/knee complication measure for FY 2015 payment determination and subsequent 

years in order to prevent identifying a condition as a complication of care if it was present 

during admission. 

 In addition, currently, the THA/TKA Readmission Measure (NQF #1551) 

adopted for the Hospital IQR Program is intended to only include patients who have an 

elective THA or TKA. Currently, this measure excludes patients who have a principal 

discharge diagnosis of femur, hip, or pelvic fracture on their index admission since hip 

replacement for hip fracture is not an elective procedure. However, after hospitals 

reviewed their hospital-specific THA/TKA Readmission Measure data during the 

national dry-run, CMS learned that hospitals code hip fractures that occur during the 

same admission as a THA as not only a principal diagnosis, but also alternatively, a 
 1038 

secondary diagnosis, instead of just a principal diagnosis as currently specified by the 

measure. According to feedback received from hospitals participating in the dry-run, the 

measure methodology failed to identify, and, appropriately exclude, a small number of 

patients (that is, 0.42 percent of patients in 2009-2010 data) with a hip fracture that had 

non-elective total hip arthroplasty as captured by these secondary diagnoses. 

 Therefore, to ensure that all such non-elective hip fracture patients are excluded 

from the measure, we are proposing to refine the measure to exclude patients with hip 

fractures coded as either a principal or secondary diagnosis during the index admission 

beginning with the FY 2015 payment determination and subsequent years. We believe 

this refinement is responsive to comments from hospitals (78 FR 50709) and will allow 

us to accurately exclude patients who were initially admitted for a hip fracture and who 

then subsequently underwent total hip arthroplasty, making their procedure non-elective. 

 We invite public comment on these proposed refinements. 

c. Anticipated Effect of Proposed Refinements to Existing Measures 

 Based on our analyses of discharges between July 2009 and June 2012, our 

proposal to use the Planned Readmission Algorithm Version 3.0 would have the 

following effects on measures had these changes been applied for the FY 2014 payment 

determination as an example. We are sharing this information to provide the public with 

a sense of the extent to which these refinements to the measures will change the measure 

scores. As the results show, while the refinements improve the accuracy of the measures, 

the changes in actual scores are very slight. 
 1039 

 The proposed 30-day readmission rate (excluding the planned readmissions) 

would increase by 0.1 percentage points for AMI; 0.2 percentage points for HF; 0.1 

percentage points for PN; 0.1 percentage points for COPD; 0.0 percentage points for 

hip/knee; 0.1 percentage points for HWR; and 0.0 percentage points for stroke. 

 The new national measure (unplanned) rate for each condition would have been 

18.4 percent for AMI; 23.2 percent for HF; 17.7 percent for PN; 21.1 percent for COPD; 

5.4 percent for hip/knee; 16.1 percent for HWR; and 13.8 percent for stroke. 

 The number of readmissions considered planned (and, therefore, not counted as a 

readmission) would decrease by 334 for AMI; 1,375 for HF; 981 for PN, 574 for COPD; 

309 for hip/knee; 7,417 for HWR; and 242 for stroke.
 1040 

Comparison of Planned Readmission Algorithms V 2.1 and 3.0 for AMI/HF/PN/COPD/HK/HWR/Stroke 

Measures (Based on 2009-2012 Discharges)

AMI HF PN COPD Hip/Knee HWR 

V 3.0 V 2.1 V 3.0 V 2.1 V 3.0 V 2.1 V 3.0 V 2.1 V 3.0 V 2.1 V 3.0 V 2.1 

Number of Discharges 513,331 513,331 1,262,826 1,262,826 1,089,758 1,089,758 989,381 989,381 879,641 879,641 6,918,467 6,918,467 Number of Unplanned Readmissions 

94,453 93,940 292,976 290,450 192,887 191,797 208,759 207,770 47,236 47,236 1,112,885 1,105,378 

Readmission Rate 18.4% 18.3% 23.2% 23.0% 17.7% 17.6% 21.1% 21.0% 5.4% 5.4% 16.1% 16.0% Number of Planned Readmissions 

11,947 12,281 16,230 17,605 6,545 7,526 6,447 7,021 2,326 2,635 85,673 93,180 

Planned Readmission Rate 

2.3% 2.4% 1.3% 1.4% 0.6% 0.7% 0.7% 0.7% 0.3% 0.3% 1.2% 1.3% 

% of Readmissions that are Planned 

11.2% 11.6% 5.3% 5.7% 3.3% 3.8% 3.0% 3.3% 4.7% 5.3% 7.1% 7.8% 
 1041 

7. Proposed Additional Hospital IQR Program Measures for the FY 2017 Payment 

Determination and Subsequent Years 

 For purposes of the Hospital IQR Program, section 1886(b)(3)(B)(IX)(aa) of the 

Act requires that any measure specified by the Secretary must have been endorsed by the 

entity with a contract under section 1890(a) of the Act. However, the statutory 

requirements under section 1886(b)(3)(B)(IX)(bb) of the Act provide an exception that, 

in the case of a specified area or medical topic determined appropriate by the Secretary 

for which a feasible and practical measure has not been endorsed by the entity with a 

contract under section 1890(a) of the Act, the Secretary may specify a measure that is not 

so endorsed as long as due consideration is given to measures that have been endorsed or 

adopted by a consensus organization identified by the Secretary. 

We are proposing to add a total of eleven measures to measure set for the 

FY 2017 payment determination and subsequent years. The first nine new measures are: 

(1) Hospital 30-day, all-cause, unplanned, risk-standardized readmission rate (RSRR) 

following coronary artery bypass graft (CABG) surgery (claims-based); (2) Hospital 

30-day, all-cause, risk-standardized mortality rate (RSMR) following coronary artery 

bypass graft (CABG) surgery (claims-based); (3) Hospital-level, risk-standardized 30-day 

episode-of-care payment measure for pneumonia (claims-based); (4) Hospital-level, 

risk-standardized 30-day episode-of-care payment measure for heart failure (claimsbased); (5) Severe Sepsis and Septic Shock: Management Bundle (NQF #0500) (chartabstracted); (6) EHDI-1a Hearing Screening Prior to Hospital Discharge (NQF #1354) 

(electronic health record-based); (7) PC-05 Exclusive Breast Milk Feeding and the subset 
 1042 

measure PC-05a Exclusive Breast Milk Feeding Considering Mother’s Choice (NQF 

#0480) (electronic health record-based); (8) CAC-3 Home Management Plan of Care 

(HMPC) Document Given to Patient/Caregiver (electronic health record-based); and, 

(9) Healthy Term Newborn (NQF #0716) (electronic health record-based). 

 In addition, to align the Hospital IQR Program with the Medicare EHR Incentive 

Program for Eligible Hospitals and Critical Access Hospitals and allow hospitals as many 

measure options as possible that overlap both programs, we are proposing to readopt two 

measures previously removed from the Hospital IQR Program as voluntary electronic 

clinical quality measures: (10) AMI-2 Aspirin Prescribed at Discharge for AMI (NQF 

#0142) (electronic clinical quality measure); and (11) AMI-10 Statin Prescribed at 

Discharge (NQF #0639) (electronic clinical quality measure). These two measures are 

part of the Stage 2 Medicare EHR Incentive Program measure set for eligible hospitals 

and CAHs. 

 The four proposed claims-based measures (1-4, above) were included on a 

publicly available document entitled “List of Measures Under Consideration for 

December 1, 2013” in compliance with section 1890A(a)(2) of the Act, and they were 

reviewed by the MAP in its MAP 2014 Recommendations on Measures for More Than 

20 Federal Programs final report, available at: 

http://www.qualityforum.org/Publications/2014/01/MAP_PreRulemaking_Report__2014_Recommendations_on_Measures_for_More_than_20_Feder

al_Programs.aspx. 
 1043 

 The proposed chart-abstracted measure (5 above) Severe Sepsis and Septic Shock: 

Management Bundle (NQF #0500) was included in the MAP Pre-Rulemaking Report: 

2013 Recommendations on Measures Under Consideration by HHS final report, available 

at: 

https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738. 

 The proposed measures 6 - 9 above were included on a publicly available 

document entitled “List of Measures Under Consideration for December 1, 2012” in 

compliance with section 1890A(a)(2) of the Act, and they were reviewed by the MAP in 

its MAP Pre-Rulemaking Report: 2013 Recommendations on Measures Under 

Consideration by HHS final report, available at: 

https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738. 

 Measures 10 and 11 were included on a publicly available document entitled 

“Measures Under Consideration for Calendar Year 2012” in compliance with section 

1890A(a)(2) of the Act, and they were reviewed by the MAP in its Pre-Rulemaking 

Report: Input on Measures Under Consideration by HHS for 2012 Rulemaking available 

at https://www.qualityforum.org/Publications/2012/02/MAP_PreRulemaking_Report__Input_on_Measures_Under_Consideration_by_HHS_for_2012_Ru

lemaking.aspx. 
 1044 

a. Proposed Hospital 30-day, All-cause, Unplanned, Risk-Standardized Readmission 

Rate (RSRR) Following Coronary Artery Bypass Graft (CABG) Surgery 

(1) Background 

 CABG is a priority area for outcomes measure development, because it is a 

common procedure associated with considerable morbidity, mortality, and health care 

spending. In 2007, there were 114,028 hospitalizations for CABG surgery and 137,721 

hospitalizations for combined surgeries for CABG and valve procedures (“CABG plus 

valve” surgeries) in the U.S.44

 Readmission rates following CABG surgery are high and vary across hospitals. 

For example, in 2009 Medicare fee-for-service (FFS) data, the median hospital-level 

risk-standardized readmission rate after CABG was 17.2 percent and ranged from 

13.9 percent to 22.1 percent.45 This is consistent with published data as the average 

30-day all-cause, hospital-level readmission rate in New York state was 16.5 percent and 

ranged from 8.3 percent to 21.1 percent among all patients who underwent CABG 

surgery between January 1, 2005 and November 30, 2007.46 Among patients readmitted 

within 30 days, 87.3 percent of readmissions were for reasons related to CABG surgery, 

with a 30-day rate of readmissions due to complications of CABG surgery of 14.4 

percent. Patients readmitted within 30 days also experienced a 2.8 percent in-hospital 

mortality rate during their readmission(s), three-fold higher than the 30-day mortality rate 

 

44 Drye E, Krumholz H, Vellanky S, Wang Y. Probing New Conditions and Procedures for New Measure 

Development: Yale New Haven Health Systems Corporation; Center for Outcomes Research and 

Evaluation.; 2009:1-7. 

45 Suter L.G., Wang, C., Vellanky S., Potteiger J., Curtis J., Lin Z., Geary L.L., Krumholz H.M., Drye E.D. 

Hospital-level 30-day All-Cause Unplanned Readmission Following Coronary Artery Bypass Graft 

Surgery: Report prepared for the Centers for Medicare & Medicaid Services. 2012. 46 Hannan EL, Zhong Y, Lahey SJ, et al. 30-day readmissions after coronary artery bypass graft surgery in 

New York State. JACC Cardiovasc Interv. 2011;4(5):569-576. 
 1045 

for patients without readmissions.47 Hence, addressing the causes of readmission will 

improve outcomes for patients. 

 Readmissions after CABG also impose significant health care costs. In 2007, the 

Medicare Payment Advisory Committee (MedPAC) published a report to Congress in 

which it identified the seven conditions associated with the most costly potentially 

preventable readmissions in the U.S.48 Among these seven, CABG ranked as having the 

highest potentially preventable readmission rate within 15 days following discharge 

(13.5 percent) and the second highest average Medicare payment per readmission 

($8,136).49 The annual cost to Medicare for potentially preventable CABG readmissions 

was estimated at $151 million. 

 High readmission rates and wide variation in these rates suggest that there is room 

for improvement. Reducing readmissions after CABG surgery has been identified as a 

target for quality measurement. An all-cause readmission measure for patients who 

undergo CABG surgery will provide hospitals with an incentive to reduce readmissions 

through prevention and/or early recognition and treatment of postoperative 

complications, and improved coordination of peri-operative care and discharge planning. 

 The specifics of the measure methodology are included in the measure 

methodology report we have posted on our Web site at: 

http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-

 

47 Ibid. 

48 Medicare Payment Advisory Committee. Report to the Congress: Promoting Greater Efficiency in 

Medicare, 2007. 

49 Ibid. 
 1046 

Instruments/HospitalQualityInits/Measure-Methodology.html. We refer readers to the 

report for further details on the risk-adjustment statistical model. 

 We are proposing to include this non-NQF-endorsed measure in the Hospital IQR 

Program under the exception authority in section 1886(b)(3)(B)(IX)(bb) of the Act as 

previously discussed in section IX.A.7. of the preamble of this proposed rule. Although 

the proposed measure is not currently NQF-endorsed, we considered available measures 

that have been endorsed or adopted by the NQF. We also are not aware of any other 30-

day, all-cause, unplanned, risk-standardized readmission rate (RSRR) following coronary 

artery bypass graft (CABG) surgery measures that have been endorsed or adopted by a 

consensus organization, and found no other feasible and practical measures on this topic. 

The measure has been reviewed by the MAP and was conditionally supported pending 

NQF endorsement as detailed in its Pre-Rulemaking 2014 Map Recommendations Report 

available at: 

https://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx. 

This measure was submitted to NQF on February 5, 2014 and is currently under review. 

(2) Overview of Measure 

 The CABG readmission measure assesses hospitals' 30-day, all-cause 

risk-standardized rate of unplanned readmission following admission for a CABG 

procedure. In general, the measure uses the same approach to risk adjustment and 

hierarchical logistic modeling (HLM) methodology that is specified for CMS's other 

readmission measures previously adopted for this program. Information on how the 

measure employs HLM can be found in the 2012 CABG Readmission Measure 
 1047 

Methodology Report (available at: http://www.cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. 

(3) Data Sources 

 The proposed measure is claims-based. It uses Medicare administrative data from 

hospitalizations for Medicare FFS beneficiaries hospitalized for a CABG procedure. 

(4) Outcome 

 The outcome for this measure is 30-day, all-cause readmission, defined as an 

unplanned subsequent inpatient admission to any applicable acute care facility for any 

cause within 30 days of the date of discharge from the index hospitalization. This 

outcome period is consistent with other NQF-endorsed publicly reported readmission 

measures (AMI, HF, PN, COPD, HWR and, THA/TKA). 

 The measure assesses all-cause unplanned readmissions (excluding planned 

readmissions) rather than readmissions for CABG only for several reasons. First, from 

the patient perspective, a readmission for any reason is likely to be an undesirable 

outcome of care, even though not all readmissions are preventable. Second, limiting the 

measure to CABG-related readmissions may limit the effort focus too narrowly rather 

than encouraging broader initiatives aimed at improving the overall care within the 

hospital and transitions from the hospital setting. Moreover, it is often hard to exclude 

quality issues and accountability based on the documented cause of readmission. For 

example, a patient who underwent a CABG surgery and develops a hospital-acquired 

infection may ultimately be readmitted for sepsis. It would be inappropriate to consider 

such a readmission to be unrelated to the care the patient received for their CABG 
 1048 

surgery. Finally, while the measure does not presume that each readmission is 

preventable, interventions generally have shown reductions in all types of 

readmissions.50,51

 The measure does not count planned readmissions as readmissions. Planned 

readmissions would be identified in claims data using the CMS Planned Readmission 

Algorithm Version 3.0 that detects planned readmissions that may occur within 30 days 

of discharge from the hospital. Version 2.1 of the algorithm was finalized for use in the 

current Hospital IQR Program readmission measures in the FY 2014 IPPS/LTCH PPS 

final rule (78 FR 50785 through 50787, 50790 through 50792 and 50794 through 50798). 

However, we are proposing to update the algorithm to version 3.0, and details on the 

updates to this algorithm can be found in section IX.A.6.a. of the preamble of this 

proposed rule. The proposed CABG readmission measure uses the planned readmission 

algorithm tailored for CABG patients. We adapted the algorithm for this group of 

patients with input from CABG surgeons and other experts, narrowing the types of 

readmissions considered planned since planned readmissions following CABG are less 

common and less varied than among patients discharged from the hospital following a 

medical admission. More detailed information on how the CABG measure incorporates 

the Planned Readmission Algorithm Version 3.0 can be found on the CMS Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. Once at the Web site go 

 

50 Gulshan Sharma, Kou Yong-Fang, Freeman Jean L, Zhang Dong D, Goodwin James S.: Outpatient 

Follow-up Visit and 30-Day Emergency Department Visit and Readmission in Patients Hospitalized for 

Chronic Obstructive Pulmonary Disease. Arch Intern Med. Oct. 2010;170:1664-1670. 51 Nelson EA, Maruish ME, Axler JL.: Effects of Discharge Planning and Compliance with Outpatient 

Appointments on Readmission Rates. Psychiatr Serv. July 1 2000;51(7):885-889. 
 1049 

to the Coronary Artery Bypass Graft (CABG) Readmission zip file. Open the file 

labeled, “Version10_Readmission_CABG_Measure_Methodology_Report_3 19 2014” 

and refer to Section 2.3.3. For the CABG measure, unplanned readmissions that fall 

within the 30-day post-discharge timeframe from the index admission would not be 

counted as readmissions for the index admission if they were preceded by a planned 

readmission. 

(5) Cohort 

 The cohort includes patients aged 65 years and older who received a qualifying 

CABG procedure at an acute care facility. Patients are eligible for inclusion if they had a 

qualifying CABG procedure and continuous enrollment in Medicare FFS one year prior 

to the first day of the index hospital stay and through 30 days post-discharge. The index 

stay is the stay that triggers the 30-day measurement period. 

 In order to include a clinically-coherent set of patients in the measure, we sought 

input from clinical experts regarding the inclusion of other concomitant cardiac and noncardiac procedures, such as valve replacement and carotid endarterectomy. Adverse 

clinical outcomes following such procedures are higher than those following “isolated” 

CABG procedures, that is, CABG procedures performed without concomitant high-risk 

cardiac and non-cardiac procedures.52 Limiting the measure cohort to “isolated” CABG 

patients is consistent with published reports of CABG outcomes9

; therefore, the measure 

cohort considers only patients undergoing isolated CABG as eligible for inclusion in the 

measure. We defined isolated CABG patients as those undergoing CABG procedures 

 

52 Hannan EL, Zhong Y, Lahey SJ, et al. 30-day readmissions after coronary artery bypass graft surgery in 

New York State. JACC Cardiovasc Interv. 2011;4(5):569-576. 
 1050 

without concomitant valve or other major cardiac, vascular or thoracic procedures. In 

addition, our clinical experts, consultants, and Technical Expert Panel (TEP) members 

agreed that an isolated CABG cohort is a clinically coherent cohort for quality 

measurement. For detailed information on the cohort definition, we refer readers to the 

2012 CABG Readmission Measure Methodology Report on the CMS Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html.

(6) Inclusion and Exclusion Criteria 

 The measure includes hospitalizations for patients who are 65 years of age or 

older at the time of index admission and for whom there was a complete 12 months of 

Medicare FFS enrollment to allow for adequate risk adjustment. The measure excludes 

the following admissions from the measure cohort: (1) Admissions for patients who are 

discharged against medical advice (excluded because providers do not have the 

opportunity to deliver full care and prepare the patient for discharge); (2) admissions for 

patients who die during the initial hospitalization (these patients are not eligible for 

readmission); (3) admissions for patients with subsequent qualifying CABG procedures 

during the measurement period (a repeat CABG procedure during the measurement 

period very likely represents a complication of the original CABG procedure and is a 

clinically more complex and higher risk surgery, therefore we select the first CABG 

admission for inclusion in the measure and exclude subsequent CABG admissions from 

the cohort); and (4) admissions for patients without at least 30 days post-discharge 
 1051 

enrollment in Medicare FFS (excluded because the 30-day readmission outcome cannot 

be assessed in this group). 

(7) Risk-Adjustment 

 The measure adjusts for differences across hospitals in how at risk their patients 

are for readmission relative to patients cared for by other hospitals. The measure uses 

claims data to identify patient clinical conditions and comorbidities to adjust patient risk 

for readmission across hospitals, but does not adjust for potential complications of care. 

The model does not adjust for socioeconomic status or race because risk adjusting for 

these characteristics would hold hospitals with a large proportion of minority or low 

socioeconomic status patients to a different standard of care than other hospitals. One 

goal of this measure is to illuminate quality differences that such risk adjustment would 

obscure. 

(8) Calculating the Risk-Standardized Readmission Ratio (RSRR) 

 The measure is calculated using hierarchical logistic modeling (HLM). This 

approach appropriately accounts for the types of patients a hospital treats (that is, hospital 

case mix), the number of patients it treats, and the quality of care it provides. The HLM 

is an appropriate statistical approach to measuring quality based on patient outcomes 

when the patients are clustered within hospitals (and therefore the patients’ outcomes are 

not statistically independent) and the number of eligible patients for the measure varies 

from hospital to hospital. As noted above, the measure methodology defines hospital 

case mix based on the clinical diagnoses provided in the hospital claims for their patients’ 

inpatient and outpatient visits for the 12 months prior to the CABG hospitalization, as 
 1052 

well as those present in the claims for care at admission. The methodology, however, 

specifically does not account for diagnoses present in the index admission that may 

indicate complications rather than patient comorbidities. 

 The RSRR is calculated as the ratio of the number of predicted readmissions to 

the number of expected readmissions and then the ratio is multiplied by the national 

unadjusted readmission rate. The ratio is greater than one for hospitals that have more 

readmissions that would be expected for an average hospital with similar cases and less 

than one if the hospital has fewer readmissions than would be expected for an average 

hospital with similar cases. This approach is analogous to a ratio of ‘‘observed’’ or 

‘‘crude’’ rate to an ‘‘expected’’ or risk-adjusted rate used in other similar types of 

statistical analyses. 

 The RSRR is a point estimate – the best estimate of a hospital’s readmission rate 

based on the hospital’s case mix. For displaying the measure for the Hospital IQR 

Program, we computed an interval estimate, which is similar to the concept of a 

confidence interval, to characterize the level of uncertainty around the point estimate. 

We use the point estimate and interval estimate to determine hospital performance (for 

example, higher than expected, as expected, or lower than expected). For more detailed 

information on the calculation methodology, we refer readers to our Web site at: 

http://cms.gov/Medicare/QualityInitiativesPatientAssessmentInstruments/HospitalQuality

Inits/Measure-Methodology.html. 

 We invite public comment on this proposal. 
 1053 

b. Proposed Hospital 30-day, All-cause, Risk-standardized Mortality Rate (RSMR) 

Following Coronary Artery Bypass Graft (CABG) Surgery53

(1) Background 

 CABG is a priority area for outcomes measure development because it is a 

common procedure associated with considerable morbidity, mortality, and health care 

spending. In 2007, there were 114,028 hospitalizations for CABG surgery and 137,721 

hospitalizations for combined surgeries for CABG and valve procedures (“CABG plus 

valve” surgeries) among Medicare FFS patients in the U.S.54

 CABG surgeries are costly procedures that account for the majority of major 

cardiac surgeries performed nationally. In FY 2009, isolated CABG surgeries accounted 

for almost half (47.6 percent) of all cardiac surgery hospital admissions in 

Massachusetts.55 This provides an example of the frequency in which a CABG Is 

performed for a patient admitted for cardiac surgery. In 2008, the average Medicare 

payment was $30,546 for CABG without valve and $47,669 for CABG plus valve 

surgeries.56

 Mortality rates following CABG surgery are not insignificant and vary across 

hospitals. For example, in 2009 Medicare FFS data indicated that the median hospitallevel, risk-standardized mortality rate after CABG was 3.0 percent and ranged from 

 

53 Krumholz H. CABG Mortality Measure Methodology Report Section 1, Subtask 3.1, Deliverable #49a: 

Yale New Haven Systems Corporation; Center for Outcomes Research and Evaluation; 2012. 

54 Drye E, Krumholz H, Vellanky S, Wang Y. Probing New Conditions and Procedures for New Measure 

Development: Yale New Haven Systems Corporation; Center for Outcomes Research and Evaluation; 

2009:7. 

55 Massachusetts Data Analysis Center. Adult Coronary Artery Bypass Graft Surgery in the Commonwealth 

of Massachusetts: Hospital and Surgeons Risk-Standardized 30-Day Mortality Rates. In: Health MDoP, ed. 

Boston; 2009:77. 

56 Pennsylvania Health Care Cost Containment Council. Cardiac Surgery in Pennsylvania 2008-2009. 

Harrisburg; 2011:60. 
 1054 

1.5 percent to 7.9 percent.57 Even within a single state, the observed in-hospital, 30-day 

all-cause, hospital-level mortality rate was 1.81 percent and ranged from 0.0 percent to 

5.6 percent among patients who were discharged after CABG surgery (without any other 

major heart surgery earlier in the hospital stay) in New York in 2008. The risk-adjusted 

mortality rate ranged from 0.0 percent to 8.2 percent.58

 Variation in these rates suggests that there is room for improvement. An all-cause 

mortality measure for patients who undergo CABG surgery will provide hospitals with an 

incentive to reduce mortality through improved coordination of perioperative care and 

discharge planning. This is further supported by the success of registry-based mortality 

measures in reducing CABG mortality rates. For example, California reports that CABG 

mortality in that state has steadily declined from 2.9 percent in 2003, the first year of 

mandatory reporting of their state registry measure, to 2.2 percent in 2008.59

 The specifics of the measure methodology are included in the measure 

methodology report we have posted on our Web site at: http://cms.gov/Medicare/QualityInitiatives-Patient-Assessment-Instruments/HospitalQualityInits/MeasureMethodology.html. We refer readers to the report for further details on the 

risk-adjustment statistical model. 

 We are proposing to include this non-NQF-endorsed measure in the Hospital IQR 

Program under the exception authority in section 1886(b)(3)(B)(IX)(bb) of the Act as 

previously discussed in section IX.A.7. of the preamble of this proposed rule. Although 

 

57 Ibid. 

58 New York State Department of Health. Adult Cardiac Surgery in New York State 2006-2008; 2010:54. 59 California CABG Outcomes Reporting Program. The California Report on Coronary Artery Bypass Graft 

Surgery: 2007-2008 Hospital and Surgeon Data. 2011:119. 
 1055 

the proposed measure is not currently NQF-endorsed, we considered available measures 

that have been endorsed or adopted by the NQF, and we were unable to identify any 

measures that assess hospital 30-day, all-cause, risk-standardized mortality rate (RSMR) 

following coronary artery bypass graft (CABG) surgery. We also are not aware of any 

other 30-day, all-cause, RSMR measures that have been endorsed or adopted by a 

consensus organization, and found no other feasible and practical measures on this topic. 

The measure has been reviewed by the MAP and was conditionally supported pending 

NQF endorsement as detailed in its Pre-Rulemaking 2014 Map Recommendations Report 

available at: https://www.qualityforum.org/Publications/2014/01/MAP_PreRulemaking_Report__2014_Recommendations_on_Measures_for_More_than_20_Feder

al_Programs.aspx. This measure was submitted to NQF on March 17, 2014 and is 

currently under review. 

(2) Overview of Measure 

 The CABG mortality measure assesses hospitals' 30-day, all-cause riskstandardized rate of mortality following admission for a CABG procedure. In general, 

the measure uses the same approach to risk adjustment and hierarchical logistic modeling 

(HLM) methodology that is specified for CMS's other mortality measures previously 

adopted for this program. Information on how the measure employs HLM can be found 

in the 2012 CABG Mortality Measure Methodology Report (available at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. 
 1056 

(3) Data Sources 

 The proposed measure is claims-based. It uses Medicare administrative data from 

hospitalizations for Medicare FFS beneficiaries hospitalized for a CABG procedure. 

(4) Outcome 

 The outcome for this measure is 30-day, all-cause mortality, defined as death for 

any cause within 30 days of the date of the index procedure date. We use a standard 

period of assessment so that the outcome for each patient is measured consistently. 

Without a standard period, variation in length of stay would have an undue influence on 

mortality rates, and institutions would have an incentive to adopt strategies to shift deaths 

out of the hospital without improving quality. The measure differs from the timeframe 

used in the other 30-day mortality measures in the Hospital IQR Program by starting the 

outcome window from the procedure date rather than the admission date. Data from 

2009 Medicare FFS patients demonstrates that 25 percent of CABG procedures occurred 

more than 3 days after the admission date. Therefore, dating the measurement period 

from admission would potentially underestimate the period of risk for a substantial 

number of hospitals. 

 We chose 30-day mortality because it is an outcome that can be strongly 

influenced by hospital care and the early transition to the outpatient setting. Clinical 

experts concur that a 30-day timeframe is clinically sensible for measuring outcomes 

following CABG surgery. 

 The measure assesses all-cause mortality rather than CABG-specific mortality for 

several reasons. First, limiting the measure to CABG-related mortalities may limit the 
 1057 

focus of efforts to improve care to a narrow set of approaches as opposed to encouraging 

broader initiatives aimed at improving the overall in-hospital care. Second, cause of 

death may be unreliably recorded and it is often not possible to exclude quality issues and 

accountability based on the documented cause of mortality. Finally, from a patient 

perspective, death due to any cause is the outcome that matters. 

(5) Cohort 

 The cohort includes patients aged 65 years and older who received a qualifying 

CABG procedure at an acute care facility. Patients are eligible for inclusion if they had a 

qualifying CABG procedure and continuous enrollment in Medicare FFS one year prior 

to the first day of the index hospital stay and through 30 days post-procedure. 

 In order to include a clinically-coherent set of patients in the measure, we sought 

input from clinical experts regarding the inclusion of other concomitant cardiac and noncardiac procedures, such as valve replacement and carotid endarterectomy. Adverse 

clinical outcomes following such procedures are higher than those following “isolated” 

CABG procedures, that is, CABG procedures performed without concomitant high-risk 

cardiac and non-cardiac procedures.60 Limiting the measure cohort to “isolated” CABG 

patients is consistent with published reports of CABG outcomes; 61 therefore, the measure 

cohort considers only patients undergoing isolated CABG as eligible for inclusion in the 

measure. We defined isolated CABG patients as those undergoing CABG procedures 

without concomitant valve or other major cardiac, vascular or thoracic procedures. In 

addition, our clinical experts, consultants, and Technical Expert Panel (TEP) members 

 

60 Hannan EL, Zhong Y, Lahey SJ, et al. 30-day readmissions after coronary artery bypass graft surgery in 

New York State. JACC Cardiovasc Interv. 2011;4(5):569-576. 

61 Ibid. 
 1058 

agreed that an isolated CABG cohort is a clinically coherent cohort for quality 

measurement. For detailed information on the cohort definition, we refer readers to the 

2012 CABG Mortality Measure Methodology Report on the CMS Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html.

(6) Inclusion and Exclusion Criteria 

 The measure includes hospitalizations for patients who are 65 years of age or 

older at the time of index admission and for whom there was a complete 12 months of 

Medicare FFS enrollment to allow for adequate risk adjustment. The measure excludes 

the following admissions from the measure cohort: (1) admissions for patients who leave 

hospital against medical advice excluded because providers do not have the opportunity 

to deliver full care and prepare the patient for discharge); and (2) admissions for patients 

with subsequent qualifying CABG procedures during the measurement period (a repeat 

CABG procedure during the measurement period very likely represents a complication of 

the original CABG procedure and is a clinically more complex and higher risk surgery, 

therefore we select the first CABG admission for inclusion in the measure and exclude 

subsequent CABG admissions from the cohort). 

(7) Risk-Adjustment 

 The measure adjusts for differences across hospitals in how at risk their patients 

are for death relative to patients cared for by other hospitals. The measure uses claims 

data to identify patient clinical conditions and comorbidities to adjust patient risk for 

readmission across hospitals, but does not adjust for potential complications of care. 
 1059 

Consistent with NQF guidelines, the model does not adjust for socioeconomic status or 

race because risk adjusting for these characteristics would hold hospitals with a large 

proportion of minority or low socioeconomic status patients to a different standard of 

care than other hospitals. One goal of this measure is to illuminate quality differences 

that such risk adjustment would obscure. 

(8) Calculating the Risk-Standardized Mortality Ratio (RSMR) 

 The measure is calculated using hierarchical logistic modeling (HLM). This 

approach appropriately accounts for the types of patients a hospital treats (that is, hospital 

case mix), the number of patients it treats, and the quality of care it provides. The HLM 

is an appropriate statistical approach to measuring quality based on patient outcomes 

when the patients are clustered within hospitals (and therefore the patients’ outcomes are 

not statistically independent) and the number of eligible patients for the measure varies 

from hospital to hospital. As noted above, the measure methodology defines hospital 

case mix based on the clinical diagnoses provided in the hospital claims for their patients’ 

inpatient and outpatient visits for the 12 months prior to the CABG hospitalization, as 

well as those present in the claims for care at admission. The methodology, however, 

specifically does not account for diagnoses present in the index admission that may 

indicate complications rather than patient comorbidities. 

 The RSMR is calculated as the ratio of the number of predicted deaths to the 

number of expected deaths and then the ratio is multiplied by the national unadjusted 

mortality rate. The ratio is greater than one for hospitals that have more deaths than 

would be expected for an average hospital with similar cases and less than one if the 
 1060 

hospital has fewer deaths than would be expected for an average hospital with similar 

cases. This approach is analogous to a ratio of “observed” or “crude” rate to an 

“expected” or risk-adjusted rate used in other similar types of statistical analyses. 

 The RSMR is a point estimate – the best estimate of a hospital’s mortality rate 

based on the hospital’s case mix. For displaying the measure for the Hospital IQR 

Program, we computed an interval estimate, which is similar to the concept of a 

confidence interval, to characterize the level of uncertainty around the point estimate. 

We use the point estimate and interval estimate to determine hospital performance (for 

example, higher than expected, as expected, or lower than expected). For more detailed 

information on the calculation methodology, we refer readers to our Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html.

 We invite public comment on this proposal. 

c. Proposed Hospital-level, Risk-standardized 30-day Episode-of-Care Payment Measure 

for Pneumonia 

(1) Background 

 Providing high-value care is an essential part of our mission to provide better 

health care for individuals, better health for populations, and lower costs for health care. 

In order to incentivize innovation that promotes high-quality care at high value it is 

critical to examine measures of payment and patient outcomes concurrently. There is 

evidence of variation in payments at hospitals for pneumonia patients; mean 30-day 

risk-standardized payment among Medicare FFS patients aged 65 or older hospitalized 
 1061 

for pneumonia in 2008-2009 was $13,237, and ranged from $8,281 to $27,975 across 

4,155 hospitals. However, high or low payments to hospitals are difficult to interpret in 

isolation. Some high payment hospitals may have better clinical outcomes when 

compared with low payment hospitals while other high payment hospitals may not have 

better outcomes. For this reason, the value of hospital care is more clearly assessed when 

pairing hospital payments with hospital quality. Therefore, we are proposing to include 

this non-NQF-endorsed measure in the Hospital IQR Program under the exception 

authority in section 1886(b)(3)(B)(IX)(bb) of the Act as previously discussed in 

section IX.A.7. of the preamble of this proposed rule. Although the proposed measure is 

not currently NQF-endorsed, we considered available measures that have been endorsed 

or adopted by the NQF, and we were unable to identify any measures that assess hospital 

risk- standardized payment associated with a 30-day episode-of-care for pneumonia. We 

also are not aware of any other 30-day episode-of- care pneumonia measures that have 

been endorsed or adopted by a consensus organization, and found no other feasible and 

practical measures on this topic. The MAP supports this measure but reiterated the need 

for this measure to be submitted for NQF-endorsement: 

https://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx. 

This measure was submitted to the NQF for endorsement on April 18, 2014. 

 We believe it is important to adopt this measure as pneumonia is one of the 

leading causes of hospitalization for Americans 65 and over, and pneumonia patients 
 1062 

incur roughly $10 billion in aggregate health care costs.62 Furthermore, because 30-day 

all-cause mortality and readmission measures for pneumonia are already publicly 

reported, pneumonia serves as a model condition for assessing relative value for an 

episode of care that begins with an acute hospitalization because including this measure 

in the Hospital IQR Program and publicly reporting it on Hospital Compare will allow 

stakeholders to assess information about a hospital’s quality and cost of care for 

pneumonia. The measure reflects differences in the management of care for patients with 

pneumonia both during hospitalization and immediately post-discharge. By focusing on 

one specific condition, value assessments may provide actionable feedback to hospitals 

and incentivize targeted improvements in care. 

(2) Overview of Measure and Rationale for Examining Payments for a 30-Day 

Episode-of-Care 

 The pneumonia payment measure assesses hospital risk-standardized payment 

associated with a 30-day episode-of-care for pneumonia for any hospital participating in 

the Hospital IQR Program. The measure includes Medicare FFS patients aged 65 or 

older admitted for pneumonia and calculates payments for these patients over a 30-day 

episode-of-care beginning with the index admission. In general, the measure uses the 

same approach to risk-adjustment as our 30-day outcome measures previously adopted 

for the Hospital IQR Program. We refer readers to our Web site at: 

http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. 

 

62 Lindenauer PK, Lagu T, Shieh M, Pekow PS, Rothberg MB. Association of diagnostic coding with 

trends in hospitalizations and mortality of patients with pneumonia, 2003-2009. JAMA : The Journal of the 

American Medical Association. 2012;307(13):1405-1413. 
 1063 

 When examining variation in payments, consideration of the episode-of-care 

triggered by admission is meaningful for several reasons. First, hospitalizations represent 

a brief period of illness that requires ongoing management post-discharge and decisions 

made at the admitting hospital affect payments for care in the immediate post-discharge 

period. Second, attributing payments for a continuous episode-of-care to admitting 

hospitals may reveal practice variations in the full care of the illness that can result in 

increased payments. Third, a 30-day preset window provides a standard observation 

period by which to compare all hospitals. Lastly, the pneumonia payment measure is 

intended to be paired with our 30-day pneumonia mortality and readmission measures 

and capture payments for Medicare patients across care settings, services, and supplies, 

except for Medicare Part D (that is, inpatient, outpatient, skilled nursing facility, home 

health, hospice, physician/clinical laboratory/ambulance services, supplier Part B items, 

and durable medical equipment, prosthetics/orthotics, and supplies). 

 We have posted the measure methodology report on our Web site at: 

http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. We refer readers to the 

report for further details on the risk adjustment statistical model as well as the model 

results. 

(3) Data Sources 

 The proposed measure is claims-based and uses Medicare administrative data that 

contain hospitalizations and payments for Medicare FFS beneficiaries hospitalized with 

pneumonia. 
 1064 

(4) Outcome 

 The primary outcome of the pneumonia payment measure is the hospital-level 

risk-standardized payment for a pneumonia episode-of-care. The measure captures 

payments for Medicare patients across all care settings, services, and supplies, except 

Part D. By risk-standardizing the payment measure, we are able to adjust for case-mix at 

any given hospital and compare a specific hospital’s pneumonia payment to other 

hospitals with the same case-mix. The analytic time frame for the pneumonia payment 

measure begins with the index admission for pneumonia and ends 30 days postadmission. 

 In order to isolate payment variation that reflects practice patterns rather than 

CMS payment adjustments, the pneumonia payment measure excludes policy and 

geography payment adjustments unrelated to clinical care decisions. We achieve this by 

“stripping” or “standardizing” payments for each care setting. Stripping refers to 

removing geographic differences and policy adjustments in payment rates for individual 

services from the total payment for that service. Standardizing refers to averaging 

payments across geographic areas for those services where geographic differences in 

payment cannot be stripped. Stripping and standardizing the payment amounts allows for 

a fair comparison across hospitals based solely on payments for decisions related to 

clinical care of pneumonia. 

(5) Cohort 

 We created the pneumonia payment measure cohort to be aligned with the 

publicly reported pneumonia mortality measure cohort. Consistent with these measures, 
 1065 

the pneumonia payment measure includes hospitalizations with a principal hospital 

discharge diagnosis of pneumonia using the International Classification of Diseases, 

Ninth revision, Clinical Modification (ICD-9-CM). These measures will use data from 

July 2010 – Jun 2013 which does not yet include the period for which ICD-10 codes are 

mandatory. ICD-10 will officially be implemented on October 1, 2015. A full list of 

ICD–9–CM codes included in the final cohort can be found in Appendix B of the 

technical report on our Web site at: http://www.cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. The 

measure includes only those hospitalizations from short-stay acute care hospitals in the 

index cohort and restricts the cohort to patients enrolled in FFS Medicare Parts A and B 

(with no Medicare Advantage coverage). 

(6) Inclusion and Exclusion Criteria 

 The pneumonia payment measure includes hospitalizations for patients 65 years 

or older at the time of index admission and for whom there was a complete 12 months of 

FFS enrollment to allow for adequate risk adjustment. An index 

admission/hospitalization is the initial pneumonia admission that triggers the 30-day 

episode-of-care for this payment calculation. The measure excludes the following 

admissions from the measure cohort: (1) Admissions for patients with fewer than 30 

days of post-admission enrollment in Medicare because this is necessary in order to 

identify the outcome (payments) in the sample over the analytic period; (2) admissions 

for patients having a principal diagnosis of pneumonia during the index hospitalization 

who were transferred from another acute care facility are excluded, because the hospital 
 1066 

where the patient was initially admitted made the critical acute care decisions (including 

the decision to transfer and where to transfer); (3) admissions for pneumonia patients 

who were discharged on the same or next day as the index admission and did not die or 

get transferred are excluded, because it is unlikely these patients suffered a clinically 

significant pneumonia; (4) admissions for patients enrolled in the Medicare Hospice 

program any time in the 12 months prior to the index hospitalization, including the first 

date of the index admission are excluded, because it is likely that these patients are 

continuing to seek comfort care and their goal may not be survival; (5) admissions for 

patients who are discharged alive and against medical advice are excluded because 

providers did not have the opportunity to deliver full care and prepare the patient for 

discharge; (6) admissions for patients transferred to or from federal or Veterans 

Administration hospitals are excluded, because we do not have claims data for these 

hospitals; thus, including these patients would systematically underestimate payments; 

and (7) admissions without a DRG or DRG weight for the index hospitalization are 

excluded, because we cannot calculate a payment for these patients’ index admission 

using the IPPS; this would underestimate payments for the entire episode-of-care. There 

are two portions of the DRG system that determine how much a provider is reimbursed. 

The first is the DRG itself which indicates the reason a patient was admitted. The second 

is the DRG weight which determines the severity of the admission. Without either of 

these, we were unable to calculate the payment for the index admission. 
 1067 

(7) Risk Adjustment 

 The measure adjusts for differences across hospitals in how payments are affected 

by patient comorbidities relative to patients cared for by other hospitals. Consistent with 

NQF guidelines, the model does not adjust for socioeconomic status or race, because 

risk-adjusting for these characteristics would hold hospitals with a large proportion of 

minority or low socioeconomic status patients to a different standard of care than other 

hospitals. One goal of this measure is to illuminate quality differences that such 

risk-adjustment would obscure. 

(8) Calculating the Risk-Standardized Payment (RSP) 

 The measure is calculated using a hierarchical generalized linear model with a log 

link and a Poisson error distribution. This is a widely accepted statistical method that 

enables fair evaluation of relative hospital performance by taking into account patient risk 

factors as well as the number of patients that a hospital treats. This statistical model 

accounts for the structure of the data (patients clustered within hospitals) and calculates: 

(1) how much variation in hospital payment overall is accounted for by patients’ 

individual risk factors (such as age and other medical conditions); and (2) how much 

variation is accounted for by hospital-specific performance. This approach appropriately 

models a positive, continuous, right-skewed outcome like payment and also accounts for 

the types of patients a hospital treats (that is, hospital case mix), the number of patients it 

treats, and the quality of care it provides. The hierarchical generalized linear model is an 

appropriate statistical approach to measuring quality based on patient outcomes when the 

patients are clustered within hospitals and sample sizes vary across hospitals. Clustered 
 1068 

patients are within the same hospital, and the quality of care of the hospital effects all 

patients, so the outcomes for each hospital’s patients are not fully independent (that is, 

completely unrelated) as is assumed by many statistical models. As noted above, the 

measure methodology defines hospital case mix based on the clinical diagnoses provided 

in the hospital claims for their patients’ inpatient and outpatient visits for the 12 months 

prior to the pneumonia hospitalization, as well as those present in the claims for care at 

admission. This methodology specifically does not, however, account for diagnoses 

present in the index admission that may indicate complications rather than patient 

comorbidities.

 The RSP is calculated as the ratio of predicted payments to expected payments 

and then the ratio is multiplied by the national unadjusted average payment for an episode 

of care. The ratio is greater than one for hospitals that have higher payments than would 

be expected for an average hospital with similar cases and less than one if the hospital has 

lower payments than would be expected for an average hospital with similar cases. This 

approach is analogous to a ratio of “observed” or “crude” rate to an “expected” or 

“risk-adjusted” rate used in other similar types of statistical analyses. 

 The RSP is a point estimate—the best estimate of a hospital’s payment based on 

the hospital’s case mix. To calculate the measure for the Hospital IQR Program, we 

computed an interval estimate, which is similar to the concept of a confidence interval, to 

characterize the level of uncertainty around the point estimate, we use the point estimate 

and interval estimate to determine hospital performance (for example, higher than 

expected, as expected, or lower than expected). The interval estimate indicates that the 
 1069 

true value of the payment ratio lies between the lower limit and the upper limit of the 

interval. For more detailed information on the calculation methodology, we refer readers 

to our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/HospitalQualityInits/Measure-Methodology.html.

 This measure is meant to be paired with our 30-day pneumonia mortality and/or 

readmission measure in order for us to gain a better understanding of the value of care for 

a hospital’s patients and the nation as a whole. 

We invite public comment on this proposal. 

d. Proposed Hospital-Level, Risk-standardized 30-day Episode-of-Care Payment 

Measure for Heart Failure 

(1) Background 

 There is evidence of variation in payments at hospitals for heart failure patients; 

mean 30-day risk-standardized payment among Medicare FFS patients aged 65 or older 

hospitalized for heart failure in 2008-2009 was $13,922, and ranged from $9,630 to 

$20,646 across 3,714 hospitals. However, high or low payments to hospitals are difficult 

to interpret in isolation. Some high payment hospitals may have better clinical outcomes 

when compared with low payment hospitals while other high payment hospitals may not 

have better outcomes. For this reason, the value of hospital care is more clearly assessed 

when pairing hospital payments with hospital quality. Therefore, we are proposing to 

include this non-NQF-endorsed measure: hospital risk-standardized payment associated 

with a 30-day episode-of-care for heart failure in the Hospital IQR Program under the 

exception authority in section 1886(b)(3)(B)(IX)(bb) of the Act as previously discussed 
 1070 

in section IX.A.7. of the preamble of this proposed rule. Although the proposed measure 

is not currently NQF-endorsed, we considered available measures that have been 

endorsed or adopted by the NQF, and we were unable to identify any measures that 

assess hospital risk- standardized payment associated with a 30-day episode-of-care for 

heart failure. We also are not aware of any other 30-day episode-of- care heart failure 

measures that have been endorsed or adopted by a consensus organization, and found no 

other feasible and practical measures on this topic. The MAP supports this measure but 

reiterated the need for this measure to be submitted for NQF-endorsement: 

https://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx. 

The HF measure was submitted to NQF and is currently under review as part of the cost 

and resource use project. 

 We believe it is important to adopt this measure as heart failure is one of the 

leading causes of hospitalization for Americans 65 and over and costs roughly $34 billion 

annually.63,64 Furthermore, because 30-day all-cause mortality and readmission measures 

for heart failure are already publicly reported, heart failure serves as a model condition 

for assessing relative value for an episode of care that begins with an acute 

hospitalization. Including this measure in the Hospital IQR Program and publicly 

reporting it on Hospital Compare will allow stakeholders to assess information about a 

hospital’s quality and cost of care for heart failure. The measure reflects differences in 

the management of care for patients with heart failure both during hospitalization and 

 

63 Russo CA, Elixhauser, A. Hospitalizations in the Elderly Population, 2003. Agency for Healthcare 

Research and Quality. 2006. 

64 Heidenriech PA, Trogdon JG, Khavjou OA, Butler J, Dracup K, Ezekowitz MD, et al. Forecasting the 

future of cardiovascular disease in the United States: a policy statement from the American Heart 

Association. Circulation. 2011;123(8):933–44. 
 1071 

immediately post-discharge. By focusing on one specific condition, value assessments 

may provide actionable feedback to hospitals and incentivize targeted improvements in 

care. 

(2) Overview of Measure and Rationale for Examining Payments for a 30-Day 

Episode-of-Care

 The heart failure payment measure assesses hospital risk-standardized payment 

associated with a 30-day episode-of-care for heart failure for any hospital participating in 

the Hospital IQR Program. The measure includes Medicare FFS patients aged 65 or 

older admitted for heart failure and calculates payments for these patients over a 30-day 

episode-of-care beginning with the index admission. In general, the measure uses the 

same approach to risk-adjustment as our 30-day outcome measures previously adopted 

for the Hospital IQR Program. We refer readers to the measure methodology report on 

our Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. 

 When examining variation in payments, consideration of the episode-of-care 

triggered by admission is meaningful for several reasons. First, hospitalizations represent 

brief periods of illness that require ongoing management post-discharge; and decisions 

made at the admitting hospital affect payments for care in the immediate post-discharge 

period. Second, attributing payments for a continuous episode-of-care to admitting 

hospitals may reveal practice variations in the full care of the illness that can result in 

increased payments. Third, a 30-day preset window provides a standard observation 

period by which to compare all hospitals. The term preset window means that every 
 1072 

admission will be tracked 30 days post admission in order to apply a standardized 

measurement window. In order to compare payments across providers it is important that 

the comparison window is identical for each admission at each hospital. Lastly, the heart 

failure payment measure is intended to be paired with our 30-day heart failure mortality 

and readmission measures and capture payments for Medicare patients across all care 

settings, services, and supplies, except for Medicare Part D (that is, inpatient, outpatient, 

skilled nursing facility, home health, hospice, physician/clinical laboratory/ambulance 

services, supplier Part B items, and durable medical equipment, prosthetics/ orthotics, 

and supplies). 

 We have posted the measure methodology report on our Web site at: 

http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. We refer readers to the 

report for further details on the risk adjustment statistical model as well as the model 

results. 

(3) Data Sources 

 The proposed measure is claims-based and uses Medicare administrative data that 

contain hospitalizations and payments for Medicare FFS beneficiaries hospitalized with 

heart failure. 

(4) Outcome 

 The primary outcome of the heart failure payment measure is the hospital-level 

risk-standardized payment for a heart failure episode-of-care. The measure captures 

payments for Medicare patients across all care settings, services, and supplies, except 
 1073 

Part D. By risk-standardizing the payment measure, we are able to adjust for case-mix at 

any given hospital and compare a specific hospital’s heart failure payment to other 

hospitals with the same case-mix. The analytic time frame for the heart failure payment 

measure begins with the index admission for heart failure and ends 30 days 

post-admission. The index admission is any admission included in the measure 

calculation that begins the 30-day AMI episode of care. 

 In order to isolate payment variation that reflects practice patterns rather than 

CMS payment adjustments, the heart failure payment measure excludes policy and 

geography payment adjustments unrelated to clinical care decisions. We achieve this by 

“stripping” or “standardizing” payments for each care setting. These concepts were also 

discussed previously in the proposed hospital-level, risk-standardized 30-day episode-ofcare payment measure for pneumonia measure in section IX.A.7.c.(4) of the preamble of 

this proposed rule. 

(5) Cohort 

 We created the heart failure payment measure cohort to be aligned with the 

publicly reported heart failure mortality measure cohort. Consistent with these measures, 

the heart failure payment measure includes hospitalizations with a principal hospital 

discharge diagnosis of heart failure using ICD–9–CM codes included in the final cohort 

can be found in Appendix B of the technical report on our Web site at: 

http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure- Methodology.html. The measure will be 

using data from July 2010 – Jun 2013 which does not yet include the period where ICD-
 1074 

10 codes are mandatory. ICD-10-CM/PCS will officially be implemented on 

October 1, 2015; therefore, the measure will not include ICD-10 data for another three 

reporting periods. An index admission/hospitalization is the initial heart failure 

admission that triggers the 30-day episode-of-care for this payment calculation. The 

measure includes only those hospitalizations from short-stay acute care hospitals in the 

index cohort and restricts the cohort to patients enrolled in FFS Medicare Parts A and B 

(with no Medicare Advantage coverage). These hospitalizations are the admissions 

which were included in the measure after applying all inclusion/exclusion criteria. 

(6) Inclusion and Exclusion Criteria 

 The heart failure payment measure includes hospitalizations for patients 65 years 

or older at the time of index admission and for whom there was a complete 12 months of 

FFS enrollment to allow for adequate risk adjustment. The measure excludes the 

following admissions from the measure cohort: (1) admissions for patients with fewer 

than 30 days of post-admission enrollment in Medicare because this is necessary in order 

to identify the outcome (payments) in the sample over the analytic period; (2) admissions 

for patients having a principal diagnosis of heart failure during the index hospitalization 

who were transferred from another acute care facility are excluded, because the hospital 

where the patient was initially admitted made the critical acute care decisions (including 

the decision to transfer and where to transfer); (3) admissions for heart failure patients 

who were discharged on the same or next day as the index admission and did not die or 

get transferred are excluded, because it is unlikely these patients suffered a clinically 

significant heart failure; (4) admissions for patients enrolled in the Medicare Hospice 
 1075 

program any time in the 12 months prior to the index hospitalization, including the first 

date of the index admission are excluded, because it is likely that these patients are 

continuing to seek comfort care and their goal may not be survival; (5) admissions for 

patients who are discharged alive and against medical advice are excluded because 

providers did not have the opportunity to deliver full care and prepare the patient for 

discharge; (6) admissions for patients transferred to or from federal or Veterans 

Administration hospitals are excluded, because we do not have claims data for these 

hospitals; thus, including these patients would systematically underestimate payments; 

(7) admissions without a DRG or DRG weight for the index hospitalization are excluded, 

because we cannot calculate a payment for these patients’ index admission using the 

IPPS; this would underestimate payments for the entire episode-of-care; and 

(8) admissions for patients who receive a heart transplant or LVAD during the index 

admissions or episode of care because these patients are clinically distinct, generally very 

high payment cases, and not representative of the typical heart failure patient that this 

measure aims to capture. 

(7) Risk Adjustment 

 The measure adjusts for differences across hospitals in how payments are affected 

by patient comorbidities relative to patients cared for by other hospitals. The model does 

not adjust for socioeconomic status or race, because risk-adjusting for these 

characteristics would hold hospitals with a large proportion of minority or low 

socioeconomic status patients to a different standard of care than other hospitals. One 
 1076 

goal of this measure is to illuminate quality differences that such risk-adjustment would 

obscure. 

(8) Calculating the Risk-Standardized Payment (RSP) 

 The measure is calculated using hierarchical generalized linear statistical models 

with a log link and a Gamma error distribution. This approach appropriately models a 

positive, continuous, right-skewed outcome like payment and also accounts for the types 

of patients a hospital treats (that is, hospital case-mix), the number of patients it treats, 

and the quality of care it provides. The hierarchical generalized linear model is an 

appropriate statistical approach to measuring quality based on patient outcomes when the 

patients are clustered within hospitals (and therefore the patients’ outcomes are not 

statistically independent) and sample sizes vary across hospitals. As noted above, the 

measure methodology defines hospital case mix based on the clinical diagnoses provided 

in the hospital claims for their patients’ inpatient and outpatient visits for the 12 months 

prior to the heart failure hospitalization, as well as those present in the claims for care at 

admission. This methodology specifically does not, however, account for diagnoses 

present in the index admission that may indicate complications rather than patient 

comorbidities. 

 The RSP is calculated as the ratio of predicted payments to expected payments 

and then the ratio is multiplied by the national unadjusted average payment for an episode 

of care. The ratio is greater than one for hospitals that have higher payments than would 

be expected for an average hospital with similar cases and less than one if the hospital has 

lower payments than would be expected for an average hospital with similar cases. This 
 1077 

approach is analogous to a ratio of “observed” or “crude” rate to an “expected” or 

“risk-adjusted” rate used in other similar types of statistical analyses. 

 The RSP is a point estimate – the best estimate of a hospital’s payment based on 

the hospital’s case mix. For displaying the measure for the Hospital IQR Program, we 

computed an interval estimate, which is similar to the concept of a confidence interval, to 

characterize the level of uncertainty around the point estimate, we use the point estimate 

and interval estimate to determine hospital performance (for example, higher than 

expected, as expected, or lower than expected). For more detailed information on the 

calculation methodology, we refer readers to our Web site at: 

http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. 

 This measure is meant to be paired with our 30-day heart failure mortality and/or 

readmission measure in order for us to gain a better understanding of the value of care for 

a hospital’s patients and the nation as a whole. 

We invite public comment on this proposal. 

e. Proposed Severe Sepsis and Septic Shock: Management Bundle Measure 

(NQF #0500) 

(1) Background 

 Sepsis, severe sepsis, and septic shock can arise from a simple infection, such as 

pneumonia or urinary tract infection. Although it can affect anyone at any age, it is more 

common in infants, the elderly, and patients with chronic health conditions such as 

diabetes and immunosuppressive disorders seen in transplant patients. Information for 
 1078 

this measure comes from the NQF Measure Information-Composite for the severe sepsis 

and septic shock: management bundle (NQF #0500).65 More information on this issue is 

available from the Surviving Sepsis Campaign: International Guidelines for Management 

of Severe Sepsis and Septic Shock: 2012.66 Sepsis is associated with mortality rates of 

over 16 to 49 percent, which is more than 8 times higher than the rate for inpatient stays 

for other hospital admissions. Findings from the National Hospital Discharge Survey 

indicate that the number of hospital stays for septicemia more than doubled between the 

years of 2000 and 2008, and patients with this condition were more severely ill than 

patients hospitalized for other conditions. Severe sepsis and septic shock are frequent 

causes of re-hospitalizations, especially during the first year after the initial 

hospitalization. 

 Based on national discharge data reported by the Agency for Healthcare Research 

and Quality (AHRQ), sepsis was the sixth most common principal reason for 

hospitalization in the United States in 2009, accounting for 836,000 hospital stays. There 

were an additional 829,500 stays with a secondary diagnosis of sepsis for a total of 

1,665,400 inpatient stays and 258,000 deaths. From 1993 to 2009, sepsis-related hospital 

stays increased by 153 percent, with an average annual increase of 6 percent. Medicare 

was the predominant payer for sepsis-related hospital stays, covering 58.1 percent of 

 

65 National Quality Forum (NQF). Measure Information-Composite. #500 Severe Sepsis and Septic Shock: 

Management Bundle. Updated 2014 Jan 2. NQF: Washington, D.C. 

http://www.qualityforum.org/Home.aspx. 66 Dellinger RP, Levy MM, Rhodes A, Annane D, et al. Surviving Sepsis Campaign: international 

guidelines for management of severe sepsis and septic shock: 2012. Crit Care Med. 2013 Feb; 41(2):580-

637. 
 1079 

patients. Sepsis cases and sepsis-related deaths are expected to continue to increase with 

the aging of the population. 

 In a landmark study by Rivers et al.67, it has been shown that an absolute and 

relative reduction in mortality from sepsis can be reduced 16 percent and 30 percent, 

respectively, when aggressive care is provided within 6 hours of hospital arrival. 

Furthermore, a recent study of the 2008 Healthcare Cost and Utilization Project (HCUP) 

Nationwide Inpatient Sample68 determined that patients admitted through the Emergency 

Department had a 17 percent lower likelihood of dying from sepsis than when directly 

admitted. 

 The severe sepsis and septic shock: management bundle measure (NQF #0500) is 

NQF endorsed and is conditionally supported by the MAP in its Pre-Rulemaking Report: 

2013 Recommendations on Measures Under Consideration by HHS, available at: 

https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738. 

The MAP noted the measure addresses an NQS priority not adequately addressed in the 

program measure set, but conditionally supported this measure stating, “Not ready for 

implementation; measure concept is promising but requires modification or further 

development.” In addition, “MAP noted the need for continued development of 

electronic specifications for NQF #0500 Severe Sepsis and Septic Shock: Management 

Bundle. We are recommending this measure because we believe severe sepsis and septic 

 

67 Rivers E, Nguyen B, Havstad S et al. Early goal-directed therapy in the treatment of severe sepsis and 

septic shock. N Engl J Med. 

2001; 345: 1368–77. 

68 HCUP Nationwide Inpatient Sample (NIS). Healthcare Cost and Utilization Project (HCUP). 2007-2009. 

Agency for Healthcare Research and Quality, Rockville, MD. http://www.hcupus.ahrq.gov/nisoverview.jsp. 
 1080 

shock are important conditions to monitor. While some workgroup members challenged 

the feasibility and evidence behind this measure, MAP deferred to the recent 

endorsement review of this measure and conditionally supported it for the Meaningful 

Use Program. Public comment from Edwards Lifesciences supports MAP’s conclusion.” 

(2) Overview of Measure 

 The purpose of the proposed severe sepsis and septic shock: management bundle 

measure is to support the efficient, effective, and timely delivery of high quality sepsis 

care in support of the Institute of Medicine’s (IOM) aims for quality improvement. This 

is consistent with the Department of Health and Human Service National Quality 

Strategy ́s priorities directed at one of the leading causes of mortality. By providing 

timely, patient-centered care, and making sepsis care more affordable through early 

intervention, reduced resource use and complication rates can result. The severe sepsis 

and septic shock early management bundle provides a standard operating procedure for 

the early risk stratification and management of a patient with severe infection. Through 

applying this standard operating procedure, a clinically and statistically significant 

decrease in organ failure, mortality, and the utilization of health care resources has been 

demonstrated for over 10 years. Additional information about this measure is available 

on the NQF’s Web site at http://www.qualityforum.org/QPS/0500. 

(3) Data Sources 

 The proposed measure is chart-abstracted data of patients presenting with septic 

shock who received treatment detailed in the Calculations section below. 
 1081 

(4) Outcome

 The outcome criteria for this measure consists of: measure lactate; blood cultures; 

timely antibiotics; fluid resuscitation; lactate clearance; vasopressors, central venous 

pressure (CVP), central venous oxygen saturation (ScvO2); and overall bundle 

compliance. These are discussed in more detail below 

● Measure Lactate 

 Measurement of lactate levels is specifically associated with improved outcomes 

in sepsis, and an elevated lactate value identifies patients at higher risk for poor 

outcomes. Up to 10 percent of in-hospital cardiac arrest in the United States per year is 

secondary to sepsis (pneumonia). These patients are often misdiagnosed and sent to the 

medical floors only to suffer acute hemodynamic deterioration. These outcomes could be 

potentially avoided with lactate measurement upon admission providing risk stratification 

triggering alternative dispositions. 

 Levy et al. (2010) conducted an international, multisite “Surviving Sepsis 

Campaign” (SSC) initiative (Levy et al. SSC initiative) to determine the rate of change at 

which the sites reached the SSC guideline targets. In the first quarter of this initiative, 

only 61.0 percent of patients had lactate values measured consistent with guidelines. In 

addition, prior studies have shown that care prompted by measurement of lactate levels in 

sepsis patients reduced resource utilization and cost. This leads to lower likelihood of 

hospital-acquired conditions. This performance measure has been previously used as a 

core component of multicenter and national quality improvement initiatives. Formalizing 
 1082 

it as a national performance measure will provide direct targets for intervention that are 

closely linked with improvements in mortality and cost. 

● Blood Cultures 

 In the first quarter of the Levy et al. SSC initiative, only 64.5 percent of patients 

had blood cultures collected prior to antibiotic administration. Collecting blood cultures 

prior to antibiotic administration is specifically associated with improved outcomes in 

sepsis, and pathogens identified by blood cultures allow for customized therapy. As a 

result, blood cultures continue as a recommendation of the current Surviving Sepsis 

Guidelines. 

 By obtaining blood cultures, antibiotic regimens can be customized to treat the 

specific infecting organism. This will result in less unnecessary exposure to antibiotics, 

reducing complications associated with antibiotic use, including drug reactions, allergies 

and adverse events, the development of drug-resistant organisms, and the occurrence of 

Clostridium difficile colitis. The performance measure for collecting blood cultures for 

suspected sepsis has been previously used and continues as a core component of the SSC 

guidelines. 

● Timely Antibiotics 

 Kumar et al.69 found the median time to appropriate antibiotics was 6 hours after 

shock. In the first quarter of the Levy et al.70 SSC initiative, only 60.4 percent of patients 

 

69 Kumar A, Roberts D, Wood K, Light B, et al. Duration of Hypotension before Initiation of Effective 

Antimicrobial Therapy is the Critical Determinant of Survival in Human Septic Shock. Crit Care Med. 

2006;34 (6):1589-96. 

70 Levy MM, Dellinger RP, et al.; Surviving Sepsis Campaign. The Surviving Sepsis Campaign: results of 

an international guideline based performance improvement program targeting severe sepsis. Crit Care Med. 

2010 Feb;38(2):367-74. 
 1083 

received timely antibiotics. Multiple studies, for example, have demonstrated that delays 

in administration of appropriate antibiotics in patients with sepsis and other severe 

infections are associated with longer lengths of stay, higher costs, and higher mortality.

In septic shock, the Kumar et al. study demonstrated that every hour in delay of 

appropriate antibiotics was associated with a 7.6 percent higher mortality. The timely 

administration of broad-spectrum antibiotics was associated with significantly higher risk 

adjusted survival. Based on a preponderance of data, the current recommendations in the 

international guidelines for the management of severe sepsis and septic shock includes 

the administration of broad-spectrum antibiotic therapy within 1 hour of diagnosis of 

septic shock and severe sepsis. 

● Fluid Resuscitation 

 A common finding in patients with septic shock, manifested by low blood 

pressure and/or other signs of organ hypoperfusion, such as elevated serum lactate levels, 

is intravascular volume depletion. The degree of the intravascular volume deficit in 

sepsis varies, yet nearly all patients require initial volume resuscitation and many patients 

require continuing fluid resuscitation over the first 24 hours. 

 Early fluid resuscitation is associated with improved outcomes for patients with 

acute lung injury due to septic shock. International guidelines recommend that patients 

with suspected hypovolemia be initially treated with at least 30 mL/kg of crystalloid (for 

example, Ringer’s solution) to determine clinical response. In the first quarter of the 

Levy et al.71 SSC initiative, only 59.8 percent of patients received fluid resuscitation 

consistent with guidelines. Timely fluid resuscitation avoids an error of omission in 

 

71Ibid. 
 1084 

which indicated therapy is delayed or omitted. By improving outcomes, length of stay is 

reduced. This leads to lower likelihood of hospital-acquired conditions. This 

performance measure has been previously used as a core component and continues as a 

core component of the SSC guidelines. Formalizing it as a national performance measure 

will provide direct targets for intervention that are closely linked with improvements in 

mortality and cost. 

● Lactate Clearance 

 Elevated lactate levels prompt the consideration of specific care practices toward 

hemodynamic optimization guided by either central venous oxygen saturation or lactate 

clearance. International guidelines recommend that patients with sepsis and continued 

elevated lactate values have additional therapies until lactate levels are normalized. 

However, normal lactate levels can be seen in septic shock, especially in children. 

● Vasopressors, Central Venous Pressure (CVP), and Central Venous Oxygen 

Saturation (ScvO2) 

 Performance gaps in individual bundle elements can range from 79 percent 

(Confidence Interval (CI) (69-89 percent) for vasopressors, to 27 percent (CI 

18-36 percent) for Central Venous Pressure (CVP) measurement, and as low as 15 

percent (CI 7-23 percent) for Central Venous Oxygen Saturation (ScvO2) in some 

community emergency departments. These numbers increase (50-75 percent) in larger 

hospital settings. CVP has been shown to have a significant association with mortality72

 

72 Varpula M, Tallgren M, Saukkonen K, Voipio-Pulkki LM, Pettila V. Hemodynamic variables related to 

outcome in septic shock. Intensive Care Med. Jun 23 2005;31:1066-1071. 
 1085 

and multiple studies and meta-analysis have shown a significant association with 

reaching an ScvO2 of 70 percent and improved mortality. 

● Overall Bundle Compliance 

 Multiple initiatives promoting bundles of care for severe sepsis and septic shock 

were associated with improved guideline compliance and lower hospital mortality. Even 

with compliance rates of less than 30 percent, absolute reductions in mortality of 

4-6 percent have been noted. Coba et al.73 found that when all bundle elements were 

completed within 18 hours and compared with patients who did not have bundle 

completion, the mortality difference was 10.2 percent. Thus, there is a direct association 

between bundle compliance and improved mortality. Additionally, a continuous quality 

improvement (CQI) initiative, can improve compliance rates. CQI is a quality 

management process that encourages continually assessing performance and whether 

improvements can be made.74 Multiple studies have shown that standardized order sets, 

enhanced bedside monitor display, telemedicine and comprehensive CQI feedback is 

feasible, modifies clinician behavior and is associated with decreased hospital mortality. 

(5) Cohort 

 This measure will focus on patients aged 18 years and older who present with 

symptoms of severe sepsis or septic shock. These patients will be eligible for the 3 hour 

(severe sepsis) and/or 6 hour (septic shock) early management measures. 

 

73 Coba V, Whitmill M, Mooney R, et al. Resuscitation Bundle Compliance in Severe Sepsis and Septic 

Shock: Improves Survival, Is Better Late than Never. J Intensive Care Med. Jan 10 2011. 

74 Edwards PJ, et al. Maximizing your investment in EHR: Utilizing EHRs to inform continuous quality 

improvement. JHIM 2008;22(1):32-7. 
 1086 

(6) Inclusion and Exclusion Criteria 

Numerator Statement: the numerator is: Patients from the denominator who 

received all the following: Step 1, Step 2, and Step 3 within 3 hours of time of 

presentation, and if septic shock is present (as either defined as hypotension or lactate 

>=4 mmol/L), who also received Step 4, Step 5, Step 6, and Step 7 within 6 hours of time 

of presentation. The steps are described in detail below. 

 Step 1: Measure lactate level 

 Step 2: Obtain blood cultures prior to antibiotics 

 Step 3: Administer broad spectrum antibiotics 

 Step 4: Administer 30 ml/kg crystalloid for hypotension or lactate >= 4 mmol/L 

 Step 5: Apply vasopressors (for hypotension that does not respond to initial fluid 

resuscitation to maintain a mean arterial pressure >= 65) 

 Step 6: In the event of persistent arterial hypotension despite volume 

resuscitation (septic shock) or initial lactate >= 4 mmol/L (36 mg/dl), measure central 

venous pressure and central venous oxygen saturation 

 Step 7: Re-measure lactate if initial lactate is elevated 

 Denominator: The denominator is the number of patients presenting with severe 

sepsis or septic shock. The following patients presenting with severe sepsis or septic 

shock will be excluded from the denominator: 

● Patients with advanced directives for comfort care; 

● Patients with clinical conditions that preclude total measure completion; 

● Patients for whom a central line is clinically contraindicated; 
 1087 

● Patients for whom a central line was attempted but could not be successfully 

inserted; 

● A patient or a surrogate decision maker declines or is unwilling to consent to 

such therapies or central line placement; and 

● Patients who are transferred to an acute care facility from another acute care 

facility. 

(7) Calculations 

 In calculating this measure, the denominator is the number of patients presenting 

with severe sepsis or septic shock. The numerator in this measure is patients from the 

denominator who had their lactate levels measured, had blood cultures obtained prior to 

receiving antibiotics, and who received broad spectrum antibiotics within 3 hours of 

presentation. If septic shock is present, the patients also must receive 30 ml/kg 

crystalloid for hypotension or lactate >=4 mmol/L, apply vasopressors (for hypotension 

that does not respond to initial fluid resuscitation to maintain a mean arterial pressure >= 

65), in the event of persistent arterial hypotension despite volume resuscitation (septic 

shock) or initial lactate >=4 mmol/L (36mg/dl) measure central venous pressure and 

central venous oxygen saturation, and the patient’s lactate level must be re-measured if 

the initial lactate level is elevated. 

 We invite public comment on this proposal. 
 1088 

f. Electronic Health Record-Based Voluntary Measures 

(1) Overview of New Electronic Health Record-Based Voluntary Measures 

 We are proposing four new voluntary electronic health record-based measures to 

be submitted as electronically specified measures: (1) Hearing Screening Prior to 

Hospital Discharge (NQF #1354); (2) PC-05 Exclusive Breast Milk Feeding and the 

subset measure PC-05a Exclusive Breast Milk Feeding Considering Mother’s Choice 

(collectively referred to as NQF #0480); (3) Home Management Plan of Care (HMPC) 

Document Given to Patient/Caregiver (measure de-endorsed therefore not appropriate to 

associate with an NQF #); (4) and Healthy Term Newborn (NQF #0716). The four 

proposed electronic health record-based measures were included on a publicly available 

document entitled “List of Measures Under Consideration for December 1, 2012” in 

compliance with section 1890A(a)(2) of the Act, and they were reviewed by the MAP in 

its MAP Pre Rulemaking Report: 2013 Recommendations on Measures Under 

Consideration by HHS. The final MAP report is available at: 

https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72746. 

We considered the input and recommendations provided by the MAP in selecting 

measures to propose for the Hospital IQR Program. 

 The specifications for the electronic clinical quality measures for eligible 

hospitals are found at: http://cms.gov/Regulations-andGuidance/Legislation/EHRIncentivePrograms/eCQM_Library.html. 
 1089 

(2) Proposed Voluntary Electronically Specified Measure: Hearing Screening Prior to 

Hospital Discharge (NQF #1354) 

 The Hearing Screening Prior to Hospital Discharge (NQF #1354) measure 

assesses the proportion of all live births born at a hospital that have been screened for 

hearing loss before hospital discharge. The Joint Committee on Infant Hearing 

encourages early screening and intervention in infants with hearing loss to maximize 

linguistic competence and literacy development in children with hearing loss or who are 

hard of hearing. Early intervention improves developmental and social outcomes for 

children. The States and CDC have collected this measure as a population-based measure 

for more than 10 years. 

This measure is NQF-endorsed and was supported by the MAP in their Pre 

Rulemaking Report: 2013 Recommendations on Measures Under Consideration by HHS, 

available at: 

https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738. 

The MAP noted that the measure addresses a high-impact condition not adequately 

addressed in the program measure set. 

 The numerator is all live births during the measurement period born at a facility 

and screened for hearing loss prior to discharge, or screened but still not discharged, or 

not screened due to medical reasons or a medical exclusion. 

 The denominator includes all live births during the measurement period born at a 

facility and discharged without being screened, or screened prior to discharge, or 

screened but still not discharged. 
 1090 

 The measure excludes any patient deceased prior to discharge and has not 

received hearing screening. 

(3) Proposed Voluntary Measure: PC-05 Exclusive Breast Milk Feeding and the subset 

measure PC-05a Exclusive Breast Milk Feeding Considering Mother’s Choice 

(collectively referred to as NQF #0480) 

Exclusive breast milk feeding for the first 6 months of neonatal life has long been 

the expressed goal of World Health Organization (WHO), HHS, American Academy of 

Pediatrics (AAP) and American College of Obstetricians and Gynecologists (ACOG). 

 The PC-05 Exclusive Breast Milk Feeding measure and the subset measure 

PC-05a Exclusive Breast Milk Feeding Considering Mother’s Choice (NQF #0480) is 

endorsed by the NQF and supported by the MAP in its Pre Rulemaking Report: 2013 

Recommendations on Measures Under Consideration by HHS, available at: 

https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738. 

The MAP noted that the measure addresses a high-impact condition not adequately 

addressed in the program measure set. 

This measure assesses the number of newborns exclusively fed breast milk during 

the newborn’s entire hospitalization; and the subset measure only includes those 

newborns whose mothers chose to exclusively feed breast milk. 

 The numerator is the same for both the measure and subset measure - newborns 

that were fed breast milk only since birth. However, the denominators differ. For PC-05, 

the denominator is defined as single term liveborn newborns discharged alive from the 

hospital with ICD-9-CM Principal Diagnosis Code for single liveborn newborn. The 
 1091 

denominator for the subset measure, PC-05a, is defined as single term newborns 

discharged alive from the hospital excluding those whose mothers chose not to breast 

feed with ICD-9-CM Principal Diagnosis Code for single liveborn newborn. The 

ICD-9-CM Principal Diagnosis Codes for single liveborn newborns are found in 

Appendix A, Table 11.20.1: Single Live Newborn in the Specifications Manual for Joint 

Commission National Quality Measures available at: 

http://manual.jointcommission.org/releases/TJC2013A/AppendixATJC.html. 

 Excluded populations: 

● Admitted to the Neonatal Intensive Care Unit (NICU) at this hospital during 

the hospitalization. 

● ICD-9-CM Other Diagnosis Codes for galactosemia as defined in Appendix A, 

Table 11.21 in the Specifications Manual for Joint Commission National Quality 

Measures found at: 

http://manual.jointcommission.org/releases/TJC2013A/AppendixATJC.html.

● ICD-9-CM Principal Procedure Code or ICD-9-CM Other Procedure Codes for 

parenteral infusion as defined in Appendix A, Table 11.22 in the Specifications Manual 

for Joint Commission National Quality Measures found at: 

http://manual.jointcommission.org/releases/TJC2013A/AppendixATJC.html... 

● Experienced death. 

● Length of Stay >120 days. 

● Enrolled in clinical trials. 

● Patients transferred to another hospital. 
 1092 

● ICD-9-CM Other Diagnosis Codes for premature newborns as defined in 

Appendix A, Table 11.23 in the Specifications Manual for Joint Commission National 

Quality Measures found at: 

http://manual.jointcommission.org/releases/TJC2013A/AppendixATJC.html.

● Documented Reason for Not Exclusively Feeding Breast Milk. 

 The maternal reasons for not exclusively breastfeeding are limited to the 

following situations:

● HIV infection;

● Human t-lymphotrophic virus type I or II;

● Substance abuse and/or alcohol abuse;

● Active, untreated tuberculosis;

● Taking certain medications, that is, prescribed cancer chemotherapy, 

radioactive isotopes, antimetabolites, antiretroviral medications and other medications 

where the risk of morbidity outweighs the benefits of breast milk feeding;

● Undergoing radiation therapy;

● Active, untreated varicella;

● Active herpes simplex virus with breast lesions; and

● Admission to Intensive Care Unit (ICU) post-partum. 

We invite public comments on this proposal. 
 1093 

(4) Proposed Voluntary Measure CAC-3: Home Management Plan of Care (HMPC) 

Document Given to Patient/Caregiver 

 Asthma is the most common chronic disease in children and a major cause of 

morbidity and health care costs nationally. For children, asthma is one of the most 

frequent reasons for admission to hospitals. There were approximately 157,000 

admissions for childhood asthma in the United States in 2009. Under-treatment and/or 

inappropriate treatment of asthma are recognized as major contributors to asthma 

morbidity and mortality. Guidelines developed by the National Asthma Education and 

Prevention Program (NAEPP) of the National Heart, Lung and Blood Institute (NHLBI), 

as well as by the American Academy of Pediatrics (AAP) for the diagnosis and 

management of asthma in children, recommend establishing a plan for maintaining 

control of asthma and for establishing plans for managing exacerbations. 

 The CAC-3: Home Management Plan of Care (HMPC) Document Given to 

Patient/Caregiver measure is no longer endorsed by the NQF and was not supported by 

the MAP in its Pre-Rulemaking Report: 2013 Recommendations on Measures Under 

Consideration by HHS available at: 

https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738, 

because the measure no longer meets the NQF endorsement criteria. However, based on 

the prevalence of asthma among children, as well as the risks associated with undertreatment or over-treatment described above, we believe the measure is appropriate for 

voluntary collection. Because asthma is a serious, and potentially life-threatening 
 1094 

disease, we believe that it is important to allow hospitals to voluntarily report this data, 

which may help inform our policy. 

 This measure assesses the proportion of pediatric asthma patients (aged 2-17 

years) discharged from an inpatient hospital stay with a HMPC document in place.

The numerator is the number of pediatric asthma inpatients with documentation that they 

or their caregivers were given a written HMPC document that addresses: (1) 

arrangements for follow-up care, (2) environmental control and control of other triggers, 

(3) method and timing of rescue actions, (4) use of controllers, and (5) use of relievers. 

 The denominator is the number of pediatric asthma inpatients (age 2 years 

through 17 years) discharged with a principal diagnosis of asthma. 

 The measure excludes: (1) patients with an age less than 2 years or 18 years or 

greater; (2) patients who have a length of stay greater than 120 days; and (3) patients 

enrolled in clinical trials. 

 We invite public comments on this proposal. 

(5) Proposed Voluntary Measure: Healthy Term Newborn (NQF #0716) 

This measure assesses the optimal outcome of pregnancy and childbirth, 

specifically a healthy term newborn. It evaluates the impact of any changes in the 

management or intervention on the positive outcome for the newborn. 

 The measure is NQF endorsed. The MAP recommended removal of this measure 

in its Pre Rulemaking Report: 2013 Recommendations on Measures under Consideration 

by HHS available at: 

https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738, 
 1095 

because the measure required modification or further development. However, the MAP 

strongly supported the measure concept for inclusion once technical issues were resolved. 

Given its endorsement by NQF, as well as the MAP’s strong support for the measure 

concept, we believe the measure is appropriate for voluntary reporting. 

 The result of the measure calculation is the percentage of term singleton live 

births (excluding those with diagnoses originating in the fetal period) that do not have 

significant complications during birth or the nursery care.75

 The numerator of this measure is the absence of conditions or procedures 

reflecting morbidity that happened during birth and nursery care to an otherwise normal 

infant. 

 The denominator is composed of singleton, term (>=37 weeks), inborn, live births 

in their birth admission. The denominator further has eliminated fetal conditions likely to 

be present before labor. Maternal and obstetrical conditions (for example, hypertension, 

prior cesarean, malpresentation) are not excluded unless there is evidence of fetal effect 

prior to labor (for example, Intrauterine Growth Restriction (IUGR)/Small for Gestational 

Age (SGA)). 

 This measure excludes: (1) multiple gestations; (2) preterm, congenital 

anomalies; and, (3) fetuses affected by selected maternal conditions. 

 We invite public comments on this proposal.

 

75 National Quality Forum. National Voluntary Consensus Standards for Patient Outcomes 2009. Available 

at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=67546.
 1096 

g. Proposed Readoption of Measures As Voluntarily Reported Electronic Clinical 

Quality Measures 

 In order to align with the EHR Incentive Program for eligible hospitals (EHs) and 

critical access hospitals (CAHs), we are proposing to re-adopt two measures previously 

removed from the Hospital IQR Program; (a) AMI-2 Aspirin Prescribed at Discharge for 

AMI (acute myocardial infarction) (NQF #0142) (electronic clinical quality measure); 

and (b) AMI-10 Statin Prescribed at Discharge (NQF #0639) (electronic clinical quality 

measure). We are proposing to add these measures to the list of voluntarily reported 

electronic clinical quality measures as described in section IX.A.7.f. of the preamble of 

this proposed rule. We believe we should continue aligning the Hospital IQR Program 

and the EHR Incentive Program in order to minimize reporting burden and continue the 

transition to reporting of electronic clinical quality measures, and we believe voluntary 

adoption of these measures will further that aim. Further, allowing hospitals the option to 

electronically report topped-out measures will provide hospitals with an opportunity to 

test the accuracy of their electronic health record reporting systems. 

 We welcome public comments on this proposal. 

(1) Proposed Readoption of AMI-2 Aspirin Prescribed at Discharge (NQF #0142) 

 The AMI-2 Aspirin Prescribed at Discharge (NQF #0142) assesses the percentage 

of acute myocardial infarction (AMI) patients who are prescribed aspirin at hospital 

discharge. 

The measure is NQF endorsed, but has been placed in reserve status, as the 

performance on this measure is topped out. The MAP recommended the measure should 
 1097 

be suspended and phased out in its Pre-Rulemaking Report: 2013 Recommendations on 

Measures under Consideration by HHS available at: 

https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738. 

However, as stated above, we intend to continue aligning the Hospital IQR Program and 

EHR Incentive Program, and we believe collecting this measure on a voluntary basis 

enables us to continue collecting quality data on this topic while working to minimize 

reporting burden on participating hospitals. Further, allowing hospitals the option to 

electronically report topped-out measures will provide hospitals with an opportunity to 

test the accuracy of their electronic health record reporting systems. 

 The numerator includes AMI patients in the denominator who are prescribed 

aspirin at hospital discharge. The denominator includes patients with the following 

ICD-9-CM principal diagnosis codes of AMI: 410.00, 410.01, 410.10, 410.11, 410.20, 

410.21, 410.30, 410.31, 410.40, 410.41, 410.50, 410.51, 410.60, 410.61, 410.70, 410.71, 

410.80, 410.81, 410.90, and 410.91. 

 The following patients are excluded from this measure:

● Patients less than18 years of age;

● Patients who have a length of stay greater than 120 days;

● Patients enrolled in clinical trials;

● Patients who were discharged to another hospital;

● Patients who expired;

● Patients who left the hospital against medical advice; 

● Patients who were discharged to home for hospice care;
 1098 

● Patients who were discharged to a health care facility for hospice care;

● Patients with comfort measures only documented; and

● Patients with a documented reason for no aspirin at discharge. 

 We invite public comments on this proposal. 

(2) Proposed Readoption of AMI-10 AMI-Statin Prescribed at Discharge (NQF #0639) 

 AMI-10 AMI-Statin Prescribed at Discharge (NQF #0639) assesses the percent of 

acute myocardial infarction (AMI) patients who are prescribed a statin at hospital 

discharge. 

 The measure is NQF endorsed. The MAP recommended phased removal in its 

Pre-Rulemaking Report: 2013 Recommendations on Measures under Consideration by 

HHS available at: 

https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738

because the performance on this measure is likely topped out. However, as stated above, 

we intend to continue aligning the Hospital IQR Program and EHR Incentive Program, 

and we believe collecting this measure on a voluntary basis enables us to continue 

collecting quality data on this topic while working to minimize reporting burden on 

participating hospitals. Further, allowing hospitals the option to electronically report 

topped-out measures will provide hospitals with an opportunity to test the accuracy of 

their electronic health record reporting systems. 

 The numerator includes AMI patients in the denominator who are prescribed a 

statin medication at hospital discharge. The denominator includes patients with the 

following ICD-9-CM principal diagnosis codes of AMI: 410.00, 410.01, 410.10, 410.11, 
 1099 

410.20, 410.21, 410.30, 410.31, 410.40, 410.41, 410.50, 410.51, 410.60, 410.61, 410.70, 

410.71, 410.80, 410.81, 410.90, and 410.91. 

 The following patients are excluded from this measure:

● Patients less than 18 years of age;

● Patients who have a length of stay greater than 120 days;

● Patients with comfort measures only documented;

● Patients enrolled in clinical trials;

● Patients who were discharged to another hospital;

● Patients who left the hospital against medical advice;

● Patients who expired;

● Patients who were discharged to their home for hospice care;

● Patients who were discharged to a health care facility for hospice care;

● Patients with low-density lipoprotein less than 100 mg/dL within the first 

24 hours after hospital arrival or 30 days prior to hospital arrival and not discharged on a 

statin; and

● Patients with a reason for not prescribing statin medication at discharge. 

 We invite public comments on this proposal. 

 In summary, for FY 2017 payment determination and subsequent years, we are 

proposing to: (1) adopt 11 total measures -- 9 new measures (4 of which are voluntary 

electronic clinical quality measures) and 2 previously removed measures re-adopted as 

voluntary electronic clinical quality measures, and (2) remove 10 measures (4 of which 

were previously suspended). If finalized, this would give a total of 62 measures 
 1100 

(46 required and 16 voluntary electronic clinical quality measures) in the Hospital IQR 

Program measure set. 

 Set out below is a table showing both the previously adopted and the proposed 

quality measures for the FY 2017 payment determination and subsequent years. Please 

note that this table does not include suspended measures or measures proposed for 

removal. 

Topic Previously Adopted Hospital IQR Program Measures and 

Measures Proposed in this Proposed Rule for the FY 2017 Payment 

Determination and Subsequent Years

Acute Myocardial Infarction (AMI) Measures 

● AMI-2 Aspirin Prescribed at Discharge for AMI*/ /† (NQF #0142)

● AMI-7a Fibrinolytic therapy received within 30 minutes of hospital 

arrival  (NQF #0164) 

● AMI-8a Primary PCI received within 90 minutes of hospital arrival 

 /† (NQF #0163) 

● AMI-10 Statin Prescribed at Discharge*/ /† (NQF #0639) 

Stroke Measure (STK) Set 

● STK-1 Venous thromboembolism (VTE) prophylaxis (NQF #0434) 

● STK-2 Discharged on antithrombotic therapy  /† (NQF #0435) 

● STK-3 Anticoagulation therapy for atrial fibrillation/flutter  /†

(NQF #0436) 

● STK-4 Thrombolytic therapy  (NQF #0437) 

● STK-5 Antithrombotic therapy by the end of hospital day two  /†

(NQF #0438) 

● STK-6 Discharged on statin medication  (NQF #0439) 

● STK-8 Stroke education 

● STK-10 Assessed for rehabilitation  /† (NQF #0441) 

Venous Thromboembolism (VTE) Measure Set 

● VTE-1 Venous thromboembolism prophylaxis  (NQF #0371) 

● VTE-2 Intensive care unit venous thromboembolism prophylaxis 

(NQF #0372) 

● VTE-3 Venous thromboembolism patients with anticoagulation 

overlap therapy  (NQF #0373) 

● VTE-4 Patients receiving un-fractionated Heparin with doses/labs 

monitored by protocol  /†
 1101 

Topic Previously Adopted Hospital IQR Program Measures and 

Measures Proposed in this Proposed Rule for the FY 2017 Payment 

Determination and Subsequent Years

● VTE-5 VTE discharge instructions 

● VTE-6 Incidence of potentially preventable VTE  (NQF #0376) 

Sepsis Measure 

● Severe sepsis and septic shock: management bundle* (NQF #0500) 

Pneumonia (PN) Measure 

● PN-6 Initial Antibiotic Selection for community-acquired 

pneumonia (CAP) in Immunocompetent Patients  /† (NQF #0147) 

Surgical Care Improvement Project (SCIP) Measures 

● SCIP INF-1 Prophylactic antibiotic received within one hour prior to 

surgical incision  /† (NQF #0527) 

● SCIP INF-2 Prophylactic antibiotic selection for surgical patients 

/† (NQF #0528) 

● SCIP INF-9 Urinary catheter removed on Postoperative Day 1 

(POD1) or Postoperative Day 2 (POD2) with day of surgery being day 

zero  /† (NQF #0453) 

Mortality Measures 

● Hospital 30-day, all-cause, risk-standardized mortality rate (RSMR) 

following acute myocardial infarction (AMI) hospitalization for 

patients 18 and older (NQF #0230) 

● Hospital 30-day, all-cause, risk-standardized mortality rate (RSMR) 

following heart failure (HF) hospitalization for patients 18 and older 

(NQF #0229) 

● Hospital 30-day, all-cause, risk-standardized mortality rate (RSMR) 

following pneumonia hospitalization (NQF #0468) 

● Stroke 30-day mortality rate 

● Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate 

(RSMR) following Chronic Obstructive Pulmonary Disease (COPD) 

Hospitalization (NQF #1893) 

● Hospital 30-day, all-cause, risk-standardized mortality rate (RSMR) 

following coronary artery bypass graft (CABG) surgery (NQF #1893)* 

Patient Experience of Care Measure 

● HCAHPS survey (NQF #0166) (expanded to include two new 

“About You” items and the 3-item Care Transition Measure) 

(NQF #0228) 

Readmission Measures 

● Hospital 30-day all-cause risk-standardized readmission rate 

(RSRR) following acute myocardial infarction (AMI) hospitalization

(NQF #0505) 

● Hospital 30-day, all-cause, risk-standardized readmission rate 

(RSRR) following heart failure hospitalization (NQF #0330) 
 1102 

Topic Previously Adopted Hospital IQR Program Measures and 

Measures Proposed in this Proposed Rule for the FY 2017 Payment 

Determination and Subsequent Years

● Hospital 30-day, all-cause, risk-standardized readmission rate 

(RSRR) following pneumonia hospitalization (NQF #0506) 

● Hospital-level 30-day, all-cause risk-standardized readmission rate 

(RSRR) following elective primary total hip arthroplasty (THA) and/or 

total knee arthroplasty (TKA) (NQF #1551) 

● Hospital-Wide All-Cause Unplanned Readmission (HWR) 

(NQF #1789) 

● Stroke 30-day Risk Standardized Readmission 

● Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate 

(RSRR) following Chronic Obstructive Pulmonary Disease (COPD) 

Hospitalization (NQF #1891) 

● Hospital 30-day, all-cause, unplanned, risk-standardized readmission 

rate (RSRR) following coronary artery bypass graft (CABG) surgery* 

AHRQ Patient Safety Indicators (PSIs) Composite Measure 

● PSI-90 Patient safety for selected indicators (composite) 

(NQF #0531) 

AHRQ PSI and Nursing Sensitive Care 

● PSI-4 Death among surgical inpatients with serious treatable 

complications (NQF #0351) 

Structural Measures 

● Participation in a Systematic Clinical Database Registry for Nursing 

Sensitive Care (NQF #0113) 

● Participation in a Systematic Clinical Database Registry for General 

Surgery (NQF #0493) 

● Safe Surgery Checklist Use 

Healthcare-Associated Infections (HAI) Measures 

● National Healthcare Safety Network (NHSN) Central lineassociated Bloodstream Infection (CLABSI) Outcome Measure 

(NQF #0139) 

● American College of Surgeons – Centers for Disease Control and 

Prevention (ACS-CDC) Harmonized Procedure Specific Surgical Site 

Infection (SSI) Outcome Measure (NQF #0753) 

 - SSI following Colon Surgery 

 - SSI following Abdominal Hysterectomy 

● National Healthcare Safety Network (NHSN) Catheter-associated 

Urinary Tract Infection (CAUTI) Outcome Measure (NQF #0138) 

● National Healthcare Safety Network (NHSN) Facility-wide 

Inpatient Hospital-onset Methicillin-resistant Staphylococcus aureus 

(MRSA) Bacteremia Outcome Measure (NQF #1716) 
 1103 

Topic Previously Adopted Hospital IQR Program Measures and 

Measures Proposed in this Proposed Rule for the FY 2017 Payment 

Determination and Subsequent Years

● National Healthcare Safety Network (NHSN) Facility-wide 

Inpatient Hospital-onset Clostridium difficile Infection (CDI) Outcome 

Measure (NQF #1717) 

● Influenza vaccination coverage among healthcare personnel (HCP) 

(NQF #0431) 

Surgical Complications 

● Hospital-level risk-standardized complication rate (RSCR) 

following elective primary total hip arthroplasty (THA) and/or total 

knee arthroplasty (TKA) (NQF #1550) 

Emergency Department (ED) Throughput Measures 

● ED-1 Median time from ED arrival to ED departure for admitted ED 

patients (NQF #0495) 

● ED-2 Admit Decision Time to ED Departure Time for Admitted 

Patients (NQF #0497) 

Prevention: Global Immunization (IMM) Measure 

● Influenza Immunization (NQF #1659)

Cost Efficiency 

● Payment-Standardized Medicare Spending Per Beneficiary (MSPB) 

(NQF #2158)

● AMI Payment per Episode of Care 

● Hospital-level, risk-standardized 30-day episode-of-care payment 

measure for heart failure* 

● Hospital-level, risk-standardized 30-day episode-of-care payment 

measure for pneumonia* 

Perinatal Care (PC) 

● PC-01 Elective delivery  (NQF #0469) 

● PC-05 Exclusive Breast Milk Feeding and the subset measure PC05a Exclusive Breast Milk Feeding Considering Mother ́s Choice 

(NQF #0480) */ /† 

● Children’s Asthma Care-3 Home Management Plan of Care 

(HMPC) document given to patient/caregiver*/ /†

● Healthy Term Newborn (NQF #0716) */ /†

● Hearing Screening Prior to Hospital Discharge (NQF #1354) */ /†

* New or expanded measures for FY 2017 payment determination and subsequent years. 

 Electronic clinical quality measure. 

† Voluntary measure. 
 1104 

Previously Adopted Voluntary Electronic Clinical Quality Measures and Proposed 

Voluntary Electronic Clinical Quality Measures for the FY 2017 Payment 

Determination and Associated NQF Domains 

Short name Measure Name NQF # Domain as assigned in 

Stage 2 Final Rule76

ED-1 

Emergency Department Throughput 

– Median time from ED arrival to ED 

departure for admitted ED patients 

0495 

Patient and 

Family 

Engagement 

ED-2 

Emergency Department Throughput 

– admitted patients – Admit decision 

time to ED departure time for 

admitted patients 

0497 

Patient and 

Family 

Engagement 

STK-2 Discharged on antithrombotic therapy 0435 Clinical Process/ Effectiveness 

STK-3 

Anticoagulation therapy for atrial 

fibrillation/flutter 0436 Clinical Process/ Effectiveness 

STK-4 Thrombolytic Therapy 0437 Clinical Process/ Effectiveness 

STK-5 

Antithrombotic therapy by end of 

hospital day two 0438 Clinical Process/ Effectiveness 

STK-6 Discharged on Statin Medication 0439 Clinical Process/ Effectiveness 

STK-8 

Stroke education N/A 

Patient and 

Family 

Engagement 

STK-10 Assessed for rehabilitation 0441 Care Coordination 

VTE-1 

Venous thromboembolism 

prophylaxis 0371 Patient Safety 

VTE-2 

Intensive care unit venous 

thromboembolism prophylaxis 0372 Patient Safety 

VTE-3 

Venous thromboembolism patients 

with anticoagulation overlap therapy 0373 Clinical Process/ Effectiveness 

VTE-4 

Patients receiving un-fractionated 

Heparin with doses/labs monitored 

by protocol 

N/A Clinical Process/ 

Effectiveness 

VTE-5 

VTE discharge instructions N/A 

Patient and 

Family 

Engagement 

VTE-6 

Incidence of potentially preventable 

VTE 0376 Patient Safety 

PC-01 Elective Delivery 0469 Clinical Process/ 

 

76 Medicare EHR Incentive Program Stage 2 final rule (77 FR 54083 through 54087) 
 1105 

Previously Adopted Voluntary Electronic Clinical Quality Measures and Proposed 

Voluntary Electronic Clinical Quality Measures for the FY 2017 Payment 

Determination and Associated NQF Domains 

Short name Measure Name NQF # Domain as assigned in 

Stage 2 Final Rule76

Effectiveness 

PC-05 

Exclusive Breast Milk Feeding and 

the subset measure PC-05a Exclusive 

Breast Milk Feeding Considering 

Mother ́s Choice * 

0480 Clinical Process/ 

Effectiveness 

EHDI-1a 

Hearing screening prior to 

hospital discharge* 1354 Clinical Process/ Effectiveness 

Healthy Term Newborn* 0716 Patient Safety 

CAC-3 

Home Management Plan of Care 

(HMPC) Document Given to 

Patient/Caregiver 

N/A Patient and Family 

Engagement 

AMI-2 

Aspirin Prescribed at Discharge for 

AMI* 0142 Clinical Process/ Effectiveness 

AMI-7a 

Fibrinolytic Therapy Received 

Within 30 minutes of Hospital 

Arrival 

0164 Clinical Process/ 

Effectiveness 

AMI-8a 

Primary PCI Received Within 90 

Minutes of Hospital Arrival 0163 Clinical Process/ Effectiveness 

AMI-10 Statin Prescribed at Discharge* 0639 Clinical Process/ Effectiveness 

PN-6 

Initial Antibiotic Selection for 

Community-Acquired Pneumonia 

(CAP) in Immunocompetent Patients 

0147 Efficient Use of 

Healthcare Resources 

SCIP-Inf-1a 

Prophylactic Antibiotic Received 

within one Hour Prior to Surgical 

Incision 

0527 Patient Safety 

SCIP-Inf-2a 

Prophylactic Antibiotic Selection for 

Surgical Patients 0528 Efficient Use of Healthcare Resources 

SCIP-Inf-9 

Urinary catheter removed on 

Postoperative Day 1 (POD1) or 

Postoperative Day 2 (POD2) with 

day of surgery being day zero 

0453 Patient Safety 

* Measure proposed for adoption or readoption in Hospital IQR Program 
 1106 

h. Electronic Clinical Quality Measures 

(1) Data Submission Requirements for Quality Measures That May be Voluntarily 

Electronically Reported for the FY 2017 Payment Determination 

 We believe that collection and reporting of data through health information 

technology will greatly simplify and streamline reporting for many CMS quality 

reporting programs. Through electronic reporting, hospitals will be able to leverage 

EHRs to capture, calculate, and electronically submit quality data that is currently 

manually chart-abstracted and submitted to CMS for the Hospital IQR Program. As we 

noted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51614), we recognize the need 

to align and harmonize measures across CMS quality reporting programs to minimize the 

reporting burden imposed on hospitals. In the Medicare EHR Incentive Program Stage 2 

final rule (77 FR 54083 through 54087), we finalized a total of 29 clinical quality 

measures from which hospitals must select at least 16 measures covering three National 

Quality Strategy (NQS) domains to report beginning in FY 2014. We anticipate that, as 

health information technology evolves and infrastructure is expanded, we will have the 

capacity to accept electronic reporting of many of the chart-abstracted measures that are 

currently part of the Hospital IQR Program. 

 In the FY 2014 IPPS/LTCH PPS final rule, for the STK (with the exception of 

STK-1), VTE, ED, and PC measure sets, we allowed hospitals to either: 

(1) electronically report at least one quarter of CY 2014 (Q1, Q2, or Q3) quality measure 

data for each measure in one or more of those four measure sets; or (2) continue reporting 
 1107 

all measures in those four measure sets using chart-abstracted data for all four quarters of 

CY 2014 (78 FR 50818). 

For the FY 2017 payment determination, we are proposing to expand this policy, 

such that providers may select to voluntarily report any 16 of the 28 Hospital IQR 

Program electronic clinical quality measures that align with the Medicare EHR Incentive 

Program as long as those 16 measures span three different NQS domains. The 

28 measures are listed in the table below. Only 28 of the 29 measures adopted in the 

Medicare EHR Incentive Program are applicable for the Hospital IQR Program, because 

the measure ED-3 Median time from ED arrival to ED departure for discharged ED 

patients (NQF #0496) is an outpatient setting measure. We expect eligible hospitals to 

select measures that best apply to their patient mix. 

 For the FY 2017 payment determination, we also are proposing to expand the 

reporting requirement of electronic clinical quality measures to require a full year’s data 

collection and submission instead of a minimum of one quarter. In addition, for the 

FY 2017 payment determination, we are proposing to require data submission within 

approximately 60 days after the end of a calendar year quarter. We have listed the 

proposed submission deadlines in the table below. We also refer readers to section 

IX.D.2. of the preamble of this proposed rule for a description of the electronic clinical 

quality measures data reporting periods and proposed submission deadlines. 

 
 1108 

 As an incentive for hospitals to voluntarily submit electronically-specified clinical 

quality measures, we are proposing that for the FY 2017 payment determination, 

hospitals successfully submitting electronic clinical quality measures according to our 

procedures will not have to validate those electronic clinical quality measures by 

submitting chart-abstracted data to validate the accuracy of the measure data submitted 

electronically. 

 By proposing these changes, we would further align the Hospital IQR Program 

and the Medicare EHR Incentive Program and promote greater electronic clinical quality 

measure data reporting for hospitals. In addition, we believe that these changes would 

ease hospitals’ administrative burden, as they will be able to report the same clinical 

quality measures once to partially satisfy both the Hospital IQR and Medicare EHR 

Incentive Programs’ requirements. 

(2) Public Reporting of Electronic Clinical Quality Measures 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50813 through 50818), we 

adopted a policy under which we would only publicly report electronic clinical quality 

measure data under the Hospital IQR Program if we determined that the data are accurate 

enough to be reported. However, we noted that the majority of public commenters had 

CY 2015/FY 2017 Electronic Clinical Quality Measures 

Data Reporting Periods and Proposed Submission Deadlines 

CY 2015 

Quarter Reporting Period (2015) Proposed Submission Deadline (2015)

1 January 1 -March 31 May 30 

2 April 1 - June 30 Aug 30 

3 July 1 - September 30 Nov 30 

4 October 1 - December 31 Feb 28 
 1109 

opposed our proposal to withhold the electronically reported data from publication on 

Hospital Compare, and instead urged us to publicly display it (78 FR 50815). Therefore, 

for electronic clinical quality measure data submitted for the FY 2016 payment 

determination, we will publically report the data as previously finalized. However, for 

the FY 2017 payment determination, we now propose to provide hospitals that 

voluntarily report one year of electronic clinical quality measure data (as proposed above) 

an option to have their data reported on Hospital Compare with a preview period prior to 

public reporting. We also propose to add a footnote next to that publically reported data 

indicating that it is a result of electronically-specified measures. 

 We welcome public comments on these proposals. 

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

a. Mandatory Electronic Clinical Quality Measure Reporting for FY 2018 Payment 

Determination 

 We anticipate that, as EHR technology changes and improves, hospitals will 

electronically report all clinical process-of-care and HAI measures, which are currently 

part of the Hospital IQR Program or which have been proposed for adoption into the 

Program. As stated above, we intend for the future direction of electronic quality 

measure reporting to significantly reduce administrative burden on hospitals under the 

Hospital IQR Program. We will continue to work with measure stewards and developers 

to develop new measure concepts, and conduct pilot, reliability, and validity testing. We 

believe that this voluntary reporting option will provide hospitals and CMS with the 

ability to test systems in CY 2015 for future quality program proposals that, if finalized, 
 1110 

will make electronic reporting a requirement instead of voluntary. We believe this will 

simplify measure collection and submission for the Hospital IQR Program, and will 

reduce the burden on hospitals to report chart-abstracted measures. 

 We intend to propose to require reporting of electronic clinical quality measures 

for the Hospital IQR Program beginning for the CY 2016 reporting period or FY 2018 

payment determination. We considered proposing to require hospitals to electronically 

report some Hospital IQR Program quality measures in the FY 2014 IPPS/LTCH PPS 

proposed rule (78 FR 27695). After considering public comments, we made electronic 

reporting voluntary in CY 2014 in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50813 

through 50814). However, after two years, we believe that hospitals are more prepared 

and should be required to report Hospital IQR Program measures as electronic clinical 

quality measures beginning in CY 2016. We intend to propose this policy in future 

rulemaking, but request comments on this intention here. 

b. Possible Future Electronic Clinical Quality Measures 

 We intend to continue to support the following measure domains in the Hospital 

IQR Program measure set: effective clinical care (for example, the AMI, PN, STK, and 

VTE measures), communication and care coordination (for example, the readmission 

measures), patient safety (for example, the HAI measures), person and caregiver-centered 

experience (for example, the HCAHPS measure), community/population health (for 

example, the global immunization measure), and efficiency and cost reduction (for 

example, the Medicare Spending per Beneficiary measure). This approach will enhance 
 1111 

better patient care while aligning the Hospital IQR Program with our other established 

quality reporting and pay-for-performance programs, such as the Hospital VBP Program. 

 Based on the above approach, we intend to propose to adopt the following 

electronic clinical quality measures with data collection beginning with October 1, 2016 

discharges (or, as described further above, January 1, 2017, if the proposal to align 

reporting under the Hospital IQR Program and Medicare EHR Incentive Program is 

finalized) to coincide with EHR Incentive Program Stage 3 collection: 

● Hepatitis B Vaccine Coverage Among All Live Newborn Infants Prior to 

Hospital or Birthing Facility Discharge NQF #0475 

 The Hepatitis B Vaccine Coverage Among All Live Newborn Infants Prior to 

Hospital or Birthing Facility Discharge NQF #0475 measure is NQF-endorsed, supported 

by the MAP and conditionally supported by the MAP as an electronic clinical quality 

measure for the EHR Incentive Program by the MAP in its 2014 Recommendations on 

Measures for More Than 20 Federal Programs final report available at: 

http://www.qualityforum.org/Publications/2014/01/MAP_PreRulemaking_Report__2014_Recommendations_on_Measures_for_More_than_20_Feder

al_Programs.aspx. However, the MAP recommends a review of the electronic 

specifications of this measure through the NQF endorsement process. 

 This measure requires each hospital/birthing facility to measure its administration 

of a dose of hepatitis B vaccine to all infants born in their hospital/birthing facility prior 

to discharge for a specific time period (for example, one calendar year). Hospitals are 
 1112 

required to assess infants whose parents refused vaccination for exclusion from the 

coverage estimate. 

● PC-02 Cesarean Section NQF #0471 

 The PC-02 Cesarean Section NQF #0471 is NQF-endorsed and supported by the 

MAP in its 2014 Recommendations on Measures for More Than 20 Federal Programs 

final report available at: http://www.qualityforum.org/Publications/2014/01/MAP_PreRulemaking_Report__2014_Recommendations_on_Measures_for_More_than_20_Feder

al_Programs.aspx. The MAP noted that there is an important public education piece to 

the reporting of PC-02 and recommended that CMS work with others to ensure 

consumers understand what the results mean and why the measure is important. 

 This measure assesses the number of nulliparous women with a term, singleton 

baby in a vertex position delivered by cesarean section. 

● Adverse Drug Events – Hyperglycemia 

 Adverse Drug Events – Hyperglycemia is conditionally supported by the MAP in 

its 2014 Recommendations on Measures for More Than 20 Federal Programs final report 

available at: http://www.qualityforum.org/Publications/2014/01/MAP_PreRulemaking_Report__2014_Recommendations_on_Measures_for_More_than_20_Feder

al_Programs.aspx. Use of this measure would address a very common condition. The 

MAP expressed concerns over the feasibility of using this measure in the Hospital IQR 

Program as it has been tested using electronic data and stated that the NQF endorsement 

process should resolve this issue. 
 1113 

 This measure assesses the average percentage of hyperglycemic hospital days for 

individuals with a diagnosis of diabetes mellitus, anti-diabetic drugs (except metformin) 

administered, or at least one elevated glucose level during the hospital stay. The 

measure’s numerator is the sum of the percentage of hospital days in hyperglycemia for 

all admissions in the denominator. The measure’s denominator is the total number of 

admissions with a diagnosis of diabetes mellitus, at least one administration of insulin or 

any oral anti-diabetic medication except metformin, or at least one elevated blood 

glucose value (>200 mg/dL [11.1 mmol/L]) at any time during the entire hospital stay. 

 Exclusions include: (1) admissions with a diagnosis of diabetic ketoacidosis 

(DKA) or hyperglycemic hyperosmolar syndrome (HHS); (2) admissions without any 

hospital days included in the analysis; (3) admissions with lengths of stay greater than 

120 days. 

● Adverse Drug Events - Hypoglycemia 

 Adverse Drug Events – Hypoglycemia is conditionally supported by the MAP in 

its 2014 Recommendations on Measures for More Than 20 Federal Programs final report, 

which is available at: http://www.qualityforum.org/Publications/2014/01/MAP_PreRulemaking_Report__2014_Recommendations_on_Measures_for_More_than_20_Feder

al_Programs.aspx. Use of this measure would address a common condition that is very 

dangerous to patients. The MAP expressed concerns over the feasibility of using this 

measure in the Hospital IQR Program as it has been tested using electronic data and that 

the NQF endorsement process should resolve this issue. 
 1114 

This measure assesses the rate of hypoglycemic events following the 

administration of an anti-diabetic agent. The measure’s numerator is the total number of 

hypoglycemic events (<40 mg/dL) that were preceded by administration of a short/rapidacting insulin within 12 hours or an anti-diabetic agent other than a short/rapid-acting 

insulin within 24 hours, were not followed by another glucose value greater than 

80 mg/dL within 5 minutes, and were at least 20 hours apart. The measure’s denominator 

is total number of hospital days with at least one anti-diabetic agent administered. 

Exclusions include admissions with length of stay greater than 120 days. 

 We request comments on these possible future measures. 
 1115 

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

a. Background 

 Sections 1886(b)(3)(B)(viii)(I) and (II) of the Act state that the applicable 

percentage increase for FY 2007 and each subsequent fiscal year shall be reduced by 

2.0 percentage points (or beginning with FY 2015, by one-quarter of such applicable 

percentage increase (determined without regard to sections 1886(b)(3)(B)(ix), (xi), or 

(xii) of the Act)) for any subsection (d) hospital that does not submit, to the Secretary in 

accordance with this clause and in a form and manner, and at a time, specified by the 

Secretary, data required to be submitted on measures selected under this clause with 

respect to such a fiscal year. We note that, in accordance with this section, the FY 2015 

payment determination begins the first year that the Hospital IQR Program will reduce 

the applicable percentage increase by one-quarter of such applicable percentage increase. 

In order to participate in the Hospital IQR Program, hospitals must meet specific 

procedural requirements. 

 Hospitals choosing to participate in the Hospital IQR Program must also meet 

specific data collection, submission, and validation requirements. For each Hospital IQR 

Program year, we require that hospitals submit data on each measure in accordance with 

the measure’s specifications for a particular period of time. The data submission 

requirements, Specifications Manual, and submission deadlines are posted on the 

QualityNet Web site at: http://www.QualityNet.org/. Hospitals submit quality data 

through the secure portion of the QualityNet Web site. This Web site meets or exceeds 
 1116 

all current Health Insurance Portability and Accountability Act requirements for security 

of protected health information. 

 In order to participate in the Hospital IQR Program, hospitals must meet specific 

procedural requirements. Hospitals choosing to participate in the Hospital IQR Program 

must also meet specific data collection, submission, and validation requirements. 

b. Procedural Requirements for the FY 2017 Payment Determination and Subsequent 

Years 

 The Hospital IQR Program procedural requirements are codified in regulation at 

42 CFR 412.140. We refer readers to the codified regulations for participation 

requirements, as further explained by the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50810 through 50811). 

c. Data Submission Requirements for Chart-Abstracted Measures 

 We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51640 

through 51641), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53536 through 53537), 

and the FY 2014 IPPS/LTCH PPS final rule (78 FR 50811) for details on the Hospital 

IQR Program data submission requirements for chart-abstracted measures. 

 We are not proposing any changes to data submission requirements for 

chart-abstracted measures at this time. 
 1117 

d. Alignment of the EHR Incentive Program Reporting and Submission Timelines for 

Clinical Quality Measures with Hospital IQR Program Reporting and Submission 

Timelines 

 The Hospital IQR Program and the EHR Incentive Program have different 

reporting and submission periods for clinical quality measures, with hospitals reporting 

data to the Hospital IQR Program based on calendar year deadlines while the EHR 

Incentive Program is based on fiscal year deadlines. In addition, the Hospital IQR 

Program generally requires quarterly reporting and submission of data for chartabstracted measures while the EHR Incentive Program requires annual submission of 

clinical process of care measure data. 

 As a result of the different and incongruent Hospital IQR and Medicare EHR 

Incentive Programs’ schedules, hospitals reporting and submitting measure data to both 

programs would have to do so multiple times in a calendar year. This discrepancy may 

create confusion and additional burden for hospitals attempting to report data to both 

programs. To alleviate this possible confusion and reduce provider burden, beginning 

with the CY 2015 reporting period /FY 2017 payment determination, we are proposing to 

incrementally align the data reporting and submission periods for clinical quality 

measures for the Medicare EHR Incentive Program and the Hospital IQR Program on a 

calendar year basis. 

 This proposed change also would also move us closer to meeting our commitment 

to align quality measurement and reporting among our programs, as we described in the 

Electronic Health Record Incentive Program –Stage 2 final rule (77 FR 54049 through 
 1118 

54051), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53502 and 53534), and the 

FY 2014 IPPS/LTCH PPS final rule (78 FR 50811 through 50819 and 78 FR 50903 

through 50904). 

 In order to ease the transition and prevent the delay of Medicare EHR Incentive 

Program payments, we are proposing to incrementally shift the Medicare EHR Incentive 

Program reporting and submission periods for clinical quality measures to align with that 

of the Hospital IQR Program. We refer readers to section IX.E.2. of the preamble of this 

proposed rule for a detailed discussion of this proposal in the EHR Incentive Program. 

Specifically, for the CYs 2015 and 2016, we are proposing in the EHR Incentive Program 

to require CY reporting, but only for the first three calendar quarters (that is, January 

through September). This proposal will allow us to align data reporting and submission 

periods without shifting the EHR incentive payments. 

 We note that for the Hospital IQR Program, for the FY 2017 payment 

determination, we are proposing to change the November 30th submission deadline to 

require data submission within approximately 60 days of the close of a quarter. We refer 

readers to section IX.A.7.h.(1) of the preamble of this proposed rule where this proposal 

is made. We are also proposing this change in the Medicare EHR Incentive Program in 

order to align the two programs. We refer readers to section IX.D.2. of the preamble of 

this proposed rule where this proposal is made. In summary, we are proposing to align 

the reporting and submission periods of the Medicare EHR Incentive Program clinical 

quality measures with that of the Hospital IQR Program for CYs 2015 and 2016. 
 1119 

Proposed Reporting Timeline to Align the EHR Incentive Program 

with Proposed Hospital IQR Program Submission Periods 

CY EHR Incentive 

Program Reporting 

Requirements* 

Hospital IQR 

Program Reporting 

Requirements 

Submission 

Period** 

2015 

Reporting 

Period 

Q1 January 1 – March 31, 

2015 

January 1 – March 

31, 2015 

Data must be 

submitted by May 

31, 2015 

Q2 April 1 – June 30, 

2015 

April 1 – June 30, 

2015 

Data must be 

submitted by August 

31, 2015 

Q3 July 1 – September 

30, 2015 

July 1 – September 

30, 2015 

Data must be 

submitted by 

November 30, 2015 

Q4 N/A for EHR 

Incentive Program 

October 1 – 

December 31, 2015 

For Hospital IQR 

Program, Data must 

be submitted by 

February 28, 2016 

2016 

Reporting 

Period 

Q1 January 1 – March 31, 

2016 

January 1 – March 

31, 2016 

Data must be 

submitted by May 

31, 2016 

Q2 April 1 – June 30, 

2016 

April 1 – June 30, 

2016 

Data must be 

submitted by August 

31, 2016 

Q3 July 1 – September 

30, 2016 

July 1 – September 

30, 2016 

Data must be 

submitted by 

November 30, 2016 

Q4 N/A for EHR 

Incentive Program 

October 1 – 

December 31, 2016 

For Hospital IQR 

Program, Data must 

be submitted by 

February 28, 2017 

*Calendar year alignment and quarterly reporting for 2015 and 2016 would apply for 

electronically reported CQM data only. 

**Proposed EHR Incentive Program and Hospital IQR submission period would allow data 

submission on an ongoing basis starting January 2 of the reporting year, and ending approximately 60 days 

after the end of the quarter.

 The Medicare EHR Incentive Program also clarifies case threshold denominator 

and reporting zero denominators are included in the Medicare EHR Incentive Program at 

sections IX.D.5. and IX.D.6. of the preamble of this proposed rule. 
 1120 

 We invite public comments on these proposals. 

e. Sampling and Case Thresholds for the FY 2017 Payment Determination and 

Subsequent Years 

 We refer readers to the FY 2012 IPPS/LTCH PPS final rule (75 FR 50230), the 

FY 2012 IPPS/LTCH PPS final rule (76 FR 51641), the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53537), and the FY 2014 IPPS/LTCH PPS final rule (78 FR 50819) for 

details on our sampling and case thresholds for the FY 2016 payment determination and 

subsequent years. 

 We are not proposing any changes to sampling or case thresholds. 

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

Years 

 We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50220), the 

FY 2012 IPPS/LTCH PPS final rule (76 FR 51641 through 51643), the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53537 through 53538), the FY 2014 IPPS/LTCH PPS 

final rule and (78 FR 50819 through 50820) for details on HCAHPS requirements. 

 We are not proposing any changes to HCAHPS requirements at this time. 

 Hospitals and HCAHPS survey vendors should, however, regularly check the 

official HCAHPS Web site at http://www.hcahpsonline.org for new information and 

program updates regarding the HCAHPS Survey, its administration, oversight and data 

adjustments. 
 1121 

g. Data Submission Requirements for Structural Measures for the FY 2017 Payment 

Determination and Subsequent Years 

 We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51643 

through 51644), and the FY 2013 IPPS/LTCH PPS final rule (77 FR 53538 through 

53539) for details on the data submission requirements for structural measures. 

 We are not proposing any changes to data submission requirements for structural 

measures at this time. 

h. Data Submission and Reporting Requirements for Healthcare-Associated Infection 

(HAI) Measures Reported via NHSN 

 We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51631 

through 51633; 51644 through 51645), the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53539), and the FY 2014 IPPS/LTCH PPS final rule (78 FR 50820 through 

50822) for details on the data submission and reporting requirements for healthcareassociated infection (HAI) measures reported via the CDC’s National Healthcare Support 

Network (NHSN) Web site. The data submission deadlines are posted on the QualityNet 

Web site at: http://www.QualityNet.org/. 

 We are not proposing any changes to data submission and reporting requirements 

for healthcare-associated infection measures reported via the NHSN. 

10. Submission and Access of HAI Measures Data Through the CDC’s NHSN Web Site 

 As finalized in the FY 2014 Hospital IPPS/LTCH PPS final rule (78 FR 50805 

through 50807), the Hospital IQR Program requires hospitals to report data via the 

CDC’s NHSN Web site for the following HAI measures: (1) CLABSI (NQF #0139); 
 1122 

(2) CAUTI (NQF #0138); (3) SSI following colon surgery; (4) SSI following abdominal 

hysterectomy; (5) laboratory-identified MRSA bacteremia infection (NQF #1716); 

(6) laboratory-identified Clostridium difficile infection (NQF #1717); and, (7) healthcare 

personnel vaccination (NQF #0413). In the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51644 through 51645), we adopted the data submission and reporting standard 

procedures that have been set forth by CDC for NHSN participation in general and for 

submission of specific HAI measures to NHSN. 

 For the FY 2016 payment determination and subsequent years, for the Hospital 

IQR program, we are clarifying our data reporting and submission requirements for the 

above stated HAI measures. By adopting the data reporting and submission procedures 

set forth by the CDC, we intended that hospitals report, through the existing NHSN 

process, any and all data elements at the patient-level that are designated as “required” on 

NHSN forms (such as, the “primary bloodstream infection” or “annual facility survey” 

forms). Some examples of these “required” patient-level data elements include: patient 

identifier, date of birth, and gender; detailed event data, such as specific symptoms 

identified to meet case definitions and laboratory results; and risk factor data used to 

calculate the hospital-level measures. Hospitals may find a comprehensive list of 

required forms and data elements on the NHSN Web site 

(http://www.cdc.gov/nhsn/acute-care-hospital/index.html). 

We further wish to clarify that the NHSN required data collected by the CDC 

will be shared with CMS for Hospital IQR Program and Hospital VBP Program 

administration, monitoring and evaluation activities, including validation, appeals review, 
 1123 

program impact evaluation, and development of quality measure specifications. CMS 

routinely uses submitted quality measure data for these types of program administration, 

monitoring and evaluation activities. 

In addition, we are proposing that we will also receive access from the CDC to 

voluntarily submitted name and race identifying information with respect to Hospital IQR 

Program required measures. These data will also be used for Hospital IQR Program and 

Hospital VBP Program administration, monitoring and evaluation activities, including 

validation, appeals review, program impact evaluation, and development of quality 

measure specifications. More specifically, for Hospital IQR Program validation, we 

propose to use these data to ensure accurate matching between patient charts submitted 

for HAI validation that cannot be matched to NHSN using Medicare beneficiary 

identification numbers. We also propose to use these data as appropriate for program 

evaluation. 

We invite public comment on this proposal. 

11. Proposed Modifications to the Existing Processes for Validation of Chart-abstracted 

Hospital IQR Program Data 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53539 through 53553), we 

finalized the processes and procedures for validation of chart-abstracted measures in the 

Hospital IQR Program for the FY 2015 payment determination and subsequent years; this 

rule also contained a comprehensive summary of all procedures finalized in previous 

years and still in effect. Several modifications to these processes were finalized for the 

FY 2016 and FY 2017 payment determinations in the FY 2014 IPPS/LTCH PPS final 
 1124 

rule (78 FR 50822 through 50835). For the FY 2017 payment determination and 

subsequent years, we are proposing additional modifications to these processes. 

Proposed changes fall into the following categories: (a) eligibility criteria for hospitals 

selected for validation; (b) number of charts to be submitted per hospital for validation; 

(c) combining scores for HAI and clinical process-of-care measures; (d) processes to 

submit medical records for chart-abstracted measures; and (e) plans to validate electronic 

clinical quality measure data. 

a. Eligibility Criteria for Hospitals Selected for Validation 

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50833 through 50834), for the 

FY 2016 payment determination and subsequent years, we finalized our process to draw a 

random sample of 400 hospitals and an additional sample of up to 200 hospitals meeting 

specific targeting criteria for purposes of validation. For the FY 2017 payment 

determination and subsequent years, we are proposing one minor change to this process. 

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50227), we defined hospitals eligible 

for validation as the subset of subsection (d) hospitals that successfully submitted “at 

least one case for the third calendar quarter of the year two years prior to the year to 

which validation applies.” 

 For the FY 2017 payment determination and subsequent years, we are proposing 

to change the definition of validation-eligible hospitals to be the subset of subsection (d) 

hospitals that successfully submitted at least one case to the Hospital IQR Clinical Data 

Warehouse during the quarter containing the most recently available data. The quarter 

containing the most recently available data will be defined based on when the random 
 1125 

sample is drawn. For example, for the FY 2017 payment determination, we intend to 

draw this sample in November or December of 2014. The second quarter (Q2) of 2014 

ends in June 2014, but hospitals participating in the Hospital IQR Program may submit 

quality data from this quarter until November 15, 2014 (see www.qualitynet.org for 

submission deadlines). If CMS draws its sample early in November 2014, before all the 

second quarter hospital data are submitted and processed by the Clinical Data 

Warehouse, the “quarter containing the most recently available data” will be first quarter 

(Q1) of 2014. On the other hand, if CMS draws its sample late November or early 

December 2014 after the second quarter 2014 hospital data are processed, the second 

quarter of 2014 will contain the most recently available data. 

 We are proposing this change because, in the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50822 through 50825), for the FY 2017 annual payment determination and 

subsequent years, we changed the timing of quarters for validation of HAI measures, as 

illustrated in the three graphs (78 FR 50824). To align with this change for HAI 

measures and to give hospitals more time to complete HAI validation template 

requirements once selected, we intend to draw the validation sample several months 

sooner than we have historically drawn it. Historically, we drew the sample early in each 

calendar year. This proposal provides us with greater flexibility for when we can sample 

hospital data and allows CMS to use the most recent data available to select hospitals. 

 We invite public comment on this proposal. 
 1126 

b. Number of Charts to be Submitted per Hospital for Validation 

(1) Background 

 In the sections that follow, we are proposing to: (1) change the number of charts 

hospitals must submit for validation; (2) change the measure-specific sample sizes for 

HAI validation; and (3) change the topic areas and sample design for clinical process-ofcare measures. We are proposing these changes because Section 1886(o) of the Act 

requires the Hospital VBP Program to use a subset of Hospital IQR Program measures 

and there is a declining number of measures and chart-abstracted measure topic areas 

available to the Hospital VBP Program. Our proposals also will direct more resources to 

measures and topic areas that also overlap with the Hospital VBP Program. Finally, our 

proposals will ensure that all chart-abstracted measure topic areas containing required 

measures within the Hospital IQR Program are included in validation. A more detailed 

rationale accompanies each proposal. 

 As described in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53539 through 

53553), the Hospital IQR Program validates chart-abstracted data submitted to two 

different systems: clinical process-of-care data submitted to the Hospital IQR Program 

Clinical Data Warehouse and HAI data submitted to the NHSN. Different validation 

approaches are used for the data submitted to each of the systems. The process for 

selecting and validating HAI data was first introduced in the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51646 through 51648) and has evolved annually in each successive 

IPPS/LTCH PPS rule. In contrast, validation of the clinical process of care measures, 

which involves separate samples for each topic area, has not substantively changed since 
 1127 

it was first finalized for the FY 2012 payment determination in the FY 2010 IPPS/LTCH 

PPS final rule (74 FR 43884 through 43889). 

(2) Proposed Number of Charts to be Submitted for Validation 

(A) Total Number of Charts Required for Validation 

 Our current policy requires hospitals to submit 96 charts for validation (60 charts 

for clinical process-of-care measures and 36 charts for HAIs) (78 FR 50825 through 

50834). For the FY 2017 payment determination and subsequent years, we are proposing 

to require hospitals selected for Hospital IQR Program validation to submit 18 patient 

charts per quarter for a total of 72 charts per year. A sample size of 72 charts is 

statistically estimated to be the number of charts needed to determine whether an 

individual hospital clearly passed validation and to assess hospital performance across 

both types of measures (HAIs and clinical process-of-care) combined. As finalized in the 

FY 2013 IPPS/LTCH PPS final rule (77 FR 53551), hospitals may fall into three 

validation categories: (1) hospitals pass validation with a lower bound of the confidence 

interval greater than or equal to 75 percent; (2) hospitals fail validation with an upper 

bound for a hospital’s confidence interval lower than 75 percent; and (3) hospitals neither 

pass nor fail validation with a 90 percent confidence interval that includes values above 

and below 75 percent. Hospitals in the third category that neither pass nor fail validation 

receive their annual payment update, but may be randomly sampled for inclusion in the 

targeted validation in the following year. 

 We estimate that a sample of 72 charts will be sufficient to estimate a reliability 

of 75 percent +/- 10 percent with 90 percent confidence, assuming a design effect no 
 1128 

greater than 1.4. Historical data suggests that most hospitals in the Hospital IQR 

Program pass validation and validated data have a high level of accuracy. For example, 

for the FY 2013 payment determination, approximately 95 percent of hospitals validated 

had data reliability of 85 percent or higher. With a sample of 72 charts and an expected 

mean data reliability well above 85 percent, we should be able to identify most hospitals 

that pass validation. Of the remaining hospitals, we will use the same conservative 

approach to identify hospitals failing validation that we have used since the inception of 

the Hospital IQR Program. 

(B) Number of Charts Required for HAI and Clinical Process-of-Care Measures 

 As finalized in the FY 2014 IPPS/LTCH PPS final rule for the FY 2017 payment 

determination and future years, we require hospitals to submit 9 charts for HAI measures 

per quarter (78 FR 50831) and for the FY 2016 payment determination and future years, 

we require hospitals to submit 15 charts for clinical process-of-care measures per quarter 

for validation (78 FR 50830). For the FY 2017 payment determination and subsequent 

years, we are proposing that of the 18 charts proposed to be submitted per quarter 

(above), 10 charts would be submitted to validate HAI measures and 8 charts would be 

submitted to validate clinical process-of-care measures. This would equal 72 charts per 

year with a mix of 40 HAI and 32 clinical process-of-care measure charts. We are 

proposing to require more HAI charts than clinical process-of-care measure charts 

because HAI measures now, as proposed, have a greater impact on the Hospital VBP and 

the Hospital-Acquired Condition (HAC) Reduction Programs. Considering only the 

relative importance of HAIs and clinical process-of-care charts to the Hospital VBP 
 1129 

Program, which is about 4 times as great, CMS might choose a ratio larger than 10 HAI 

charts for every 8 clinical process-of-care charts. However, we estimate that CMS 

spends about 4 times as much money per chart to validate HAIs than clinical 

process-of-care measures. Moreover, the clinical process of care measures are still a 

critical part of the Hospital IQR Program. Therefore, CMS proposed this mix of 40 HAI 

and 32 clinical process of care charts per year because we believe it to be optimal after 

considering both the relative importance of the two types of charts to the Hospital IQR 

Program and related payment incentive programs and the relative cost of validation for 

the two types of charts. 

 We invite public comment on these proposals. 

(3) HAI Validation: Measures and Measure-Specific Sample Sizes 

 In the FY 2014 IPPS/LTCH final rule (78 FR 50828 through 50832) for the 

FY 2016 payment determination and subsequent years, we finalized the HAI measures to 

be included in validation, the processes for completing validation, and the specific sample 

sizes for each. To validate HAI data, hospitals must use Validation Templates to provide 

supplemental data to CMS. These supplemental data provide CMS with a set of 

candidate infections for each HAI. As finalized previously, hospitals sampled for 

validation will be randomly assigned to provide two Validation Templates, either: 

(1) CLABSI and CAUTI, or 2) MRSA and CDI. Consequently, up to 300 hospitals will 

provide data on each of these 4 measures. We also previously finalized a decision to 

validate a smaller number of patient charts for SSI from twice as many hospitals because 
 1130 

of the smaller number of candidate SSIs expected per hospital per quarter. We are not 

proposing to change the process for validating individual measures. 

 However, above in this section, we are proposing to increase the total HAI sample 

size by 1 chart per quarter for a total of 4 more charts per year. As explained below in 

this section, HAI measures have greater relative scoring weights in the Hospital VBP and 

HAC Reduction Programs than clinical process-of-care measures. Therefore, in order to 

align the Hospital IQR Program with the Hospital VBP and HAC Reduction Programs, 

we are proposing to increase measure-specific sample size targets to support this 1 chart 

per quarter increase in the Hospital IQR Program for the FY 2017 payment determination 

and subsequent years. Specifically, the total number of charts for CLABSI, CAUTI, 

MRSA, and CDI would increase by 1 from 15 to 16; and the total number of charts for 

SSI would increase by 2 from 6 to 8. The previously finalized and proposed specific 

sample-size charts are detailed in the tables below. 

Previously Finalized Number of Charts Required for HAI Validation for the FY 

2017 Payment Determination and Subsequent Years 

HAI Number 

of 

Hospitals 

Number 

of 

Quarters

Charts/ 

Quarter/ 

Hospital 

Number of 

Charts per 

Hospital 

Previously Finalized 

Central line associated 

bloodstream infections 

(CLABSI) 

Up to 300 4 3.75* 15 

Catheter-associated urinary 

tract infections (CAUTI) 

Up to 300 4 3.75* 15 

MRSA Up to 300 4 3.75* 15 

CDI Up to 300 4 3.75* 15 

SSI Up to 600 4 1.5* 6 
 1131 

*As previously finalized, within each hospital, quarterly targets are 3, 3, and 1 respectively for CLABSI, 

CAUTI, and SSI, and 3, 3, and 1 respectively for MRSA, CDI, and SSI. As finalized, 2 additional charts 

per quarter per hospital were to be randomized to meet the fractional case targets on average. 

Proposed Number of Charts to be Submitted for HAI Validation for the 

FY 2017 Payment Determination and Subsequent Years 

HAI Number 

of 

Hospitals

Number 

of 

Quarters

Charts/ 

Quarter/ 

Hospital

Number of 

Charts per 

Hospital

Proposed 

Central line associated 

bloodstream infections 

(CLABSI) 

Up to 300 4 4 16 

Catheter-associated urinary 

tract infections (CAUTI) 

Up to 300 4 4 16 

MRSA Up to 300 4 4 16 

CDI Up to 300 4 4 16 

SSI Up to 600 4 2 8 

 We invite public comment on this proposal. 

(4) Clinical Process of Care Measures: Topic Areas and Sample Design 

 As discussed above in this section, we are proposing to sample 8 total patient 

charts for clinical process-of-care measures per quarter per hospital included in validation 

for the Hospital IQR Program for the FY 2017 payment determination and subsequent 

years. Those 8 charts are discussed in greater detail below. 

As shown in the table below, two other Hospital IQR Program clinical process-ofcare topic areas overlap with measures proposed for inclusion in the FY 2017 Hospital 

VBP Program. Regardless, we are not proposing to target those topic areas for the 

following reasons. One of these measures, PC-01, Elective delivery prior to 39 

completed weeks of gestation, is reported in aggregate. We cannot use the same 

mechanism to validate PC-01 as we use for measures reported at the patient level, but we 
 1132 

hope to include it in our validation program in the future should reporting PC-01 as an 

electronic clinical quality measure becomes a requirement. The second measure is 

AMI-7a. AMI-7a describes a process of care only performed in small rural hospitals. Of 

the approximately 3,300 hospitals participating in the Hospital IQR Program for the 

FY 2015 payment determination, only 113 submitted cases for this measure in the first 

two quarters of CY 2013. Therefore, targeting hospitals that report the AMI-7a measure 

would unduly single out small rural hospitals that disproportionately report relatively 

high AMI-7a measure denominator counts for validation, and would be inequitable. 
 1133 

Number of Chart-Abstracted Clinical Process- of- Care Measures per Topic 

Area Proposed to Be Reported in the Hospital IQR Program in the CY 2014 

and CY 2015 data collection periods* 

Topic area 

Number of 

required 

measures 

reported in 

CY 2014 for 

FY 2016 

Hospital IQR 

Program 

Number of 

required 

measures 

proposed for 

CY 2015 for 

FY 2017 

Hospital IQR 

Program 

Proposed to 

include in the 

Hospital VBP 

Program for 

FY 2017 

Acute Myocardial Infarction 

(AMI) 

2 1 Yes 

Heart Failure (HF) 1 0 No 

Pneumonia (PN) 1 0 No 

Surgical Care Improvement 

Project (SCIP) 

7 0 No 

Venous thromboembolism 

(VTE) 

6 5 No 

Stroke (STK) 8 4 No 

Emergency department 

throughput (ED) 

2 2 No 

Prevention --global 

immunization (IMM) 

1 1 Yes 

Sepsis 0 1 No 

Perinatal Care (PC) ** 1 1 Yes 

*Data validated for the FY 2017 payment determination are Quarter 3, CY 2014, Quarter 4, CY 2014 

Quarter 1, CY 2015 and Quarter 2, CY 2015 (78 FR 50824). 

** Not reported at the patient level and not proposed for inclusion in validation. 

 For the FY 2017 payment determination and subsequent years, we are proposing 

that the remaining 5 of the 8 clinical process-of-care charts be drawn from a systematic 

random sample of charts across all topic areas containing required measures other aside 

from those in the immunization and perinatal care topic areas. Across all hospitals 

included in validation, we believe this approach will ensure adequate numbers of patient 

charts are sampled for each topic area. Under this proposal, the pool of clinical process-
 1134 

of-care topic areas sampled for validation will include: STK, VTE, ED, and sepsis, as 

well as all other IQR required topic areas such as AMI. We received many comments in 

the FY 2014 IPPS/LTCH PPS final rule (78 FR 50807 through 50810; 78 FR 50825) 

regarding the importance of validating VTE, STK, and ED measures not included in 

validation for the FY 2016 payment determination. With this proposal, STK, VTE, ED, 

and sepsis measures would be included in the pool of clinical process-of-care measures 

for validation. The systematic random sample of topic areas from this pool would ensure 

that charts are sampled proportionate to the number of charts submitted for each topic. 

Thus, a sample of 20 charts per year would not be limited to only one topic area by 

random occurrence. In addition, across all hospitals included in validation, we believe 

this approach will ensure adequate numbers of patient charts are sampled for each topic 

area.77

 This proposal simultaneously simplifies the sampling plan for clinical process-ofcare measures and gives us the flexibility of introducing or removing new topic areas into 

validation each year without having to redesign and propose a new sampling strategy. 

Using a random sample ensures that new topic areas are not excluded from the validation 

sample and we can more easily adjust as the topic areas change over the years. If this 

proposal is finalized, every time a new required topic area is added to the Hospital IQR 

Program, it will automatically be added to validation, and every time a topic is removed 

from the Hospital IQR Program, it will automatically be excluded from validation. 

 We invite public comment on these proposals. 

 

77 We used data submitted to the Clinical Data Warehouse for the Hospital IQR Program from quarters 

1 and 2 of 2013 to estimate that at least 400 cases per topic area would be validated per year (across all 

hospitals). 
 1135 

(5) Immunization Measure Validation 

 We are proposing for the Hospital IQR Program for the FY 2017 payment 

determination and subsequent years, that 3 of the 8 total patient charts each quarter be 

targeted from the Immunization topic area. Currently, this topic area only includes the 

Immunization for Influenza (NQF #1659) measure, which overlaps with the Hospital 

VBP Program. We want to ensure that every hospital included in validation is validated 

for this topic area because of the overlap. 

c. Combining Scores for HAI and Clinical Process of Care Topic Areas 

 We refer readers to the FY 2010 IPPS/LTCH PPS final rule (74 FR 43885) for the 

process of scoring clinical process-of-care measures, the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50832 through 50833) for the process of scoring HAI measures, and FY 2014 

IPPS/LTCH PPS final rule (78 FR 50833) for the process to be used to compute the 

confidence interval. We are not proposing any changes to those established policies. 

 However, for the FY 2017 payment determination and subsequent years, we are 

proposing to modify our approach to weighting the scores for each of the HAI, IMM and 

“other topic areas” with two proposals. 

 In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50226) and the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53548 through 53553), we established a process to 

combine the HAI and clinical process-of-care measure scores by weighting them 

proportionate to the number of measures included in validation. For example, in 

section IX.A.11.b.4. of the preamble of this proposed rule, our proposal to validate all 

clinical process of care measures required by the Hospital IQR Program for the FY 2017 
 1136 

payment determination would yield 14 clinical process-of-care measures in validation in 

CY 2015 and only 5 HAI measures in validation. Using the previously finalized weights, 

the clinical process of care measures score would contribute 14/19 and the HAI score 

would contribute only 5/19 to the combined score. This weighting does not reflect either 

the relative importance of HAIs to clinical process of care measures in the Hospital VBP 

Program nor the resources proposed to devote to their validation. 

In sections IV.I. and IV.J. of the preamble of this proposed rule (the Hospital VBP 

Program and the HAC Reduction Program, respectively), we are proposing to weight the 

patient safety domain (of which the HAI measures are part) more heavily in the Hospital 

VBP Program (20 percent for the patient safety domain versus 5 percent for the clinical 

process of care measures) and to use the HAI measures for the HAC Reduction Program. 

In this section, we are proposing to weight the HAI measures more heavily than the 

clinical process of care scores to align with these proposals in sections IV.I and IV.J. For 

the FY 2017 payment determination and subsequent years, we are proposing to weight 

the HAI score 66.7 percent (or 2/3) of the total score and the clinical process-of-care 

measures to weight 33.3 percent (or 1/3) of the total score. Further justification is 

provided after the second proposal. 

 In addition, we are proposing to weight the IMM measures more heavily than 

other chart-abstracted clinical process-of-care measures validated in the Hospital IQR 

Program to align with the Hospital VBP Program. We are changing the process currently 

established to calculate the clinical process-of-care score, which is based on application 

of the formulas for the variance of a stratified single-stage cluster sample with unequal 
 1137 

cluster sizes and the variance of a proportion in a stratified random sample (see reference 

to Cochran’s “Sampling Techniques” at 75 FR 50226 and 78 FR 53550). We have 

previously applied this formula without consideration for the relative importance of 

different measures. When so applied, each topic area is weighted proportionate to the 

amount of data submitted to the warehouse for that topic area. 

However, we are proposing to modify the formulas as previously applied to 

weight the IMM topic area more heavily because of the overlap with the Hospital VBP 

Program. For the FY 2017 payment determination and subsequent years, we are 

proposing to weight the “IMM” clinical topic area as 66.7 percent (2/3) and all other 

topic areas combined 33.3 percent (1/3) of the clinical process-of-care score. The 

weights reflect our policy preference to place greater relative weight on Hospital VBP 

Program included measures to better ensure accurate scores and payment. Emphasizing 

chart-abstracted clinical process of care measures validated in the Hospital IQR Program 

to align with the Hospital VBP Program will address the need to validate Hospital IQR 

Program data not currently included in Hospital VBP Program for public reporting and 

validation feedback to hospitals. 

 The table below shows the effect of the two proposals combined (the first to 

weight the HAI score more heavily than the clinical process-of-care score and the second 

to weight IMM data more heavily than other clinical process-of-care topic areas). The 

HAI topic area will count 3 times as much as the IMM topic area and 6 times as much as 

all other topic areas combined. 
 1138 

Proposed Weighting to Combine Scores Across Chart-Abstracted Topic Areas 

Included in Validation for the FY 2017 Payment Determination 

and Subsequent Years 

Topic Area Weight 

Health care associated infection (HAI) 66.7% 

Immunization (IMM) 22.2% 

Other (AMI, ED, sepsis, STK, VTE) 11.1% 

Total 100% 

 

 Previously, the clinical process of care measures accounted for 20 percent of the 

Hospital VBP Program score, whereas the HAI measures were a subset of the outcome 

measures weighted 30 percent (FR 53605 through 53606). The proposed relative weights 

for the HAI (66 percent) and IMM (22 percent) topic areas better reflect the strong 

emphasis we are proposing for the HAI measures. 

 These proposals will require adjustments to the formulas applied to compute the 

confidence intervals. As we have done in the past, we intend to post the specific 

formulas used to compute the confidence interval on the QualityNet Web site at least one 

year prior to final computation 

(https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage

%2FQnetTier2&cid=1138115987129). These formulas will continue to account 

appropriately for the manner in which patient charts were sampled and data were 

abstracted. 

 We invite public comment on these proposals. 

d. Processes to Submit Patient Medical Records for Chart-abstracted Measures 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50834 through 50835), we 

finalized a process for the FY 2016 payment determination and subsequent years that 
 1139 

allows hospitals to submit patient charts for validation via: (1) paper patient medical 

records; or (2) secure transmission of electronic versions of patient information. The 

process previously finalized restricts electronic submission of patient information to 

digital images of patient medical records submitted using encrypted CD-ROMs, DVDs, 

or flash drives. 

 We are proposing for the FY 2017 payment determination and subsequent years 

to expand the options for secure transmission of electronic versions of patient medical 

records. Specifically, we are proposing to allow hospitals to submit digital images 

(PDFs) of patient charts using a Secure File Transfer Portal on the QualityNet Web site. 

This portal would allow hospitals to transfer files through either a Web-based portal or 

directly from a client application using a secure file transfer protocol. The system 

provides a mechanism for securely exchanging documents containing sensitive 

information such as Protected Health Information (PHI) or Personally Identifiable 

Information (PII). Detailed instructions on how to use this system are available in the 

Secure File Transfer 1.0 User Manual available on QualityNet at: 

http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage

%2FQnetBasic&cid=1228773343598. After July 2014, hospitals can submit all Hospital 

IQR Program validation data using this portal. This proposal responds to many 

commenters from the FY 2014 IPPS/LTCH PPS rulemaking that were concerned that 

encrypted CD-ROMs were cumbersome and requested viable alternatives. We believe 

that the burden associated with using this portal will be similar to or less than that 

involved with submitting patient medical records via portable electronic media (that is, 
 1140 

encrypted CD-ROMS, DVDs, or flash drives). Therefore, we intend to reimburse 

hospitals according to the rate established for submitting patient medical records via 

portable electronic media (78 FR 50956). 

 We invite public comment on this proposal. 

e. Plans to Validate Electronic Clinical Quality Measure Data 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50807 through 50810), we 

finalized a voluntary process allowing hospitals to partially meet Hospital IQR Program 

requirements for the FY 2014 payment determination by submitting electronic clinical 

quality measure data via certified electronic health record technology. Many commenters 

expressed concern that we did not have an adequate methodology to validate these data. 

To respond to these concerns as well as to ensure that Hospital IQR Program data 

are accurate and reliable, we conducted an environmental scan, including review of prior 

public comments to CMS proposed rules and requests for information, review of the 

technical and academic literatures, numerous listening sessions, and interviews with nine 

hospitals. From these activities, we identified three key categories of threats to data 

accuracy: (1) the design of the EHR product, including both the manufacturer-provided 

EHR product and the hospital’s customizations of that EHR product to support the 

hospital’s specific workflows and processes, (2) hospital and provider documentation 

practice, and (3) EHR and electronic clinical quality measure standards and 

specifications. We understand the potential threats to validity in each of these categories. 

To respond to these concerns, we are currently conducting a small scale test of a remote 
 1141 

real-time validation strategy for electronic clinical quality measures in approximately 

9 hospitals. 

 We are not proposing any requirements for validation of electronic clinical quality 

measures for the FY 2017 payment determination. However, we intend to conduct a 

larger scale pilot test of validation activities in FY 2015. The pilot test will engage up to 

100 volunteer hospitals in a highly interactive test abstraction of their EHR systems using 

a secure remote access, real-time abstraction technology that meets the HIPAA Privacy 

and Security Rules’ requirements. Hospitals that volunteer to participate must meet the 

EHR Incentive Program Stage 2 criteria (77 FR 53968 through54162) and be able to 

produce QRDA Category 1 Revision 2 extracted data (individual patient data) for at least 

6 of the 16 measures in the STK, VTE, ED, and PC topic areas. The Office of the 

National Coordinator for Health Information Technology (ONC) adopted QRDA as the 

standard to support both QRDA Category I (individual patient) and QRDA Category III 

(aggregate) data submission approaches for meaningful use Stage 2 in the Health 

Information Technology: Standards, Implementation Specifications, and Certification 

Criteria for Electronic Health Record Technology, 2014 Edition; Revisions to the 

Permanent Certification Program for Health Information Technology rule (77 FR 54163 

through 54292). Interested hospitals will be invited to attend a 30-minute pre-briefing 

session where they will be provided with detailed instructions about the process and a 

demonstration explaining how to install needed software and have any concerns about 

security or systems requirements addressed. The software to be installed, Bomgar, is 

approved by CMS and meets our security requirements allowing CDAC to remotely view 
 1142 

isolated records in real-time under hospital supervision, comparing all abstracted data 

with QRDA Category 1 file data and summarizing the results after the real-time session. 

 We implemented Bomgar software, a commercial product, in a CMS data center 

to allow for the review of medical records securely over the Internet. The product will 

allow the CDAC staff and Hospital medical record staff to easily set up remote support 

sessions for reviewing Hospital IQR Program-related EHR records under hospital 

supervision. The software was tested and passed our strict security standards. The 

electronic sessions do not require changes to a hospital’s firewall or network because 

both the CDAC computer and the hospital computer connect to the product through 

secure outbound connections. The product will log and record every session and all 

session data will be safe-guarded by federal government approved encryption. 

 While CDAC has limited, remote viewing access, hospitals will be asked to: 

● Generate separate lists of patients eligible for measures in each of the four 

topic areas (STK, VTE, ED, and PC); 

● Generate QRDA Category 1 files extracted automatically from an EHR for all 

applicable measures for up to 3 records within each of the 4 topic areas (for a total of 12 

records) as selected by CDAC; and 

● Show selected records, such as laboratory records, and patient medical history, 

navigating through the EHR system as directed by CDAC. 

 During this remote real-time session, CDAC will: 

● Follow the specifications for the electronic measure to abstract relevant 

information related to each data element from up to 10 different sources, for example, 
 1143 

medication administration records, laboratory reports, and patient history, (including 

structured and unstructured fields) within each patient medical record. 

 After concluding the real-time session with a hospital, CDAC will: 

● Compare all abstracted data with QRDA Category 1 file data; and 

● Summarize results identifying patterns of concern. 

 Based on these results, CMS and our contractors will: 

● Work with measure stewards to refine measure specifications based on 

conflicting findings; 

● Share conflicting findings with individual hospitals to support improvement; 

● Publicize de-identified patterns of conflicting findings that allow vendors to 

develop automated checks; 

● Determine reliability (agreement) between QRDA Category 1 extracted and 

abstracted data; and 

● Produce descriptive statistics to estimate sample size requirements for future 

validation. 

 To address the burden associated with this test, we intend to reimburse hospitals 

for the burden associated with their participation. Details about reimbursement are 

included in section XIII.B.6. of the preamble of this proposed rule. We will post on 

QualityNet a detailed draft of the operational procedures that volunteer hospitals will be 

expected to follow during the public comment period. We developed this process to 

attempt to meet all of our goals for validity, as further explained in the table below. 
 1144 

Electronic Clinical Quality Measure Validation Strategy Summary 

for the Hospital IQR Program 

Desired Attributes of Validation Strategy 

● Assesses accuracy including reliability and population representativeness 

● Employs a standardized process conducted by an objective third party 

● Minimizes burden to hospitals 

● Minimizes costs to CMS by being performed at a central location 

● Leverages the dynamic qualities of an EHR, including query functions 

● May ultimately integrate with validation of other IQR measures 

Goals of Test 

● Assess the accuracy and completeness of electronic clinical quality measure data 

● Assess Hospital IQR Program readiness for electronic clinical quality measure 

reporting requirements 

● Identify the needs for and implement updates to measure specifications and 

standards 

● Plan future validation requirements, including detailed operational instructions and 

sample size 

Planned Process Overview 

Hospitals will: 

● Allow CMS’ Clinical Data Abstraction Contractor (CDAC) to remotely view 

records in real-time 

● Generate separate lists of patients eligible for measures to be validated 

● Generate QRDA Category 1 extract files for all applicable measures for up to 12 

records selected by CDAC 

● Show selected records, navigating through the EHR system as directed by CDAC 

CDAC will: 

● Abstract data following the specifications for the electronic measure and relevant 

information related to each data element from up to 10 different sources (including 

structured and unstructured fields) within each medical record 

● Compare all abstracted data with QRDA Category 1 file data 

● Assess and refine operational processes 

CMS and its contractors will: 

● Determine reliability (agreement) between extracted and abstracted measures 

● Work with measure stewards to refine measure specifications based on conflicting 

findings 

● Share conflicting findings with individual hospitals to support improvement 

● Publicize de-identified common patterns of conflicting findings that allow vendors 

to develop automated checks 

● Produce descriptive statistics to estimate sample size requirements for future 

validation 

● Reimburse hospitals for burden associated with participation in test

We invite public comment on this voluntary pilot test for validation. 
 1145 

We also considered other validation approaches including one that supplements 

the current procedures and compares quality data manually abstracted by the hospitals 

with QRDA Category 1 extracts from their EHRs. Although we are making no specific 

proposals related to these alternatives at this time, we invite comments on whether we 

should develop or identify existing computerized applications to assist hospitals in selfvalidation and on the specific functionalities that may be useful for self-validation. For 

example, as part of the validation process, should CMS develop or identify an existing 

application that would use natural language processing, to identify potential threats to 

validity that human abstractors might then review more closely. An example of such an 

application might be one that searches the unstructured fields for contraindications to 

VTE prophylaxis, even if such contraindications were not noted in a structured field 

within an EHR. We also invite comments any other types of applications that would be 

useful for self-validation. 

12. Data Accuracy and Completeness Acknowledgement Requirements for the FY 2017 

Payment Determination and Subsequent Years 

 We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53554) for 

information for details on DACA requirements for the FY 2017 payment determination 

and subsequent years. 

 We are not proposing any changes to DACA form requirements at this time. 
 1146 

13. Public Display Requirements for the FY 2017 Payment Determination and 

Subsequent Years 

 We refer readers to the FY 2008 IPPS final rule (72 FR 47360), the FY 2011 

IPPS/LTCH PPS final rule (75 FR 50230), the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51650), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53554), and the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50836) for details on public display requirements for 

the FY 2017 payment determination and subsequent years. 

 The Hospital IQR Program quality measures are typically reported on the 

Hospital Compare Web site at: http://www.medicare.gov/hospitalcompare, but on 

occasion are reported on other CMS Web sites such as http://www.cms.gov and/or 

https://data.medicare.gov. 

 We are not proposing any changes to public display requirements at this time. 

14. Reconsideration and Appeal Procedures for the FY 2017 Payment Determination and 

Subsequent Years 

 We refer readers to the FY 2012 IPPS/LTCH final rule (76 FR 51650 through 

51651), the FY 2014 IPPS/LTCH final rule (78 FR 50836), and at 42 CFR § 412.140(e) 

for details on reconsideration and appeal procedures for the FY 2017 payment 

determination and subsequent years. 

 We are not proposing any changes to the reconsideration and appeals procedures 

at this time. 
 1147 

15. Hospital IQR Program Extraordinary Circumstances Extensions or Exemptions 

 We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51651 

through 51652), the FY 2014 IPPS/LTCH PPS final rule (78 FR 50836 through 50837), 

and 42 CFR 412.140(c)(2) for details on the Hospital IQR Program extraordinary 

circumstances extensions or waivers. We are not proposing any substantive changes to 

these policies or the processes. However, in the future, we will refer to the process as the 

Extraordinary Circumstances Extensions or Exemptions process. We are currently in the 

process of revising the Extraordinary Circumstances/Disaster Extension or Waiver 

Request form, previously approved under OMB control number 0938-1171. 

 In addition, we are proposing to make a conforming change from the phrase 

“extension or waiver” to the phrase “extension or exemption” in 42 CFR 412.140(c)(2). 

Section 412.140(c)(2) currently states, “Exception. Upon request by a hospital, CMS 

may grant an extension or waiver of one or more data submission deadlines in the event 

of extraordinary circumstances beyond the control of the hospital. Specific requirements 

for submission of a request for an extension or waiver are available on QualityNet.org.” 

We are proposing to revise this language to state, “Exception. Upon request by a 

hospital, CMS may grant an extension or exemption of one or more data submission 

deadlines in the event of extraordinary circumstances beyond the control of the hospital. 

Specific requirements for submission of a request for an extension or exemption are 

available on QualityNet.org.” 
 1148 

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

1. Statutory Authority 

 Section 3005 of the Affordable Care Act added new sections 1866(a)(1)(W) and 

(k) to the Act. Section 1866(k) establishes a quality reporting program for hospitals 

described in section 1886(d)(1)(B)(v) of the Act (referred to as a “PPS-Exempt Cancer 

Hospital” or “PCH”). Section 1866(k)(1) of the Act states that, for FY 2014 and each 

subsequent fiscal year, a PCH must submit data to the Secretary in accordance with 

section 1866(k)(2) of the Act with respect to such a fiscal year. Section 1866(k)(2) of the 

Act provides that, for FY 2014 and each subsequent fiscal year, each hospital described 

in section 1886(d)(1)(B)(v) of the Act must submit data to the Secretary on quality 

measures specified under section 1866(k)(3) of the Act in a form and manner, and at a 

time, specified by the Secretary. 

 Section 1866(k)(3)(A) of the Act requires that any measure specified by the 

Secretary must have been endorsed by the entity with a contract under section 1890(a) of 

the Act, unless an exception under section 1866(k)(3)(B) of the Act applies. The 

National Quality Forum (NQF) currently holds this contract. The NQF is a voluntary, 

consensus-based, standard-setting organization with a diverse representation of 

consumer, purchaser, provider, academic, clinical, and other health care stakeholder 

organizations. The NQF was established to standardize healthcare quality measurement 

and reporting through its consensus development processes. We have generally adopted 

NQF-endorsed measures in our reporting programs. 
 1149 

 However, section 1866(k)(3)(B) of the Act provides an exception. Specifically, it 

provides that, in the case of a specified area or medical topic determined appropriate by 

the Secretary for which a feasible and practical measure has not been endorsed by the 

entity with a contract under section 1890(a) of the Act, the Secretary may specify a 

measure that is not so endorsed as long as due consideration is given to measures that 

have been endorsed or adopted by a consensus organization identified by the Secretary. 

 Under section 1866(k)(3)(C) of the Act, the Secretary was required to publish the 

measure selection for PCHs no later than October 1, 2012, with respect to FY 2014. 

 Section 1866(k)(4) of the Act requires the Secretary to establish procedures for 

making public the data submitted by PCHs under the PPS-Exempt Cancer Hospital 

Quality Reporting (PCHQR) Program. Such procedures must ensure that a PCH has the 

opportunity to review the data that are to be made public with respect to the PCH prior to 

such data being made public. The Secretary must report quality measures of process, 

structure, outcome, patients’ perspective on care, efficiency, and costs of care that relate 

to services furnished by PCHs on the CMS Web site. 

2. Covered Entities 

 Section 1886(d)(1)(B)(v) of the Act excludes particular cancer hospitals from 

payment under the IPPS. This proposed rule covers only those PPS-excluded cancer 

hospitals meeting eligibility criteria specified in 42 CFR 412.23(f). 

3. Previously Finalized PCHQR Program Quality Measures 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53556 through 53561), we 

finalized five quality measures for the FY 2014 program and subsequent years. 
 1150 

Specifically, we finalized two of the CDC NHSN-based HAI quality measures (outcome 

measures): (1) CLABSI; and (2) CAUTI. We also finalized three cancer-specific 

process of care measures: (1) Adjuvant chemotherapy is considered or administered 

within 4 months (120 days) of surgery to patients under the age of 80 with the American 

Joint Committee on Cancer (AJCC) III (lymph node positive) colon cancer; 

(2) Combination chemotherapy is considered or administered within 4 months (120 days) 

of diagnosis for women under 70 with AJCC T1c, or Stage II or III hormone receptor 

negative breast cancer; and (3) Adjuvant hormonal therapy. We also discussed the 

collection requirements and submission timeframes for these measures in the FY 2013 

IPPS/ LTCH PPS final rule (77 FR 53563 through 53566). 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50838 through 50840), we 

finalized one new quality measure for the FY 2015 program and subsequent years. 

Specifically, we finalized the CDC’s NHSN HAI measure of Surgical Site Infection 

(SSI). We did not remove or replace any of the previously finalized measures from the 

PCHQR Program for the FY 2015 program and subsequent years. 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50840 through 50846), we 

finalized 12 new quality measures for the FY 2016 program and subsequent years. 

Specifically, we finalized six new SCIP measures, five new clinical process/oncology 

care measures and the HCAHPS Survey for reporting beginning with the FY 2016 

program and subsequent years. We did not remove or replace any of the previously 

finalized measures from the PCHQR Program for the FY 2016 program and subsequent 
 1151 

years. We also discussed the collection requirements and submission timeframes for 

these measures in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50850 through 50853). 

 We are not proposing to remove or replace any of the previously finalized 

measures from the PCHQR Program for the FY 2017 program and subsequent years. 

4. Proposed Update to the Clinical Process/Oncology Care Measures Beginning with the 

FY 2016 Program 

 Beginning with the FY 2016 program, we are proposing to update the 

specifications for each of the five clinical process/oncology care measures so that for 

each measure, PCHs must report all-patient data. We believe that the delivery of high 

quality care in the PCH setting is critically important and that collecting data on all 

patients will enable us to ensure that high quality care is delivered to Medicare 

beneficiaries in this setting. In addition, all-patient data increases transparency in the 

health care system, aligns with State and federal initiatives78, and improves research 

efforts. Our proposal to require PCHs to collect all-patient data provides us with the data 

to inform the public with the most robust and accurate reflection of the quality of care 

and patient outcomes in the PCH setting. In addition, this proposal will align the 

specifications of the clinical process/oncology care measures with those of the SCIP 

PCHQR measures, for which all-patient data are required for submission. 

 We welcome public comments on this proposal for the clinical process/oncology 

care measures for the FY 2016 program and subsequent years. 

 

78 All-Payer Claims Database (APCD) Fact Sheet; available at: http://www.apcdcouncil.org/issue-briefsand-fact-sheets. 
 1152 

5. Proposed New Quality Measure Beginning with the FY 2017 Program 

a. Considerations in the Selection of Quality Measures 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53556) and in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50837 through 50838), we indicated that we have 

taken a number of principles into consideration when developing and selecting measures 

for the PCHQR Program, and that many of these principles are modeled on those we use 

for measure development and selection under the Hospital IQR Program: 

● Public reporting should rely on a mix of standards, outcomes, process of care 

measures, and patient experience of care measures, including measures of care transitions 

and changes in patient functional status. 

● The measure set should evolve so that it includes a focused core set of 

measures appropriate to cancer hospitals that reflects the level of care and the most 

important areas of service furnished by those hospitals. The measures should address 

gaps in the quality of cancer care. 

● We also consider input solicited from the public through rulemaking and public 

listening sessions. 

● We consider suggestions and input from a PCH Technical Expert Panel (TEP), 

convened by a CMS measure development contractor, which rated potential PCH quality 

measures for importance, scientific soundness, usability, and feasibility. The TEP 

membership includes health care providers specializing in the treatment of cancer, cancer 

researchers, consumer and patient advocates, disparities experts, and representatives from 

payer organizations. 
 1153 

 Like the Hospital IQR Program, the PCHQR Program supports the National 

Quality Strategy (NQS), national priorities, HHS Strategic Plans and Initiatives, the CMS 

Quality Strategy, and strives for burden reduction whenever possible. The PCHQR 

Program also takes into consideration the recommendations of the Measure Applications 

Partnership (MAP). The MAP is a multi-stakeholder body convened by the NQF for the 

purpose of providing input to HHS on the selection of measures. 

b. Proposed New Quality Measure Beginning with the FY 2017 Program 

 We are proposing to adopt one new clinical effectiveness measure for the 

FY 2017 program and subsequent years: External Beam Radiotherapy for Bone 

Metastases (NQF #1822). The proposed clinical effectiveness measure was included on a 

publicly available document entitled “List of Measures under Consideration for 

December 1, 2013,” a list of quality and efficiency measures being considered for use in 

various Medicare programs. The proposed measure was submitted to the MAP Hospital 

Workgroup for review. The MAP supported the inclusion of this measure in the PCHQR 

Program. The MAP’s conclusions can be found in the “MAP Pre-Rulemaking Report: 

2014 Recommendations on Measures Under Consideration by HHS,” which is available 

at: https://www.qualityforum.org/Publications/2014/01/MAP_PreRulemaking_Report__2014_Recommendations_on_Measures_for_More_than_20_Federal_Progr

ams.aspx. We considered the MAP’s input and recommendations for this proposed 

measure for the PCHQR Program, and specifically, we note that the proposed measure 

addresses the MAP priority of palliative care for cancer patients. In addition, the 

proposed measure addresses the NQS domain of effective clinical care. 
 1154 

 We believe that this NQF-endorsed measure developed by the American Society 

for Radiation Oncology (ASTRO) meets the requirement under section 1866(k)(3)(A) of 

the Act that measures specified for the PCHQR generally be endorsed by the entity with a 

contract under section 1890(a) of the Act (currently the NQF). This measure assesses the 

percentage of patients (both Medicare and non-Medicare) with painful bone metastases 

and no history of previous radiation who receive EBRT with an acceptable dosing 

schedule. The measure numerator includes all patients with painful bone metastases, and 

no previous radiation to the same site, who receive EBRT with any of the following 

recommended fractionation schemes: 30Gy/10fxns, 24Gy/6fxns, 20Gy/5fxns, or 

8Gy/1fxn. The measure denominator includes all patients with painful bones metastases 

and no previous radiation to the same site, who receive EBRT. The following patients 

are excluded from the denominator: patients who have had previous radiation to the 

same site; patients with femoral axis cortical involvement greater than 3 cm in length; 

patients who have undergone a surgical stabilization procedure; and patients with spinal 

cord compression, cauda equina compression, or radicular pain. For the reasons 

explained more fully below, we believe that this measure will reduce the rate of EBRT 

services overuse, support our commitment to promoting patient safety, and support the 

NQS domains. 

 Bone metastases are a common manifestation of malignancy. Some cancer types 

have a bone metastasis prevalence as high as 70 to 95 percent.79 EBRT can provide 

significant pain relief in 50 to 80 percent of patients with painful bone metastases. 

 

79 Coleman RE. Metastatic bone disease: clinical features, pathophysiology and treatment strategies. 

Cancer Treat Rev. 2001;27:165-176. 
 1155 

 In October 2009, ASTRO organized a Task Force to perform an assessment of 

existing recommendations in order to address a lack of palliative radiotherapy guidelines. 

Based on a review of the literature, the Task Force recommended the following EBRT 

dosing schedules for patients with previously un-irradiated painful bone metastases: 

30 Gy over the course of 10 fractions, 24 Gy over the course of 6 fractions, 20 Gy over 

the course of 5 fractions, and a single 8 Gy fraction.80 Despite the recommendations, the 

actual doses applied for EBRT continue to include dosing schedules as high as 

25 fractions.81 Other studies support the conclusion that shorter EBRT schedules produce 

similar pain relief outcomes when compared to longer EBRT schedules, and that patients 

prefer shorter EBRT schedules because of their convenience, increased tolerability, and 

reduced side effects.82

 In addition, the ASTRO Task Force found that the frequency and severity of side 

effects associated with a single fraction were the same or less than those associated with 

multiple fraction regimens, indicating that shorter treatment schedules may be 

preferable.83 The proposed External Beam Radiotherapy for Bone Metastases measure 

seeks to address the performance gap in treatment variation, ensure appropriate use of 

EBRT, and prevent the overuse of radiation therapy. We believe that this measure is 

necessary to support patient preferences for shorter EBRT schedules as well as to ensure 

 

80 Lutz S, Berk L, Chang E, et al. Palliative radiotherapy for bone metastases: An ASTRO evidence-based 

guideline. Int J Radiat Oncol Biol Phys. 2011;79(4):965-976. 

81Available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=70374. 82 Lutz S, Berk L, Chang E, et al. Palliative radiotherapy for bone metastases: An ASTRO evidence-based 

guideline. Int J Radiat Oncol Biol Phys. 2011;79(4):965-976. 

84 FY 2013 IPPS/LTCH PPS final rule; 77 FR 53561 (NQF# 0223, 0559, and 0220). 
 1156 

patient safety, given that shorter treatment courses show similar or fewer side effects 

while producing similar clinical outcomes. 

 We believe the proposed measure is applicable to the PCH setting because it 

addresses cancer care associated with radiation therapy. The adoption of measures that 

apply to multiple health care settings is one of our objectives in promoting quality care 

consistently across all health care settings. Detailed specifications for this proposed 

measure can be found at: 

http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=70374. 

 In summary, in addition to the 18 measures that we previously finalized for the 

PCHQR Program, we are proposing one new measure for reporting beginning with the 

FY 2017 program. The proposed policies regarding the form, manner, and timing of data 

collection for this measure are discussed in later sections. The table below lists all 

previously adopted measures as well as the proposed new measure for the PCHQR 

Program for the FY 2017 program and subsequent years. We welcome public comment 

on this proposal. 

Topic PCHQR Program Measures for the FY 2017 Program and Subsequent 

Years (Including Proposed New Measure) 

Safety and Healthcare-Associated Infection—HAI

● (NQF #0139) NHSN Central Line-Associated Bloodstream 

Infection (CLABSI) Outcome Measure*

● (NQF #0138) NHSN Catheter-Associated Urinary Tract Infections 

(CAUTI) Outcome Measure*

● (NQF #0753) Harmonized Procedure Specific Surgical Site 

Infection (SSI) Outcome Measure* (currently includes SSIs following 

Colon Surgery and Abdominal Hysterectomy Surgery) 

Clinical Process/Cancer-Specific Treatments 

● (NQF #0223) Adjuvant Chemotherapy is Considered or 

Administered Within 4 Months (120 days) of Surgery to Patients Under 
 1157 

Topic PCHQR Program Measures for the FY 2017 Program and Subsequent 

Years (Including Proposed New Measure) 

the Age of 80 with AJCC III (lymph node positive) Colon Cancer*

● (NQF #0559) Combination Chemotherapy is Considered or 

Administered Within 4 Months (120 days) of Diagnosis for Women Under 

70 with AJCC T1c, or Stage II or III Hormone Receptor Negative Breast 

Cancer*

● (NQF #0220) Adjuvant Hormonal Therapy*

SCIP 

● (NQF #0218) Surgery Patients who Received Appropriate VTE 

Prophylaxis within 24 Hrs Prior to Surgery to 24 Hrs After Surgery End 

Time*

● (NQF #0453) Urinary Catheter Removed on Post-Operative Day 1 

or Post-Operative Day 2 with Day of Surgery Being Day Zero*

● (NQF #0527) Prophylactic Antibiotic Received Within 1 Hr Prior 

to Surgical Incision*

● (NQF #0528) Prophylactic Antibiotic Selection for Surgical 

Patients*

● (NQF #0529) Prophylactic Antibiotic Discontinued Within 24 Hrs 

After Surgery End Time*

● (NQF #0284) Surgery Patients on Beta Blocker Therapy Prior to 

Admission who Received a Beta Blocker During the Perioperative 

Period*

Clinical Process/Oncology Care Measures 

● (NQF #0382) Oncology-Radiation Dose Limits to Normal Tissues*

● (NQF #0383) Oncology: Plan of Care for Pain*

● (NQF #0384) Oncology: Pain Intensity Quantified*

● (NQF #0390) Prostate Cancer-Adjuvant Hormonal Therapy for 

High-Risk Patients*

● (NQF #0389) Prostate Cancer-Avoidance of Overuse MeasureBone Scan for Staging Low-Risk Patients*

Patient Engagement/Experience of Care 

● (NQF #0166) HCAHPS*

Clinical Effectiveness Measure 

● (NQF #1822) External Beam Radiotherapy for Bone Metastases**

*Previously finalized measures. 

**Proposed for the FY 2017 program and subsequent years in this proposed rule. 

6. Possible New Quality Measure Topics for Future Years 

 We seek to develop a comprehensive set of quality measures for widespread use 

for informed decision-making and quality improvement in the PCH setting. Therefore, in 
 1158 

future rulemaking, we intend to propose to adopt new or updated measures, such as 

measures that assess the safety and efficiency of the diagnosis and treatment of cancer, 

measures that take into account novel diagnostic and treatment modalities, measures that 

assess symptoms and functional status, and measures of appropriate disease management. 

Additional measure topics to be considered include patient centered care planning and 

care coordination, shared decision making, measures of quality of life outcomes, and 

measures of admissions for complications of cancer and treatment for cancer. We believe 

that such measures will help us further our goal of achieving better health care and 

improved health for Medicare beneficiaries who obtain cancer services through the 

widespread dissemination and use of quality of care information. 

 We welcome public comment and specific suggestions for measure topics for the 

following measure domains: outcomes, quality of life, clinical quality of care, care 

coordination, patient safety, patient and caregiver experience of care, 

population/community health, and efficiency. These domains align with those of the 

NQS, and we believe that selecting measures to address these domains will promote 

better cancer care while aligning the PCHQR Program with other established quality 

reporting and pay for performance programs such as the Hospital IQR Program, the 

Hospital OQR Program and the Hospital VBP Program. 

 Generally, we retain measures from the previous years’ PCHQR Program 

measure sets for subsequent years. However, in future years we will consider developing 

criteria to determine whether or not to remove or replace measures from the PCHQR 

Program measure set. In developing removal criteria, we will consider those criteria used 
 1159 

by other CMS quality reporting programs in order to align the PCHQR Program with 

those programs. 

 We welcome public comments on the criteria for removal or replacement of 

measures from the PCHQR Program. 

 In an effort to reduce the reporting burden for PCHs, in future years, we will 

consider proposing to require PCHs to report electronically specified clinical quality 

measures for the PCHQR Program. We believe that the collection and reporting of data 

through health information technology would greatly simplify and streamline reporting 

for many CMS quality reporting programs, including the PCHQR Program. Through 

electronic reporting, PCHs would be able to leverage EHRs to capture, calculate, and 

electronically submit quality data that is currently manually chart-abstracted and 

submitted to CMS for the PCHQR Program. In developing future proposals for 

electronic clinical quality measures adoption, we will consider the need to align and 

harmonize measures across various quality reporting programs to minimize the reporting 

burden imposed on PCHs. 

 We welcome public comments on the development of electronic clinical quality 

measure reporting criteria for future years. 

7. Maintenance of Technical Specifications for Quality Measures 

 We maintain technical specifications for the PCHQR Program measures, and we 

periodically update those specifications. The specifications can be found on the 

QualityNet Web site at: 

https://qualitynet.org/dcs/ContentServer?cid=1228772356060&pagename=QnetPublic%2FPage

%2FQnetTier2&c=Page. 
 1160 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53504 through 53505), we 

finalized a policy under which we use a subregulatory process to make nonsubstantive 

updates to measures used for the Hospital IQR Program. We also adopted this process 

for all measures adopted for the PCHQR Program. With respect to what constitutes 

substantive versus non-substantive changes, we expect to make this determination on a 

case-by-case basis. Examples of nonsubstantive changes to measures might include 

updated diagnosis or procedure codes, medication updates for categories of medications, 

broadening of age ranges, and exclusions for a measure. We believe that nonsubstantive 

changes may include updates to measures based upon changes to guidelines upon which 

the measures are based. 

 We will continue to use rulemaking to adopt substantive updates to the measures 

we have adopted for the PCHQR Program. Examples of changes that we might consider 

to be substantive would be those in which the changes are so significant that the measure 

is no longer the same measure, or when a standard of performance assessed by a measure 

becomes more stringent (for example: changes in acceptable timing of medication, 

procedure/process, or test administration). Another example of a substantive change 

would be where the NQF has extended its endorsement of a previously endorsed measure 

to a new setting, such as extending a measure from the inpatient setting to hospice. We 

also note that to the extent a PCHQR measure is endorsed by the NQF, the NQF measure 

maintenance process incorporates an opportunity for public comment and engagement.

 We believe the endorsement processes, as well as our treatment of substantive 

versus nonsubstantive measure changes, adequately balances our need to incorporate 
 1161 

updates to PCHQR Program measures in the most expeditious manner possible while 

preserving the public’s ability to comment on updates that so fundamentally change an 

endorsed measure that it is no longer the same measure that we originally adopted. 

8. Public Display Requirements Beginning with the FY 2014 Program

 Section 1866(k)(4) of the Act requires the Secretary to establish procedures for 

making the data submitted under the PCHQR Program available to the public. Such 

procedures must ensure that a PCH has the opportunity to review the data that is to be 

made public with respect to the PCH prior to such data being made public. 

Section 1866(k)(4) of the Act also provides that the Secretary must report quality 

measures of process, structure, outcome, patients’ perspective on care, efficiency, and 

costs of care that relate to services furnished in such hospital on the CMS Web site. 

 In order to meet these requirements, in the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53562 through 53563), we finalized our policy to publicly display the submitted 

data on the Hospital Compare Web site (http://www.hospitalcompare.hhs.gov/) and 

established a preview period of 30 days prior to making such data public. 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50847 through 50848), we 

finalized our proposal to display publicly in 2014 and subsequent years the data for the 

measures listed below: 

● Adjuvant Chemotherapy is considered or administered within 4 months 

(120 days) of surgery to patients under the age of 80 with AJCC III (lymph node positive) 

colon cancer (NQF #0223); and 
 1162 

● Combination Chemotherapy is considered or administered within 4 months 

(120 days) of diagnosis for women under 70 with AJCC T1c, or Stage II or III hormone 

receptor negative breast cancer (NQF #0559). 

 This year we are proposing to publicly display in 2015 and subsequent years the 

data for the Adjuvant Hormonal Therapy measure (NQF #0220). 

 We are also proposing to publicly display no later than 2017 and for subsequent 

years the data for the measures listed below: 

● NHSN Catheter-Associated Urinary Tract Infections (CAUTI) Outcome 

Measure (NQF #0138); and 

● NHSN Central Line-Associated Bloodstream Infection (CLABSI) Outcome 

Measure (NQF #0139). 

 At present, all PCHs are reporting CLABSI and CAUTI data to the NHSN under 

the PCHQR Program. However, due to the low volume of data produced and reported by 

the small number of facilities (in fewer than 2 years), the CDC is unable to calculate 

reasonable and reliable baseline estimates, or expected rates, which are needed for the 

purpose of calculating these measure rates. Therefore, we estimate that the first public 

posting of the CLABSI and CAUTI PCHQR Program data reported to the NHSN from 

the PCHs will be no later than 2017. 

 We invite public comment on these proposals. 
 1163 

9. Form, Manner, and Timing of Data Submission Beginning with the FY 2017 Program 

a. Background 

 Section 1866(k)(2) of the Act requires that, beginning with the FY 2014 PCHQR 

Program, each PCH must submit to the Secretary data on quality measures specified 

under section 1866(k)(3) of the Act in a form and manner, and at a time as specified by 

the Secretary. 

 Data submission requirements and deadlines for the PCHQR Program are 

generally posted on the QualityNet Web site at: 

http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnet

Tier3&cid=1228772864228. 

b. Proposed Reporting Requirements for the Proposed New Measure: External Beam 

Radiotherapy for Bone Metastases (NQF #1822) Beginning with the FY 2017 Program 

 We are proposing that PCHs report the proposed External Beam Radiotherapy for 

Bone Metastases (NQF #1822) measure beginning with January 1, 2015 discharges and 

for subsequent years. We are proposing that PCHs would report this measure to CMS via 

a CMS Web-based Measures Tool on an annual basis (July 1 – August 15 of each 

respective year). This approach is consistent with the data submission deadlines finalized 

for the clinical process/oncology care measures (78 FR 50850 through 50851) and PCHs 

are already preparing to begin submitting PCHQR data using this timeline. We also 

believe that annual data submission of once per year (as opposed to quarterly data 

submission of four times per year) will reduce PCH cost and burden. We believe that 

these proposed dates will provide enough advance notice for PCHs to prepare to report 

the measure. 
 1164 

 We are proposing to collect the EBRT for Bone Metastases measure rates for the 

FY 2017 program and subsequent years using all-patient (both Medicare and 

non-Medicare) data from the four quarters (Q1, Q2, Q3, and Q4) of CY 2015, and that 

PCHs must submit aggregated data for the measure for each of these quarters during a 

data submission window that would be open from July 1 through August 15, 2016. For 

the FY 2017 program and subsequent years, we refer readers to the reporting periods and 

data submission window outlined in the table below in this section. 

 For data collection, we are proposing that PCHs submit aggregate-level data 

through the CMS Web-based Measures Tool or submit an aggregate data file through a 

vendor (via QualityNet infrastructure). We refer readers to the FY 2014 IPPS/LTCH PPS 

final rule (78 FR 50850 through 50851) for more information on the CMS Web-based 

aggregated data collection tool. 

 We welcome public comment on the proposed reporting periods, data submission 

timeframes, and data collection methods/modes for the proposed measure for the 

FY 2017 program and subsequent years. 
 1165 

Proposed External Beam Radiotherapy for Bone Metastases (NQF #1822) 

Measure-Reporting Periods and Submission Timeframes for the FY 2017 

Program and Subsequent Years 

Program year 

(FY) 

Reporting periods 

(CY) 

Data submission 

deadlines 

2017 

Q1 2015 discharges 

(January 1, 2015 – March 31, 2015) 

Q2 2015 discharges 

(April 1, 2015 – June 30, 2015) 

Q3 2015 discharges 

(July 1, 2015 – September 30, 2015) 

Q4 2015 discharges 

(October 1, 2015 – December 31, 2015) 

July 1, 2016 - 

August 15, 2016 

2018 

Q1 2016 discharges 

(January 1, 2016 – March 31, 2016) 

Q2 2016 discharges 

(April 1, 2016 – June 30, 2016) 

Q3 2016 discharges 

(July 1, 2016 – September 30, 2016) 

Q4 2016 discharges 

(October 1, 2016 – December 31, 2016) 

July 1, 2017 - 

August 15, 2017 

Subsequent 

Years 

Q1 discharges 

(January 1 – March 31 of each year 2 

years before the program year) 

Q2 discharges 

(April 1 – June 30 of each year 2 years 

before the program year) 

Q3 discharges 

(July 1 – September 30 of each year 2 

years before the program year) 

Q4 discharges 

(October 1 – December 31 of each year 2 

years before the program year) 

July 1 - August 15 of 

each year before the 

program year 
 1166 

c. Proposed Reporting Options for the Clinical Process/Cancer Specific Treatment 

Measures Beginning with the FY 2015 Program and the SCIP and Clinical 

Process/Oncology Care Measures Beginning with the FY 2016 Program 

We are proposing to modify the data submission requirements for the three 

clinical process/cancer specific treatment measures84 that we adopted in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53564), and the six SCIP measures and five clinical 

process/oncology care measures that we adopted in the FY 2014 IPPS/LTCH final rule 

(78 FR 50846). Under those requirements, PCHs submit aggregate-level clinical 

process/cancer specific treatment measure data to a CMS contractor, aggregate-level 

clinical process/oncology care measure data through the CMS Web-based Measures 

Tool, and patient-level SCIP measure data through the QualityNet infrastructure. We are 

now proposing to allow PCHs to report the clinical process/cancer specific treatment, 

SCIP, and clinical process/oncology care data to CMS using one of two mechanisms. 

Under the first option, which is newly proposed for the SCIP and clinical 

process/oncology care measure sets, PCHs or their authorized vendors can enter 

aggregate numerator and denominator data into a CMS Web page located on the secure 

part of the CMS QualityNet infrastructure. Under the second option, which is newly 

proposed for the clinical process/cancer specific treatment, SCIP, and clinical 

process/oncology care measures, PCHs or their authorized vendors can submit an 

aggregate data file through a CMS secure QualityNet file exchange process. We are 

proposing these options in order to decrease the reporting burden for PCHs. 

 

84 FY 2013 IPPS/LTCH PPS final rule; 77 FR 53561 (NQF# 0223, 0559, and 0220). 
 1167 

 We believe that the newly proposed submission option, which is further described 

below for the SCIP measures, will result in a considerable burden reduction for PCHs, as 

it includes once annually, rather than once quarterly, submission deadlines and 

submission of aggregate data as opposed to patient level data for the SCIP measures. We 

are proposing this update to the SCIP measures submission requirements in anticipation 

of a possible change to the Hospital IQR Program IT infrastructure to discontinue patient 

level SCIP data collection. This IT infrastructure change is due to the proposed removal 

of SCIP measures from the Hospital IQR Program, which we are proposing in section 

IX.A.2.b. of the preamble of this proposed rule. We believe that providing PCHs with a 

choice regarding how they submit data on these measures will result in a considerable 

burden reduction for PCHs because under both options, PCHs will be able to submit the 

data once annually and in an aggregate form. 

 We are proposing that PCHs submit an annual data file stratified by four quarters 

for each of the SCIP measures. We believe that this proposal provides the public with 

sufficiently reliable quality measure information while reducing PCH burden through 

providing two data collection options. We will provide detailed technical file format 

specifications on the public QualityNet Web site (www.qualitynet.org) following 

publication of this year’s final rule. The newly proposed submission deadlines for the 

SCIP measures are outlined in the table below. 

 These proposed requirements would replace, for the purposes of the PCHQR 

Program, the update to the SCIP timeline and IT infrastructure that we finalized for the 
 1168 

PCHQR Program in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50851 through 

50852). 

Proposed Update to the Six SCIP Measures-Reporting Periods and Submission 

Timeframes for the FY 2016 Program and Subsequent Years 

Program year 

(FY) 

Reporting periods 

(CY) 

Data submission 

deadlines 

2016 

Q1 2015 discharges 

(January 1, 2015 – March 31, 2015) July 1, 2015 - 

August 15, 2015 

2017 

Q2 2015 discharges 

(April 1, 2015 – June 30, 2015) 

Q3 2015 discharges 

(July 1, 2015 – September 30, 2015) 

Q4 2015 discharges 

(October 1, 2015 – December 31, 2015) 

July 1, 2016 - August 

15, 2016 

Subsequent 

Years 

Q1 discharges 

(January 1 – March 31 of each year two 

years before the program year) 

Q2 discharges 

(April 1 – June 30 of each year two years 

before the program year) 

Q3 discharges 

(July 1 – September 30 of each year two 

years before the program year) 

Q4 discharges 

(October 1 – December 31 of each year 

two years before the program year) 

July 1 - August 15 of 

each year before the 

program year 

 

 We invite public comment on the proposed new reporting mechanism that would 

apply to the three clinical process/cancer specific treatment measures, five clinical 

process/oncology care treatment measures, and six SCIP measures. 

 We are not proposing any changes to the previously finalized procedural 

requirements, Notice of Participation (NOP) requirements, or Data Accuracy and 

Completeness Acknowledgement (DACA) requirements. We refer readers to the 
 1169 

FY 2013 IPPS/LTCH PPS final rule (77 FR 53563 through 53567) for more information 

on these requirements. 

d. Proposed New Sampling Methodology for the Clinical Process/Oncology Care 

Measures Beginning with the FY 2016 Program 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50842), we adopted a policy 

under which PCHs could report the five clinical process/oncology care measures 

finalized for the FY 2016 program and subsequent years using the same sampling 

methodology that we allow for the reporting of those measures under the PQRS. We are 

proposing to replace the previously adopted sampling methodology with a sampling 

methodology similar to the one we have allowed hospitals to use to report the SCIP 

measures under the Hospital IQR Program. The sampling methodology specified in the 

PQRS Specifications Manual is specific to the physician office setting. We believe that 

the methodology we are proposing in this proposed rule is more applicable to PCHs 

because it was developed for hospital level reporting. 

 The proposed methodology will allow for different numbers of cases to be 

reported based on each PCH’s cancer patient population size. This is necessary for the 

PCHQR Program because bed size varies among PCHs from 20 to >250 beds.85 The 

proposed sampling methodology for the clinical process/oncology care measures is 

shown below, and we believe it will decrease the reporting burden on PCHs while 

producing reliable measure rates. 

Average Quarterly Initial Population Minimum Required Sample Size "N"

 

85 American Hospital Directory: http://www.ahd.com/freesearch.php. 
 1170 

Size "N" 

>125 25 

51-125 20 percent of the initial patient population

10-50 10 

<10 No sampling; 100 percent of the initial patient 

population

 We are also proposing that PCHs report population and sample size counts (by 

measure) for Medicare and non-Medicare discharges by quarter for the five clinical 

process/oncology care measures for the FY 2016 program and subsequent years. 

 We are proposing these requirements in order to support our effort to align with 

existing reporting requirements used in other CMS quality reporting programs, such as 

the Hospital IQR Program, which requires participating hospitals to submit population 

and sample size counts for certain measures in addition to the all payer data needed to 

calculate measure rates. We view it as vital for PCHs to accurately determine their 

aggregate population and appropriate sample size data in order for CMS to assess PCHs’ 

data reporting accuracy and completeness for their total population of cases, including 

both Medicare and non-Medicare patients. 

 We welcome public comments on these proposals for the clinical 

process/oncology care measures for the FY 2016 program and subsequent years. 

10. Exceptions from Program Requirements 

 In our experience with other quality reporting and performance programs, we 

have noted occasions when providers have been unable to submit required quality data 

due to extraordinary circumstances that are not within their control (for example, natural 

disasters). We do not wish to unduly increase their burden during these times. 

Therefore, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50848), we finalized our 
 1171 

policy that, for the FY 2014 program and subsequent years, PCHs may request and we 

may grant exceptions (formerly referred to as waivers) with respect to the reporting of 

required quality data when extraordinary circumstances beyond the control of the PCH 

warrant. When exceptions are granted, we will notify the respective PCH. We are in the 

process of revising the Extraordinary Circumstances/Disaster Extension or Waiver 

Request form (CMS-10432), approved under OMB control number 0938-1171. 

 We are not proposing any substantive changes to this PCHQR exception process. 
 1172 

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

1. Background 

 In accordance with section 1886(m)(5) of the Act, as added by section 3004(a) of 

the Affordable Care Act, the Secretary established the Long-Term Care Hospital Quality 

Reporting (LTCHQR) Program. Under section 1886(m)(5)(A)(i) of the Act, for the rate 

year 2014 and each subsequent rate year, in the case of an LTCH that does not submit 

data to the Secretary in accordance with section 1886(m)(5)(C) of the Act with respect to 

such a rate year, any annual update (which we also refer to as a "payment determination") 

to a standard Federal rate for discharges for the hospital during the rate year, and after 

application of section 1886(m)(3) of the Act, shall be reduced by two percentage points. 

As we discussed in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51743 through 

51744), for the purposes of the LTCH PPS, the term "rate year" and the term "fiscal year" 

both refer to the time period beginning October 1 and ending September 30. In order to 

eliminate any possible confusion, we will use the term "fiscal year" rather than "rate 

year" in our discussion of the LTCHQR Program. 

 Under section 1886(m)(5)(D)(i) of the Act, the quality measures for the LTCHQR 

Program are measures selected by the Secretary that have been endorsed by an entity that 

holds a contract with the Secretary under section 1890(a) of the Act, unless 

section 1886(m)(5)(D)(ii) of the Act applies. This contract is currently held by NQF. 

Additional information regarding NQF and its measure review processes is available at: 

http://www.qualityforum.org/Measuring_Performance/Measuring_Performance.aspx.
 1173 

 While as a general matter the Secretary must select endorsed measures for the 

LTCHQR Program, section 1886(m)(5)(D)(ii) of the Act provides that an exception may 

be made in the case of a specified area or medical topic determined appropriate by the 

Secretary for which a feasible and practical measure has not been endorsed by the entity 

that holds a contract with the Secretary under section 1890(a) of the Act. In such a case, 

section 1886(m)(5)(D)(ii) of the Act authorizes the Secretary to specify a measure that is 

not so endorsed, as long as due consideration is given to measures that have been 

endorsed or adopted by a consensus organization identified by the Secretary. 

 The LTCHQR Program was implemented in the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51743 through 51756). 

2. General Considerations Used for Selection of Quality Measures for the LTCHQR 

Program 

 We seek to promote higher quality and more efficient health care for the 

beneficiaries we serve. Quality reporting programs, including public reporting of quality 

information, advance such quality improvement efforts. Quality measurement remains 

the key tool to the success of these programs. Therefore, the selection of only the highest 

caliber of measures is a priority for CMS. 

 We seek to adopt measures for the LTCHQR Program that promote better, safer, 

and more efficient care. Our measure development and selection activities for the 

LTCHQR Program take into account national priorities, such as those established by the 

National Priorities Partnership 

(http://www.qualityforum.org/Setting_Priorities/NPP/National_Priorities_Partnership.aspx), the 
 1174 

HHS Strategic Plan (http://www.hhs.gov/secretary/about/priorities/priorities.html), the 

National Quality Strategy (NQS) 

(http://www.ahrq.gov/workingforquality/nqs/nqs2011annlrpt.htm), and the CMS Quality 

Strategy (http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/QualityInitiativesGenInfo/CMS-Quality-Strategy.html). 

 We also must consider input from the NQF MAP when selecting measures under 

the LTCHQR Program. The MAP is composed of multi-stakeholder groups convened by 

the NQF, our current contractor under section 1890 of the Act. The NQF must convene 

these stakeholders and provide us with the stakeholders' input on the selection of certain 

categories of quality and efficiency measures as part of a pre-rulemaking process 

described in section 1890A of the Act. We, in turn, must take this input into 

consideration in selecting those categories of measures. The NQF MAP met in 

December 2013 and January 2014 and provided input to CMS as required under section 

1890A(a)(3) of the Act. This input appears in the MAP's January 2014 Pre-Rulemaking 

Report available for download at: 

http://www.qualityforum.org/Publications/2014/01/MAP_PreRulemaking_Report__2014_Recommendations_on_Measures_for_More_than_20_Feder

al_Programs.aspx. Measures proposed for the LTCHQR Program in this proposed rule 

are measures CMS included under the List of Measures under Consideration (MUC List) 

for December 1, 2013,86 a list that the Secretary must make available to the public by 

December 1 of each year, as part of the pre-rulemaking process, as described in 

section 1890A(a)(2) of the Act. The measures we are proposing in this rule for the 

 

86 Available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=74245. 
 1175 

LTCHQR Program are discussed in the MAP Pre-Rulemaking Report (pp. 192-193). The 

MAP reviewed each measure proposed in this rule. We refer readers to the following 

sections of the preamble of this proposed rule for more information on the MAP's 

recommendations: IX.C.7.a.(1), Functional Status Quality Measure: Percent of LongTerm Care Hospital Patients with an Admission and Discharge Functional Assessment 

and a Care Plan That Addresses Function; IX.C.7.a.(2), Functional Status Quality 

Measure: Functional Outcome Measure: Change in Mobility among Long-Term Care 

Hospital Patients Requiring Ventilator Support; and IX.C.7.b., Proposed Quality 

Measure: National Healthcare Safety Network (NHSN) Ventilator-Associated Event 

(VAE) Outcome Measure. 

 After due consideration to any measures that may have been endorsed or adopted 

by a consensus organization, including the NQF, for the LTCH setting, we are proposing 

measures that are either fully supported by the MAP for the LTCHQR Program, or that 

we believe most closely align with the national priorities discussed in this section of the 

proposed rule. In the absence of the MAP's full support, in some cases we are proposing 

measures for which there is MAP conditional support and that meet the exception criteria 

in section 1886(m)(5)(D)(ii) of the Act. Further discussion of why each proposed 

measure is a high priority in the LTCH setting is included below. 

3. Policy for Retention of LTCHQR Program Measures Adopted for Previous Payment 

Determinations 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53614 through 53615), for the 

LTCHQR Program, we adopted a policy that once a quality measure is adopted, it will be 
 1176 

retained for use in subsequent years, unless otherwise stated. For the purpose of 

streamlining the rulemaking process, when we initially adopt a measure for the LTCHQR 

Program for a payment determination, this measure will be automatically adopted for all 

subsequent years or until we propose to remove, suspend, or replace the measure. For 

further information on how measures are considered for removal, suspension, or 

replacement, we refer readers to the FY 2013 IPPS/LTCH PPS final rule. 

 We are not proposing any changes to this policy for retaining LTCHQR Program 

measures adopted for previous payment determinations. 

4. Policy for Adopting Changes to LTCHQR Program Measures 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53615 through 53616), we 

adopted our policy that if the NQF updates an endorsed measure that we have adopted for 

the LTCHQR Program in a manner that we consider to not substantively change the 

nature of the measure, we will use a subregulatory process to incorporate those updates to 

the measure specifications that apply to the LTCHQR Program. With respect to what 

constitutes a substantive versus a nonsubstantive change, we expect to make this 

determination on a measure-by-measure basis. Examples of such nonsubstantive changes 

might include updated diagnosis or procedure codes, medication updates for categories of 

medications, broadening of age ranges, and changes to exclusions for a measure. The 

subregulatory process for nonsubstantive changes will include revision of the LTCHQR 

Program Manual and posting of updates on our Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/index.html. Examples of changes that we might 
 1177 

consider to be substantive would be those in which the changes are so significant that the 

measure is no longer the same measure, or when a standard of performance assessed by a 

measure becomes more stringent, such as changes in acceptable timing of medication, 

procedure/process, test administration, or expansion of the measure to a new setting. 

 We are not proposing any changes to this policy for adopting changes to 

LTCHQR Program measures. 

5. Previously Adopted Quality Measures 

a. Previously Adopted Quality Measures for the FY 2015 and FY 2016 Payment 

Determinations and Subsequent Years 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53624 through 53636), we 

retained the application of Percent of Residents with Pressure Ulcers That are New or 

Worsened (Short-Stay) (NQF #0678) to the LTCH setting (initially adopted in the 

FY 2012 IPPS/LTCH PPS final rule (76 FR 51745 through 51750)) for the FY 2015 

payment determination and subsequent years, and adopted updated versions of National 

Health Safety Network (NHSN) Catheter-Associated Urinary Tract Infection (CAUTI) 

Outcome Measure (NQF #0138) and NHSN Central Line-Associated Blood Stream 

Infection (CLABSI) Outcome Measure (NQF #0139), for the FY 2014 payment 

determination and subsequent years. We also adopted two new quality measures for the 

LTCHQR Program for the FY 2016 payment determination and subsequent years, in 

addition to the three previously adopted measures (the CAUTI measure, CLABSI 

measure, and Pressure Ulcer measure): (1) Percent of Residents or Patients Who Were 

Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) 
 1178 

(NQF #0680); and (2) Influenza Vaccination Coverage among Healthcare Personnel 

(NQF #0431) (77 FR 53624 through 53636). 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50861 through 50863), we 

adopted the NQF-endorsed version of the Pressure Ulcer measure, Percent of Residents 

or Patients with Pressure Ulcers That Are New or Worsened (Short-Stay) (NQF #0678), 

for the LTCHQR Program for the FY 2015 payment determination and subsequent years. 

 Set out below are the quality measures, both previously adopted measures 

retained in the LTCHQR Program and measures adopted in FY 2013 and FY 2014 

IPPS/LTCH PPS final rules, for the FY 2015 and FY 2016 payment determinations and 

subsequent years. 

 
 1179 

LTCHQR Program Quality Measures Adopted for the FY 2015 and FY 2016 

Payment Determinations and Subsequent Years 

NQF 

Measure 

ID 

Measure Title Payment 

Determination 

NQF 

#0138 

National Health Safety Network (NHSN) CatheterAssociated Urinary Tract Infection (CAUTI) Outcome 

Measure* 

FY 2015 and 

Subsequent FYs 

NQF 

#0139 

National Health Safety Network (NHSN) Central LineAssociated Blood Stream Infection (CLABSI) Outcome 

Measure* 

FY 2015 and 

Subsequent FYs 

NQF 

#0678 

Percent of Residents or Patients with Pressure Ulcers 

That Are New or Worsened (Short-Stay)* 

FY 2015 and 

Subsequent FYs 

NQF 

#0680 

Percent of Residents or Patients Who Were Assessed and 

Appropriately Given the Seasonal Influenza Vaccine 

(Short-Stay)** 

FY 2016 and 

Subsequent FYs 

NQF 

#0431

Influenza Vaccination Coverage among Healthcare 

Personnel** 

FY 2016 and 

Subsequent FYs 

b. Previously Adopted Quality Measures for the FY 2017 and FY 2018 Payment 

Determinations and Subsequent Years 

 In the FY 2014 IPPS/LTCH PPS final rule, we adopted three additional measures 

for the FY 2017 payment determination and subsequent years (78 FR 50863 through 

50874) and one additional measure for the FY 2018 payment determination and 

subsequent years (78 FR 50874 through 50877). These measures are set out in the table 

below. 

LTCHQR Program Quality Measures Previously Adopted for the FY 2017 and 

FY 2018 Payment Determinations and Subsequent Years 

NQF 

Measure ID 

Measure Title Payment 

Determination 

NQF #1716 National Healthcare Safety Network (NHSN) FacilityWide Inpatient Hospital-Onset Methicillin-Resistant 

Staphylococcus aureus (MRSA) Bacteremia Outcome 

Measure 

FY 2017 and 

Subsequent Years 
 1180 

LTCHQR Program Quality Measures Previously Adopted for the FY 2017 and 

FY 2018 Payment Determinations and Subsequent Years 

NQF 

Measure ID 

Measure Title Payment 

Determination 

NQF #1717 National Healthcare Safety Network (NHSN) FacilityWide Inpatient Hospital-Onset Clostridium difficile

Infection (CDI) Outcome Measure 

FY 2017 and 

Subsequent Years 

NQF Review 

Pending (NQF 

#2512) 

All-cause Unplanned Readmission Measure for 30 

Days Post-Discharge from Long-Term Care 

Hospitals 

FY 2017 and 

Subsequent Years 

Application of 

NQF #0674

Percent of Residents Experiencing One or More 

Falls with Major Injury (Long-Stay) 

FY 2017 and 

Subsequent Years 

6. Proposed Revisions to Data Collection Timelines and Submission Deadlines for 

Previously Adopted Quality Measures 

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

to revise data collection timelines and submission deadlines for a measure that we 

previously adopted for the LTCHQR Program: Percent of Residents or Patients Who 

Were Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) 

(NQF #0680). We are also reproposing, for the FY 2018 payment determination only, 

revised data collection timelines and submission deadlines for the Application of Percent 

of Residents Experiencing One or More Falls with Major Injury (Long-Stay) 

(Application of NQF #0674) measure. For all subsequent years (FY 2019 and beyond), 

data collection for this measure would begin on January 1 and continue through 

December 31. 
 1181 

a. Proposed Revisions to Data Collection Timelines and Submission Deadlines for 

Percent of Residents or Patients Who Were Assessed and Appropriately Given the 

Seasonal Influenza Vaccine (Short Stay) (NQF #0680) 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50858 through 50861), we 

revised the Percent of Residents or Patients Who Were Assessed and Appropriately 

Given the Seasonal Influenza Vaccine (Short Stay) (NQF #0680) measure for the 

FY 2016 payment determination and subsequent years. Specifically, we finalized that for 

the FY 2016 payment determination, LTCHs must collect data for any patient admitted or 

discharged during the influenza vaccination season, from October 1, 2014, through 

April 30, 2015, and submit data for these patients by May 15, 2015. 

 We are seeking to better align the data collection timelines and submission 

deadlines of the Percent of Residents or Patients Who Were Assessed and Appropriately 

Given the Seasonal Influenza Vaccine (Short Stay) (NQF #0680) measure with the data 

collection timelines and submission deadlines of the Percent of Residents or Patients with 

Pressure Ulcers That Are New or Worsened (Short Stay) (NQF #0678) measure because 

both measures are reported using the same data collection instrument, the LTCH 

Continuity Assessment Record and Evaluation (CARE) Data Set. Therefore, for the 

FY 2016 payment determination and subsequent years, we are proposing to revise the 

data collection timelines and submission deadlines for the Percent of Residents or 

Patients Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine 

(Short Stay) (NQF #0680) measure. Specifically, we are proposing that the first data 

collection timeline would take place during the fourth quarter of the CY preceding the 
 1182 

applicable FY (for example, October 2014 through December 2014 for the FY 2016 

payment determination), with data submission by February 15, 2015 and the second data 

collection timeline would take place during the first quarter of the CY preceding the 

applicable FY (for example, January 2015 through March 2015 for the FY 2016 payment 

determination), with data submission by May 15, 2015. The proposed changes are 

illustrated below for the FY 2016 and FY 2017 payment determinations only, but similar 

collection timelines and submission deadlines would also apply to subsequent years. By 

taking into account the influenza vaccination season, these proposed changes would align 

data collection and submission for this measure (NQF #0680) with the rest of the LTCH 

CARE Data Set. 

Proposed Data Collection Timelines and Submission Deadlines for LTCHQR 

Program Quality Data for the FY 2016 and FY 2017 Payment Determinations: 

Percent of Residents or Patients Who Were Assessed and Appropriately Given the 

Seasonal Influenza Vaccine (Short-Stay) (NQF #0680)

Data Collection Timelines Submission Deadlines Payment 

Determination 

October 1, 2014 -December 31, 2014 February 15, 2015 FY 2016 

January 1, 2015-March 31, 2015 May 15, 2015 

October 1, 2015-December 31, 2015 February 15, 2016 FY 2017 

January 1, 2016-March 31, 2016 May 15, 2016 

 We note that these proposed changes would only apply to the Percent of 

Residents or Patients Who Were Assessed and Appropriately Given the Seasonal 

Influenza Vaccine (Short Stay) (NQF #0680) for the LTCHQR Program, and would not 

be applicable to any other LTCHQR Program measures, proposed or adopted, unless 

explicitly stated. 
 1183 

 We invite public comments on our proposal to revise the data collection timelines 

and submission deadlines for this patient influenza vaccination measure (NQF #0680) for 

the FY 2016 payment determination and subsequent years. 

b. Proposed Revisions to Data Collection Timelines and Submission Deadlines for the 

Application of Percent of Residents Experiencing One or More Falls with Major Injury 

(Long-Stay) (NQF #0674) 

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50874 through 50877), we 

adopted this measure for the FY 2018 payment determination. We further finalized that 

LTCHs should begin to collect and submit data on this measure using the LTCH CARE 

Data Set starting January 1, 2016. 

 To ensure the successful implementation of new and updated versions of LTCH 

CARE Data Set, we will be following an implementation cycle beginning April 1, 2016, 

which will allow for a predictable future release schedule. We believe that adherence to a 

predictable future release schedule that takes into account both the changes that must be 

made to the LTCH CARE Data Set, as well as requirements that are managed by LTCHs 

for such changes, will help ensure successful implementation. Therefore, we will be 

adhering to a date of April 1 of any given year, when releasing future iterations of the 

LTCH CARE Data Set. This change will effectively delay the implementation of the 

January 1, 2016, release by three months, allowing LTCHs additional time to become 

familiar with and to participate in trainings related to the revised LTCH CARE Data Set, 

as well as time to incorporate given changes into their existing IT infrastructure. 
 1184 

 Therefore, we are proposing that for the FY 2018 payment determination, data 

collection for this measure would begin on April 1, 2016. For all subsequent years, data 

collection for this measure would begin on January 1 and continue through December 31. 

The proposed changes are illustrated below for the FY 2018 and FY 2019 payment 

determinations. 

 
 1185 

Proposed Data Collection Timelines and Submission Deadlines for LTCHQR 

Program Quality Data for the FY 2018 and FY 2019 Payment Determinations: 

Application of Percent of Residents Experiencing One or More Falls with Major 

Injury (Long-Stay) (NQF #0674)

Data Collection Timelines Submission Deadlines Payment 

Determination 

April 1, 2016- June 30, 2016 August 15, 2016 FY 2018 

July 1, 2016-September 30, 2016 November 15, 2016 

October 1, 2016-December 31, 2016 February 15, 2017 

January 1, 2017-March 31, 2017 May 15, 2017 FY 2019 

April 1, 2017-June 30, 2017 August 15, 2017 

July 1, 2017-September 30, 2017 November 15, 2017 

October 1, 2017-December 31, 2017 February 15, 2018 

 We note that these proposed changes would be applicable only to the Application 

of Percent of Residents Experiencing One or More Falls with Major Injury (Long-Stay) 

(NQF #0674) measure, and not applicable to any other LTCHQR Program measures, 

proposed or adopted, unless specifically proposed for such measures. 

 We invite public comments on these proposals. 

7. Proposed New LTCHQR Program Quality Measures for the FY 2018 Payment 

Determination and Subsequent Years 

 We are proposing three new quality measures for the FY 2018 payment 

determination and subsequent years. Two of these are related to functional status, and 

one measure is related to ventilator-associated events (VAE). One of the proposed 

functional status quality measures is Percent of Long-Term Care Hospital Patients with 

an Admission and Discharge Functional Assessment and a Care Plan That Addresses 

Function. The second proposed functional status quality measure is Functional Outcome 

Measure: Change in Mobility among Long-Term Care Hospital Patients Requiring 

Ventilator Support. The quality measures are described in more detail below. 
 1186 

a. Proposed New LTCHQR Program Functional Status Quality Measures for the 

FY 2018 Payment Determination and Subsequent Years 

 Patients in LTCHs present with clinically complex conditions. In addition to 

having complex medical care needs for an extended period of time, LTCH patients often 

have functional limitations due to the nature of their conditions, as well as deconditioning 

due to prolonged bed rest and treatment requirements (for example, ventilator use). 

These patients are therefore at high risk for functional decline during the LTCH stay that 

is both condition-related and iatrogenic. 

 The National Committee on Vital and Health Statistics, Subcommittee on 

Health,

87

 noted: "[i]nformation on functional status is becoming increasingly essential 

for fostering healthy people and a healthy population. Achieving optimal health and 

well-being for Americans requires an understanding across the life span of the effects of 

people's health conditions on their ability to do basic activities and participate in life 

situations in other words, their functional status." 

 The functional assessment items included in the two functional status quality 

measures were originally developed and tested as part of the Post-Acute Care Payment 

Reform Demonstration version of the CARE Item Set, which was designed to standardize 

assessment of patients' status across acute and post-acute settings, including LTCHs, 

IRFs, SNFs, and HHAs. The functional status items on the CARE Item Set are daily 

activities that clinicians typically assess at the time of admission and/or discharge in 

 

87 Subcommittee on Health National Committee on Vital and Health Statistics, "Classifying and Reporting 

Functional Status" (2001). 
 1187 

order to determine patients' needs, evaluate patient progress and prepare patients and 

families for a transition to home or to another setting. 

 The development of the CARE Item Set and a description and rationale for each 

item is described in a report entitled "The Development and Testing of the Continuity 

Assessment Record and Evaluation (CARE) Item Set: Final Report on the Development 

of the CARE Item Set: Volume 1 of 3."

88

 Reliability and validity testing were conducted 

as part of CMS' Post-Acute Care Payment Reform Demonstration, and we concluded that 

the functional status items have acceptable reliability and validity. A description of the 

testing methodology and results are available in several reports, including the report 

entitled “The Development and Testing of the Continuity Assessment Record And 

Evaluation (CARE) Item Set: Final Report On Reliability Testing: Volume 2 of 3”

89

 and 

the report entitled “The Development and Testing of The Continuity Assessment Record 

And Evaluation (CARE) Item Set: Final Report on Care Item Set and Current 

Assessment Comparisons: Volume 3 of 3.”

90

 The reports are available at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/PostAcute-Care-Quality-Initiatives/CARE-Item-Set-and-B-CARE.html. 

 

88 Barbara Gage et al., "The Development and Testing of the Continuity Assessment Record and Evaluation 

(CARE) Item Set: Final Report on the Development of the CARE Item Set 

" (RTI International, 2012). 

89 Ibid. 

90 Ibid. 
 1188 

(1) Proposed Functional Status Quality Measure: Percent of Long-Term Care Hospital 

Patients with an Admission and Discharge Functional Assessment and a Care Plan That 

Addresses Function 

 The first functional status quality measure we are proposing for the FY 2018 

payment determination and subsequent years is a process quality measure entitled Percent 

of Long-Term Care Hospital Patients with an Admission and Discharge Functional 

Assessment and a Care Plan That Addresses Function. This quality measure reports the 

percent of LTCH patients with both an admission and a discharge functional assessment 

and a care plan that addresses function. 

 This process measure requires the collection of admission and discharge 

functional status data by trained clinicians using standardized clinical assessment items, 

or data elements, that assess specific functional activities (that is, self-care, mobility, 

cognition, communication, and bladder continence). The self-care and mobility function 

items are coded using a 6-level rating scale that indicates the patient's level of 

independence with the activity; higher scores indicate more independence. The codes for 

rating the cognition, communication and bladder items range from 2 to 7 levels. For this 

quality measure, inclusion of function in the patient's care plan is determined based on 

whether a functional goal is recorded at admission for at least one of the standardized 

self-care or mobility function items using the 6-level rating scale. 

 An increasing body of reported evidence has supported the safety and feasibility 

of early mobilization and rehabilitation of critically ill but stable patients, with minimal 
 1189 

adverse events and risk to the patient.

91,92,93,94,95,96

 Early mobility and rehabilitation in 

these settings have been associated with improved patient outcomes. Therefore, this 

quality measure addresses the importance of: (1) conducting a functional assessment at 

the time of admission addressing self-care, mobility, cognition, communication, and 

bladder continence; (2) incorporating the functional assessment findings made at the time 

of admission into the patients' care plan and setting at least one discharge self-care or 

mobility functional status goal; and (3) conducting a functional assessment at the time of 

discharge addressing self-care, mobility, cognition, communication, and bladder 

continence. 

 Functional limitations following critical illness are becoming increasingly 

prevalent as a result of improving critical care medicine and survival rates.

97

 Short-term 

and long-term adverse consequences among critically ill and chronically, critically ill 

patients in LTCH and Intensive Care Unit (ICU) settings include severe 

weakness,

98,99,100,101

 muscle atrophy,

102

 connective-tissue shortening,

103

 loss of bone 

 

91J. Adler and D. Malone, "Early mobilization in the intensive care unit: a systematic review," Cardiopulm 

Phys Ther J 23, no. 1 (2012). 92 J. P. Kress, "Clinical trials of early mobilization of critically ill patients," Crit Care Med 37, no. 10 Suppl 

(2009). 

93 W. D. Schweickert and J. P. Kress, "Implementing early mobilization interventions in mechanically 

ventilated patients in the ICU," Chest 140, no. 6 (2011). 94 W. D. Schweickert et al., "Early physical and occupational therapy in mechanically ventilated, critically 

ill patients: a randomised controlled trial," Lancet 373, no. 9678 (2009). 95 J. M. Zanni et al., "Rehabilitation therapy and outcomes in acute respiratory failure: an observational 

pilot project," J Crit Care 25, no. 2 (2010). 96 A. Drolet et al., "Move to improve: the feasibility of using an early mobility protocol to increase 

ambulation in the intensive and intermediate care settings," Phys Ther 93, no. 2 (2013). 97 Adler and Malone, "Early mobilization in the intensive care unit: a systematic review." 98 Ibid. 

99 S. L. Dang, "ABCDEs of ICU: Early mobility," Crit Care Nurs Q 36, no. 2 (2013). 100 E. H. Skinner et al., "Development of a physical function outcome measure (PFIT) and a pilot exercise 

training protocol for use in intensive care," Crit Care Resusc 11, no. 2 (2009). 
 1190 

mass,

104

 increased risk for blood clots,

105

 increased risk for pressure ulcers,

106

deconditioning,

107,108

 deficits in self-care and ambulation,

109

 and functional 

impairment,

110

 fatigue,

111

 as well as cognitive impairment, including profound and 

persistent deficits in memory, attention/concentration, and executive function,

112,113,114

and the inability to return to work one year after hospital discharge.

115,116

 Cognitive 

impairment in survivors of critical illness has been associated with anxiety and 

depression, inability to return to work, and inability of older persons to return home.

117

 

To mitigate these adverse consequences, traditional practices of bed rest and immobility 

have been challenged in recent years, and early mobility and rehabilitation have been 

increasingly recognized as important to improve patients' long-term functional 

 101 Centre for Clinical Practice at NICE (UK), "Rehabilitation after critical illness [Internet]." National 

Institute for Health and Clinical Excellence (NICE), 

http://www.nice.org.uk/nicemedia/live/12137/43564/43564.pdf. 

102 Zanni et al., "Rehabilitation therapy and outcomes in acute respiratory failure: an observational pilot 

project." 

103 Ibid. 104 Dang, "ABCDEs of ICU: Early mobility." 105 Ibid. 106 Ibid. 107 Schweickert and Kress, "Implementing early mobilization interventions in mechanically ventilated 

patients in the ICU." 

108 Zanni et al., "Rehabilitation therapy and outcomes in acute respiratory failure: an observational pilot 

project." 

109 Adler and Malone, "Early mobilization in the intensive care unit: a systematic review." 110 Skinner et al., "Development of a physical function outcome measure (PFIT) and a pilot exercise 

training protocol for use in intensive care." 

111 Centre for Clinical Practice at NICE (UK), "Rehabilitation after critical illness [Internet]." 112 Ibid. 113 M. E. Wilcox et al., "Cognitive dysfunction in ICU patients: risk factors, predictors, and rehabilitation 

interventions," Crit Care Med 41, no. 9 Suppl 1 (2013). 114 N. E. Brummel et al., "A combined early cognitive and physical rehabilitation program for people who 

are critically ill: the activity and cognitive therapy in the intensive care unit (ACT-ICU) trial," Phys Ther

92, no. 12 (2012). 

115 Dang, "ABCDEs of ICU: Early mobility." 116 H. J. Engel et al., "ICU early mobilization: from recommendation to implementation at three medical 

centers," Crit Care Med 41, no. 9 Suppl 1 (2013). 117 Wilcox et al., "Cognitive dysfunction in ICU patients: risk factors, predictors, and rehabilitation 

interventions." 
 1191 

outcomes,

118,119,120

with recovery of function being described as both desirable and 

possible.

121 The lack of early mobility initiation in ICU settings has also been described 

as a strong predictor of patient outcomes.

122

 The clinical practice guideline Rehabilitation after Critical Illness

123

 from the 

National Institute for Health and Clinical Excellence (NICE) recommends performing 

clinical assessment to determine the patient's risk of developing physical and nonphysical 

morbidity during the critical care stay as early as clinically possible, identifying current 

rehabilitation needs for patients at risk of morbidity, establishing short-term and 

medium-term rehabilitation goals based on the clinical assessment, starting an 

individualized structured rehabilitation program as early as possible, and performing 

clinical reassessment before discharge. 

 The importance of standardized functional assessment in LTCH settings is also 

supported by the high prevalence of therapy services provided in this setting, as well as 

the need for care coordination for patients returning home and receiving follow-up care in 

the community and patients receiving additional institutional healthcare services after 

discharge from an LTCH. A study

124

 of 1,419 ventilator-dependent patients from 

23 LTCHs reported that physical, occupational, and speech therapy were the most 

 

118 Drolet et al., "Move to improve: the feasibility of using an early mobility protocol to increase 

ambulation in the intensive and intermediate care settings." 

119 Dang, "ABCDEs of ICU: Early mobility." 120 Z. Li et al., "Active mobilization for mechanically ventilated patients: a systematic review," Arch Phys 

Med Rehabil 94, no. 3 (2013). 121 C. L. Rochester, "Rehabilitation in the intensive care unit," Semin Respir Crit Care Med 30, no. 6 

(2009). 

122 Dang, "ABCDEs of ICU: Early mobility." 123 Centre for Clinical Practice at NICE (UK), "Rehabilitation after critical illness [Internet]." 124 D. J. Scheinhorn et al., "Post-ICU mechanical ventilation at 23 long-term care hospitals: a multicenter 

outcomes study," Chest 131, no. 1 (2007). 
 1192 

commonly provided services among a comprehensive list of 34 procedures, services, and 

treatments provided during the LTCH stay. The high frequency of physical 

(84.8 percent), occupational (81.5 percent), and speech (79.7 percent) therapy reflects use 

of the rehabilitative model of care adopted by many post-ICU ventilator weaning 

programs, which is important in restoration of function. This high utilization of therapy 

services supports the need for standardized functional assessment at admission to 

document functional status, identify the need for therapy, set functional status goals and 

assist with discharge planning and care coordination. 

 Whether an LTCH patient is discharged home or to another care setting for 

continuing health care, functional status is an important aspect of a person's health status 

to document at the time of transition. The study

125

 also reported that 28.8 percent of 

patients were discharged directly home or to assisted living, further supporting the 

importance of functional assessment and early rehabilitation to facilitate discharge 

planning and home discharge, when possible. 

 Reported benefits of early mobility and rehabilitation include: (1) improved 

strength

126,127,128

 and functional status;

129,130,131

 (2) earlier achievement of mobilization 

milestones, such as out-of-bed mobilization;

132,133

 (3) improvement in mobility and 

 

125 Ibid. 126 Schweickert and Kress, "Implementing early mobilization interventions in mechanically ventilated patients in the ICU." 127 Dang, "ABCDEs of ICU: Early mobility." 128 Li et al., "Active mobilization for mechanically ventilated patients: a systematic review." 129 Adler and Malone, "Early mobilization in the intensive care unit: a systematic review." 130 Schweickert et al., "Early physical and occupational therapy in mechanically ventilated, critically ill patients: a randomised

controlled trial." 

131 Li et al., "Active mobilization for mechanically ventilated patients: a systematic review." 132 Adler and Malone, "Early mobilization in the intensive care unit: a systematic review." 133 P. E. Morris, "Moving our critically ill patients: mobility barriers and benefits," Crit Care Clin 23, no. 1 (2007). 
 1193 

self-care function scores from admission to discharge;

134,135

 (4) greater incidence of 

return to functional baseline in mobility and self-care, greater unassisted walking and 

walking distances, and improved self-reported physical function scores at hospital 

discharge compared with persons not participating in early mobility and rehabilitation;

136

(5) enhanced recovery of functional exercise capacity;

137

 (6) improved self-perceived 

functional status;

138

 and (7) reduced physiological and cognitive complications

139

 and 

improved cognitive function.

140

 Early mobility and rehabilitation have also been 

associated with reduced ICU and hospital length of stay;

141,142,143,144,145,146

 reduced 

incidence of delirium and improved patient awareness;

147,148

 increased ventilator-free 

days and improved weaning outcomes;

149,150,151

 greater incidence of discharge home 

directly after hospitalization compared with patients not receiving early 

 

134 Li et al., "Active mobilization for mechanically ventilated patients: a systematic review." 135 Scheinhorn et al., "Post-ICU mechanical ventilation at 23 long-term care hospitals: a multicenter outcomes study." 136 Adler and Malone, "Early mobilization in the intensive care unit: a systematic review." 137 Dang, "ABCDEs of ICU: Early mobility." 138 Ibid. 139 Ibid. 140 Li et al., "Active mobilization for mechanically ventilated patients: a systematic review." 141 Adler and Malone, "Early mobilization in the intensive care unit: a systematic review." 142 Kress, "Clinical trials of early mobilization of critically ill patients." 143 Schweickert et al., "Early physical and occupational therapy in mechanically ventilated, critically ill patients: a randomised

controlled trial." 

144 Dang, "ABCDEs of ICU: Early mobility." 145 Engel et al., "ICU early mobilization: from recommendation to implementation at three medical centers." 146 Li et al., "Active mobilization for mechanically ventilated patients: a systematic review." 147 Adler and Malone, "Early mobilization in the intensive care unit: a systematic review." 148 Schweickert et al., "Early physical and occupational therapy in mechanically ventilated, critically ill 

patients: a randomised controlled trial." 

149 Adler and Malone, "Early mobilization in the intensive care unit: a systematic review." 150 Dang, "ABCDEs of ICU: Early mobility." 151 Li et al., "Active mobilization for mechanically ventilated patients: a systematic review." 
 1194 

mobilization;

152,153

 and reduced hospital readmission or death in the year following 

hospitalization.

154,155

 Short-term and long-term cognitive impairment are very frequent complications 

of critical illness, and negatively influence survivors' abilities to function 

independently.

156,157,158

 Delirium during hospitalization is highly prevalent in critically ill 

patients and has been associated with longer lengths of stay, increased duration of 

mechanical ventilation, and higher risk of death.

159

 A longer duration of delirium has 

been associated with worse short- and long-term cognition and executive function.

160,161

 

Given these adverse consequences, the importance of early assessment of cognitive 

function, including possible delirium, and early initiation of cognitive rehabilitation in 

critical care settings, is being increasingly recognized.

162,163

 Also, given the positive 

effects of physical exercise on cognitive function in other populations, the potential 

 

152 Schweickert et al., "Early physical and occupational therapy in mechanically ventilated, critically ill 

patients: a randomised controlled trial." 

153 Engel et al., "ICU early mobilization: from recommendation to implementation at three medical 

centers." 

154 Adler and Malone, "Early mobilization in the intensive care unit: a systematic review." 155 Li et al., "Active mobilization for mechanically ventilated patients: a systematic review." 156 Wilcox et al., "Cognitive dysfunction in ICU patients: risk factors, predictors, and rehabilitation 

interventions." 

157 Brummel et al., "A combined early cognitive and physical rehabilitation program for people who are 

critically ill: the activity and cognitive therapy in the intensive care unit (ACT-ICU) trial." 

158 P. P. Pandharipande, T. D. Girard, and E. W. Ely, "Long-term cognitive impairment after critical 

illness," N Engl J Med 370, no. 2 (2014). 159 Wilcox et al., "Cognitive dysfunction in ICU patients: risk factors, predictors, and rehabilitation 

interventions." 

160 Ibid. 161 Pandharipande, Girard, and Ely, "Long-term cognitive impairment after critical illness." 162 Brummel et al., "A combined early cognitive and physical rehabilitation program for people who are 

critically ill: the activity and cognitive therapy in the intensive care unit (ACT-ICU) trial." 

163 R. S. Miller et al., "Outcomes of trauma patients who survive prolonged lengths of stay in the intensive 

care unit," J Trauma 48, no. 2 (2000). 
 1195 

positive influence of exercise on cognitive function in the critically ill population is being 

examined by researchers. 

 A technical expert panel convened by our measure development contractor 

provided input on the technical specifications of this quality measure, including the items 

included in the quality measure, inclusion and exclusion criteria and risk adjustors. We 

also solicited public comment on the draft specifications of this quality measure on the 

CMS Quality Measures Public Comment Page (http://www.cms.gov/Medicare/QualityInitiatives-Patient-Assessment-Instruments/MMS/CallforPublicComment.html) between 

February 21 and March 14 2014, and received 22 responses from stakeholders with 

comments and suggestions. Additional information regarding these comments may be 

found on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/LTCH-Quality-Reporting/. 

 Based on the evidence discussed above, we are proposing to adopt for the 

LTCHQR Program for the FY 2018 payment determination and subsequent years the 

quality measure entitled Percent of Long-Term Care Hospital Patients with an Admission 

and Discharge Functional Assessment and a Care Plan That Addresses Function. This 

quality measure was developed by CMS, and we plan to submit the quality measure to 

the NQF for review. The MAP met in December 2013 and January 2014, and provided 

input to CMS as required under section 1890A(a)(3) of the Act. In its January 2014 

Pre-Rulemaking Report, the MAP conditionally supported this proposed measure and 

stated that the measure concept is promising, but requires modification or further 

development, and that functional status is a critical area of measurement. Since the time 
 1196 

of the MAP meeting, we have continued further development of the measure with input 

from technical experts, including empirical data analysis. Subsequently, we released 

draft specifications for the function quality measures, and requested public comment 

between February 21 and March 14, 2014. We received 22 responses from stakeholders 

with comments and suggestions during the public comment period, and have updated the 

quality measures specifications based on these comments and suggestions. The updated 

specifications are available for review at the LTCHQR Program Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/index.html?redirect=/LTCH-Quality-Reporting/. 

We refer readers to section IX.C.2. of the preamble of this proposed rule for more 

information on the MAP. 

 In section 1886(m)(5)(D)(ii) of the Act, the exception authority provides that "[i]n 

the case of a specified area or medical topic determined appropriate by the Secretary for 

which a feasible and practical measure has not been endorsed by the entity with a 

contract under section 1890(a) of the Act, the Secretary may specify a measure that is not 

so endorsed as long as due consideration is given to measures that have been endorsed or 

adopted by a consensus organization identified by the Secretary." We reviewed the 

NQF's consensus endorsed measures and were unable to identify any NQF-endorsed 

quality measures focused on assessment of function for patients in the LTCH setting. We 

are unaware of any other quality measures for functional assessment that have been 

endorsed or adopted by another consensus organization for the LTCH setting. Therefore, 

we are proposing to adopt this functional assessment measure for use in the LTCHQR 
 1197 

Program for the FY 2018 payment determination and subsequent years under the 

Secretary's authority to select non-NQF-endorsed measures. 

 Additional information regarding the quality measure may be found on our Web 

site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/. 

 We are proposing that data for the proposed quality measure be collected through 

the LTCH CARE Data Set, with the submission through the Quality Improvement and 

Evaluation System (QIES) Assessment Submission and Processing (ASAP) system. For 

more information on LTCHQR Program reporting using the QIES ASAP system, we 

refer readers to our Web site at: http://www.cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/LTCH-QualityReporting/LTCHTechnicalInformation.html. We intend to revise the LTCH CARE Data 

Set to include new items that assess functional status, should this proposed measure be 

adopted. These items, which assess specific functional activities (that is, self-care, 

mobility, cognition, communication, and bladder continence), would be based on 

functional items included in the Post-Acute Care Payment Reform Demonstration version 

of the CARE Item Set. The items have been carefully developed and tested for reliability 

and validity. 

 We invite public comments on our proposal to adopt the quality measure entitled 

Percent of Long-Term Care Hospital Patients with an Admission and Discharge 

Functional Assessment and a Care Plan That Addresses Function for the LTCHQR 

Program, with data collection starting on April 1, 2016, for the FY 2018 payment 
 1198 

determination and subsequent years. We refer readers to section IX.C.9.c. of the 

preamble of this proposed rule for more information on the proposed data collection and 

submission timeline for this proposed quality measure. 

(2) Proposed Functional Status Quality Measure: Functional Outcome Measure: Change 

in Mobility among Long-Term Care Hospital Patients Requiring Ventilator Support 

 Section 1206(c) of Division B of Pub. L. 113-67, the Pathway to SGR Reform 

Act of 2013, amended section 1886(m)(5)(D) of the Act to add a new clause (iv) 

requiring the Secretary to establish by no later than October 1, 2015, "a functional status 

quality measure for change in mobility among inpatients requiring ventilator support." 

Accordingly, the second functional status quality measure that we are proposing is an 

outcome quality measure entitled the Functional Outcome Measure: Change in Mobility 

among Long-Term Care Hospital Patients Requiring Ventilator Support. This measure 

estimates the risk-adjusted change in mobility score between the time of admission and 

the time of discharge among LTCH patients requiring ventilator support at the time of 

admission. As noted above, LTCH patients often have functional limitations and receive 

rehabilitation therapy services so that they can become more independent when 

performing functional activities. Functional improvement is particularly relevant for 

patients who require ventilator support because these patients have traditionally had 

limited mobility due to cardiovascular and pulmonary instability, delirium, sedation, lack 

of rehabilitation therapy staff, and lack of physician referral.

164

 

164 Zanni et al., "Rehabilitation therapy and outcomes in acute respiratory failure: an observational pilot 

project." 
 1199 

 Several studies have examined functional improvement among patients in the 

long-term care hospitals and setting. In a sample of 101 patients in LTCHs 

(three-quarters were ventilator-dependent), median functional status scores using the 

Functional Status Score (FSS)-ICU (rolling, supine-to-sit transfers, unsupported sitting, 

sit-to-stand transfers, and ambulation) improved significantly from admission to 

discharge, with significant change in all five functional items.

165

 A separate study of 

103 patients with respiratory failure examined functional improvement and found that by 

the end of the respiratory ICU stay, 69.4 percent of survivors ambulated more than 100 

feet, 8.2 percent ambulated less than 100 feet, 15.3 percent could sit in a chair, 

4.7 percent could sit on the edge of the bed, and 2.4 percent did not accomplish any of 

these activities.

166

 The importance of monitoring improvement in mobility skills among LTCH 

patients who require ventilator support at the time of admission is also supported by the 

high prevalence of therapy service provision as part of the treatment plan and the percent 

of patients discharged home after an LTCH stay. In a study of 1,419 ventilatordependent patients from 23 LTCHs with weaning programs,

167

 physical therapy, 

occupational therapy, and speech therapy were the three most commonly provided 

services among 34 procedures, services, and treatments provided during the LTCH 

admission. The very high frequency of physical (84.8 percent), occupational 

 

165 A. Thrush, M. Rozek, and J. L. Dekerlegand, "The clinical utility of the functional status score for the 

intensive care unit (FSS-ICU) at a long-term acute care hospital: a prospective cohort study," Phys Ther 92, 

no. 12 (2012). 

166 P. Bailey et al., "Early activity is feasible and safe in respiratory failure patients," Crit Care Med 35, no. 

1 (2007). 

167 Scheinhorn et al., "Post-ICU mechanical ventilation at 23 long-term care hospitals: a multicenter 

outcomes study." 
 1200 

(81.5 percent), and speech (79.7 percent) therapy reflects use of the rehabilitative model 

of care adopted by many post-ICU weaning programs, which is important in the 

restoration of function. Improvement in functional status, including mobility and 

self-care was noted from admission to discharge. Nearly 30 percent of all patients 

discharged alive returned directly home or to assisted living.

168

 A technical expert panel convened by our measure development contractor 

provided input on the technical specifications of this quality measure. We also solicited 

public comment on the draft specifications of this quality measure, on the CMS Quality 

Measures Public Comment Page (http://www.cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/MMS/CallforPublicComment.html) between 

February 21 and March 14, 2014 and received 22 responses from stakeholder with 

comments and suggestions. 

 Additional information regard the quality measure may be found on our Web site 

at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/. 

 We are proposing that data for the proposed quality measure be collected through 

the LTCH CARE Data Set, with the submission through the QIES ASAP system. For 

more information on LTCHQR Program reporting using the QIES ASAP system, we 

refer readers to our Web site at: http://www.cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/LTCH-QualityReporting/LTCHTechnicalInformation.html. We intend to revise the LTCH CARE Data 

 

168 Ibid. 
 1201 

Set to include new items that assess the functional status and the risk adjustors, should 

this proposed application of the measure be adopted. These items, which assess specific 

functional activities (that is, self-care, mobility, cognition, communication, and bladder 

continence), would be based on functional status items included in the Post-Acute Care 

Payment Reform demonstration version of the CARE Item Set. The items have been 

carefully developed and tested for reliability and validity. 

 Based on the evidence discussed above, we are proposing to adopt for the 

LTCHQR Program for the FY 2018 payment determination and subsequent years the 

quality measure entitled Functional Outcome Measure: Change in Mobility among LongTerm Care Hospital Patients Requiring Ventilator Support. This quality measure is 

developed by CMS, and we plan to submit the quality measure to the NQF for review. 

The MAP met in December 2013 and January 2014, and the NQF provided the MAP's 

input to CMS as required under section 1890A(a)(3) of the Act. In its January 2014 

Pre-Rulemaking Report, the MAP conditionally supported this proposed measure and 

stated that the measure concept is promising, but requires modification or further 

development, and that functional status is a critical area of measurement. Since the time 

of the MAP meeting, we have continued further development of the measure with input 

from technical experts, including empirical data analysis. Subsequently, we have 

released draft specifications for the function quality measures, and requested public 

comment between February 21 and March 14, 2014. We received 22 responses from 

stakeholders with comments and suggestions during the public comment period, and have 

updated the quality measures specifications based on these comments and suggestions. 
 1202 

The updated specifications are available for review at the LTCHQR Program Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/index.html?redirect=/LTCH-Quality-Reporting/. 

We refer readers to section IX.C.2. of the preamble of this proposed rule for more 

information on the MAP. 

 In section 1886(m)(5)(D)(ii) of the Act, the exception authority provides that "[i]n 

the case of a specified area or medical topic determined appropriate by the Secretary for 

which a feasible and practical measure has not been endorsed by the entity with a 

contract under section 1890(a) of the Act, the Secretary may specify a measure that is not 

so endorsed as long as due consideration is given to measures that have been endorsed or 

adopted by a consensus organization identified by the Secretary." We reviewed the 

NQF's consensus endorsed measures and were unable to identify any NQF-endorsed 

quality measures focused on improvement of function among patients in the LTCH 

setting. We are unaware of any other quality measures for functional improvement that 

have been endorsed or adopted by another consensus organization for the LTCH setting. 

Moreover, as discussed above, the Secretary is now required to establish such a measure 

by October 1, 2015. Therefore, we are proposing to adopt this functional improvement 

measure for use in the LTCHQR Program for the FY 2018 payment determination and 

subsequent years under the Secretary's authority to select non-NQF-endorsed measures. 

 We invite public comments on our proposal to adopt the quality measure entitled 

Functional Outcome Measure: Change in Mobility among Patients Requiring Ventilator 

Support for the LTCHQR Program, with data collection starting on April 1, 2016, for the 
 1203 

FY 2018 payment determination and subsequent years. We refer readers to 

section IX.C.9.c. of the preamble of this proposed rule for more information on the 

proposed data collection and submission timeline for this proposed quality measure. 

b. Proposed Quality Measure: National Healthcare Safety Network (NHSN) VentilatorAssociated Event (VAE) Outcome Measure 

 The third quality measure that we are proposing is the CDC-developed National 

Healthcare Safety Network (NHSN) Ventilator-Associated Event (VAE) outcome 

measure. The term "Ventilator-Associated Events" incorporates a range of ventilatorassociated events, including ventilator-associated pneumonia (VAP), pulmonary edema, 

acute respiratory distress syndrome, sepsis, and atelectasis.169 The NHSN VAE Outcome 

Measure provides increased measure sensitivity, more objective definitions for 

ventilator-associated conditions, and the potential for automated outcome detection.170 

The NHSN VAE Outcome Measure is designed for use across multiple inpatient care 

settings, including LTCHs. The measure specifications were created and tested in the 

acute care setting. During CY 2013, 105 LTCHs submitted VAE data to CDC's 

NHSN.171

 According to the CDC, "more than 300,000 patients receive mechanical 

ventilation in the United States each year."172 These patients are at increased risk for 

infections, such as pneumonia and sepsis, as well as other serious complications 

 

169 Klompas, M., Y. Khan, et al. (2011). "Multicenter Evaluation of a Novel Surveillance Paradigm for 

Complications of Mechanical Ventilation." PLoS ONE 6(3): e18062 

170 Magill, S. S., M. Klompas, et al. (2013). "Developing a new, national approach to surveillance for 

ventilator-associated events*." Crit Care Med 41(11): 2467-2475. 171 Data from CMS-CDC correspondence on February 10, 2014. 172 Centers for Disease Control and Prevention (CDC). Ventilator-Associated Event (VAE). January 2014. 

http://www.cdc.gov/nhsn/PDFs/pscManual/10-VAE_FINAL.pdf. 
 1204 

including pulmonary edema, pulmonary embolism, and death. 173,174,175 These 

complications can lead to longer stays in the ICU and hospital, increased health care costs 

and increased risk of disability (or death).176 The estimated mortality rate in patients 

aged 85 years and older with acute lung injury on mechanical ventilation is 60 percent.177

 Ventilator-Associated Events represent a high-priority complication in the LTCH 

setting, given the older, medically complex population in LTCHs and the high prevalence 

of mechanical ventilation in this setting. A MedPAC analysis of MedPAR data found 

that 16 percent of LTCH patients used at least one ventilator-related service in 2012.178 

In FY 2012, MS-LTC-DRG 207, a diagnosis-related group that refers to respiratory 

diagnosis with ventilator support for 96 or more hours, represented the most frequently 

occurring diagnosis among LTCH patients, at 11.3 percent of all LTCH discharges,179

and MS-LTC-DRG-4, a diagnosis-related group that refers to tracheostomy with 

ventilator support for 96 or more hours or primary diagnosis except face, mouth, and 

neck without major OR procedure, represented an additional 1.3 percent of all LTCH 

discharges. Together, the two diagnosis-related groups account for a total of nearly 

18,000 discharges. Furthermore, the number of ventilated patients in LTCHs is 

 

173 Esteban, A., A. Anzueto, et al. (2002). "Characteristics and outcomes in adult patients receiving 

mechanical ventilation: a 28-day international study." JAMA 287(3): 345-355. 

174 Klompas, M., Y. Khan, et al. (2011). "Multicenter Evaluation of a Novel Surveillance Paradigm for 

Complications of Mechanical Ventilation." PLoS ONE 6(3): e18062. 175 Rubenfeld, G. D., E. Caldwell, et al. (2005). "Incidence and outcomes of acute lung injury." N Engl J 

Med 353(16): 1685-1693. 

176 Centers for Disease Control and Prevention (CDC). Ventilator-Associated Event (VAE). January 2014. 

http://www.cdc.gov/nhsn/PDFs/pscManual/10-VAE_FINAL.pdf,. 177 Rubenfeld GD, Caldwell E, Peabody E, et al. Incidence and outcomes of acute lung injury. N Engl J 

Med 2005: 353:1685-93. 

178 MedPAC "Report to Congress: Medicare Payment Policy" Chapter 11 "Long-term care hospital 

services." March 2014. http://www.medpac.gov/chapters/Mar14_Ch11.pdf. 179 Ibid. 
 1205 

increasing - the number of discharged patients with respiratory diagnosis with ventilator 

support for 96 or more hours increased 7.4 percent between 2008 and 2011.180

 Although there are no nationwide or LTCH-specific estimates of the prevalence 

of ventilator-associated conditions (VACs) and infection-related ventilator-associated 

complications (IVACs), a recent study of mechanically ventilated patients in ICUs found 

that approximately 10 percent developed a VAC and 5 percent developed an IVAC.181 

Adherence to clinical practice guidelines for the prevention of VAP has been associated 

with decreased VAC rates in ICUs.182 Because VAP, one type of VAC, is considered 

preventable, surveillance and measurement of infection rates is important to improving 

quality of care and patient safety. 

 The importance of the NHSN VAE Outcome Measure in LTCHs was underscored 

by the MAP, which stated in its January 2014 Pre-Rulemaking Report that the measure 

addresses a National Quality Strategy aim or priority that is currently not adequately 

addressed. The MAP supported the addition of this measure addressing VAEs in the 

LTCH setting and stated that "although this measure is not NQF-endorsed, it provides 

useful information for healthcare facilities to help them monitor ventilator use and 

identify improvements for preventing complications."183

 The exception authority found in section 1886(m)(5)(D)(ii) of the Act provides 

that "[i]n the case of a specified area or medical topic determined appropriate by the 

 

180 Ibid. 181 Muscedere, J., T. Sinuff, et al. (2013). "The clinical impact and preventability of ventilator-associated 

conditions in critically ill patients who are mechanically ventilated." Chest 144(5): 1453-1460. 182 Ibid. 

183 National Quality Forum. Measure Applications Partnership Pre-Rulemaking Report: Public Comment 

Draft: January 2014. Available: http://www.qualityforum.org/map/. 
 1206 

Secretary for which a feasible and practical measure has not been endorsed by the entity 

with a contract under section 1890(a) of the Act, the Secretary may specify a measure 

that is not so endorsed as long as due consideration is given to measures that have been 

endorsed or adopted by a consensus organization identified by the Secretary." We 

reviewed the NQF's consensus endorsed measures and were unable to identify any 

NQF-endorsed measures for VAEs in the LTCH setting (or a related setting). We are 

unaware of any other measures for VAEs that have been endorsed or adopted by another 

consensus organization for the LTCH setting (or a related inpatient setting). Therefore, 

we are proposing to adopt the NHSN VAE Outcome Measure for use in the LTCHQR 

Program for the FY 2018 payment determination and subsequent years under the 

Secretary's authority to select non-NQF-endorsed measures. 

 We are proposing to use the CDC's NHSN reporting and submission 

infrastructure for reporting of the proposed NHSN VAE Outcome Measure. Details 

related to the procedures for using CDC's NHSN for data submission and information on 

definitions, numerator data, denominator data, data analyses, and measure specifications 

for the proposed NHSN VAE Outcome Measure can be found at: 

http://www.cdc.gov/nhsn/PDFs/pscManual/10-VAE_FINAL.pdf. 

 CDC's NHSN is the data collection and submission framework currently used for 

reporting the CAUTI (NQF #0138) and CLABSI (NQF #0139) measures for the 

LTCHQR Program. Further, CDC's NHSN is the data collection and submission 

framework adopted for data collection and reporting for the Influenza Vaccination 

Coverage among Healthcare Personnel measure (NQF #0431) starting on 
 1207 

October 1, 2014, and for the NHSN Facility-Wide Inpatient Hospital-Onset MethicillinResistant Staphylococcus aureus (MRSA) Bacteremia Outcome Measure (NQF #1716) 

and NHSN Facility-Wide Inpatient Hospital-Onset Clostridium difficile Infection (CDI) 

Outcome Measure (NQF #1717) starting on January 1, 2015. By building on the CDC's 

NHSN reporting and submission infrastructure, we intend to reduce the administrative 

burden related to data collection and submission for this measure under the LTCHQR 

Program. We refer readers to section IX.C.9.d. of the preamble of this proposed rule for 

more information on the proposed data collection and submission timeline for this 

proposed quality measure. 

 We invite public comments on our proposal to adopt the NHSN VAE Outcome 

Measure for the LTCHQR Program, with data collection beginning on January 1, 2016, 

for the FY 2018 payment determination and subsequent years. We also invite public 

comments on our proposal to use the CDC's NHSN for data collection and submission for 

this measure. 

8. LTCHQR Program Quality Measures and Concepts under Consideration for Future 

Years 

 We are considering whether to propose one or more of the quality measures and 

quality measure topics listed in the table below for future years in the LTCHQR Program. 

We invite public comments on these measures and measure topics. We specifically invite 

public comments regarding the clinical importance of these measures and measure topics 

in LTCH setting, feasibility of data collection and implementation, current use of these 
 1208 

measures and measure topics in the LTCH setting, and the usability of data for these 

measures and measure topics to inform future quality improvements in the LTCH setting. 

Future Measures and Measure Topics under Consideration for Proposal for the 

LTCH Quality Reporting Program 

National Quality Strategy Priority: Patient Safety 

● Measures addressing Ventilator Bundle 

● Measures addressing avoidable injuries secondary to polypharmacy 

● Application of Hospital-Based Inpatient Psychiatric Services (HBIPS)-2 Hours 

of Physical Restraint Use (NQF #0640) 

● Application of Percent of Residents Who Were Physically Restrained (Long 

Stay) (NQF #0687) 

National Quality Strategy Priority: Effective Clinical Processes 

● Severe Sepsis and Septic Shock: Management Bundle 

● Venous Thromboembolism Prophylaxis (NQF #0371) 

● Ventilator Weaning Rate 

● Pain Management 

National Quality Strategy Priority: Patient- and Caregiver-Centered Care 

● Depression Assessment and Management 

● Application of Hospital Consumer Assessment of Healthcare Providers and 

Systems (HCAHPS) (NQF #0166) 

● Measures addressing patients' experience of care 

● Measures addressing pain control – patients' preference 

National Quality Strategy Priority: Communication and Coordination of Care 

● Application of Medication Reconciliation (NQF #0097) 

● Application of Medication Reconciliation Post-Discharge (NQF #0554) 

● Reconciled Medication List Received by Discharged Patients (Discharges from 

an Inpatient Facility to Home/Self Care or Any Other Site of Care) (NQF #0646) 

● Transition Record with Specified Elements Received by Discharged Patients 

(Discharges from an Inpatient Facility to Home/Self Care or Any Other Site of Care) 

(NQF #0647) 

● Timely Transmission of Transition Record (Discharges from an Inpatient 

Facility to Home/Self Care or Any Other Site of Care) (NQF #0648) 

● Measures addressing care transitions 
 1209 

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

Determination and Subsequent Years 

a. Background 

 Section 1886(m)(5)(C) of the Act requires that, for the FY 2014 payment 

determination and subsequent years, each LTCH submit to the Secretary data on quality 

measures specified by the Secretary and that such data shall be submitted in a form and 

manner, and at a time, specified by the Secretary. As required by 

section 1886(m)(5)(A)(i) of the Act, for any LTCH that does not submit data in 

accordance with section 1886(m)(5)(C) of the Act with respect to a given rate year, any 

annual update to the standard Federal rate for discharges for the hospital during the rate 

year must be reduced by two percentage points. 

b. Finalized Timeline for Data Submission under the LTCHQR Program for the FY 2016 

and FY 2017 Payment Determinations (Except NQF #0680 and NQF #0431) 

 In the FY2014 IPPS/LTCH PPS final rule (78 FR 50857 through 50861 and 

50878 through 50881), we finalized the data submission timelines and submission 

deadlines for measures for the FY 2016 and FY 2017 payment determinations. We refer 

readers to the FY 2014 IPPS/LTCH PPS final rule for a more detailed discussion of these 

timelines and deadlines. Specifically, we refer readers to the table at 78 FR 50878 of the 

FY 2014 IPPS/LTCH PPS final rule for the data collection timelines and submission 

deadlines for the FY 2016 payment determination and the tables at 78 FR 50881 of that 

final rule for the data collection timelines and submission deadlines for the FY 2017 

payment determination. 
 1210 

c. Proposed Revision to the Previously Adopted Data Collection Timelines and 

Submission Deadlines for Percent of Residents or Patients Who Were Assessed and 

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

FY 2016 Payment Determination and Subsequent Years 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50858 through 50861), we 

revised the Percent of Residents or Patients Who Were Assessed and Appropriately 

Given the Seasonal Influenza Vaccine (Short Stay) (NQF #0680) measure for the 

FY 2016 payment determination and subsequent years. In that rule (78 FR 50861, 50880 

through 50882), we also revised the data collection timelines and submission deadlines 

for the FY 2016 through FY 2018 payment determinations for this measure. 

 For the reasons discussed in section IX.C.6.a. of the preamble of this proposed 

rule, we are proposing to change to the data collection timeframes and submission 

deadlines for the FY 2016 payment determination and subsequent years. Specifically, as 

discussed in section IX.C.6.a. of the preamble of this proposed rule, for the FY 2016 

payment determination, we are proposing submission deadlines of February 15, 2015, 

and May 15, 2015, respectively, for this measure for data collection periods 

October 1-December 31, 2014, and January 1-March 31, 2015, respectively, instead of 

the previously finalized submission deadline of May 15, 2015, for the data collection 

period of October 1, 2014-April 30, 2015. The proposed changes applicable to this 

measure (NQF #680) are illustrated below for the FY 2016 payment determination. 

Please refer to section IX.C.6 of the preamble of this proposed rule for further 

information regarding this proposed revision. 
 1211 

 
 1212 

Proposed Data Collection Timelines and Submission Deadlines of LTCHQR 

Program Quality Data for the FY 2016 Payment Determination for Percent of 

Residents or Patients Who Were Assessed and Appropriately Given the Seasonal 

Influenza Vaccine (Short-Stay) (NQF #0680) 

Data collection timelines 

(CY): 

Final submission deadlines for the LTCHQR 

Program FY 2016 payment determination 

Q4 (October—December 

2014) 

February 15, 2015 

Q1 (January—March 2015) May 15, 2015 

 Further, as discussed in section IX.C.6.a. of the preamble of this proposed rule, 

we are proposing similar deadlines for the FY 2017 payment determination and 

subsequent years for the LTCHQR Program. The proposed changes applicable to this 

measure (NQF #680) are illustrated below. 

Proposed Data Collection Timelines and Submission Deadlines of LTCHQR 

Program Quality Data for the FY 2017 Payment Determination and Subsequent 

Years for Percent of Residents or Patients Who Were Assessed and Appropriately 

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

Data collection timelines (CY): Final submission deadlines for the 

LTCHQR Program payment 

determination (FY) 

Q4 of the CY two years before the 

payment determination year (for 

example, October—December 2015 for 

the FY 2017 payment determination) 

February 15, of the FY preceding the 

payment determination year (for example, 

February 15, 2016 for the FY 2017 payment 

determination) 

Q1 of the CY one year before the 

payment determination year (for 

example, January—March 2016 for the 

FY 2017 payment determination) 

May 15 of the FY preceding the payment 

determination year (for example, 

May 15, 2016 for the FY 2017 payment 

determination) 

 We invite public comment on the proposed submission deadlines for this measure 

(NQF #0680) for the FY 2016 payment determination and subsequent years. 
 1213 

d. Proposed Data Submission Mechanisms for the FY 2018 Payment Determination and 

Subsequent Years for Proposed New LTCHQR Program Quality Measures and for 

Proposed Revisions to Previously Adopted Quality Measures 

 For the two proposed functional status measures and the application of the Percent 

of Residents Experiencing One or More Falls with Major Injury (Long Stay) 

(NQF #0674) measure, we are proposing that all LTCHs would be required to collect 

data using the LTCH CARE Data Set (Version 3.00).184 We will release the technical 

data submission specifications and update LTCHQR Program Manual for the LTCH 

CARE Data Set (Version 3.00) to include items related to the functional status measures 

and the application of the Percent of Residents Experiencing One or More Falls with 

Major Injury (Long-Stay) (NQF #0674) measure in CY 2015. The QIES ASAP system 

would remain the data submission mechanism for the LTCH CARE Data Set. Further 

information on data submission of the LTCH CARE Data Set for the LTCHQR Program 

Reporting using the QIES ASAP system is available at: https://www.qtso.com/ and 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/LTCHTechnicalInformation.html. 

 For the proposed VAE measure, we are proposing that LTCHs would be required 

to use the CDC's NHSN reporting and submission infrastructure. Details related to the 

procedures for using CDC's NHSN for data submission and information on definitions, 

 

184 The LTCH CARE Data Set (Version 2.01) was approved on June 10, 2013, by OMB in accordance with 

the PRA. The OMB Control Number is 0938-1163. Expiration Date June 30, 2016. Available on the Web 

site at: http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRAListing-Items/CMS1252160.html. CMS will revise the LTCH CARE Data Set (Version 3.00) and submit 

for OMB review for PRA approval to support data collection for the two functional status measures and the 

application of the Percent of Residents Experiencing One or More Falls with Major Injury (Long Stay) 

(NQF #0674). LTCH CARE Data Set (Version 3.00) is proposed for April 1, 2016, implementation date. 
 1214 

numerator data, denominator data, data analyses, and measure specifications for the 

proposed NHSN VAE Outcome Measure can be found at: 

http://www.cdc.gov/nhsn/PDFs/pscManual/10-VAE_FINAL.pdf. 

 We invite public comments on these proposals. 

e. Proposed Data Collection Timelines and Submission Deadlines Under the LTCHQR 

Program for the FY 2018 Payment Determination 

 In sections IX.C.9.c. and f. of the preamble of this proposed rule, we are 

proposing, for the FY 2016 payment determination and subsequent years, to revise the 

data collection timelines and submission deadlines for the Percent of Residents or 

Patients Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine 

(Short-Stay) (NQF #0680) measure and, for the FY 2018 payment determination and 

subsequent years, to revise the data collection timelines and submission deadlines for the 

application of the Percent of Residents Experiencing One or More Falls with Major 

Injury (Long-Stay) (NQF #0674) measure. In the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50882), we adopted the data collection timelines and submission deadlines for the 

remaining quality measures applicable to the FY 2018 payment determination as listed in 

the following tables. 

Timeframes for Data Collection of LTCHQR Program Quality Data for the 

FY 2018 Payment Determination 

NQF Measure ID Data Collection Timelines 

NQF #0138 January 1, 2016- December 31, 2016 

NQF #0139 January 1, 2016- December 31, 2016 

NQF #0678 January 1, 2016- December 31, 2016 

NQF #0431 October 1, 2016 (or when vaccine becomes 

available)-March 31, 2017 

NQF #1716 January 1, 2016-December 31, 2016 
 1215 

Timeframes for Data Collection of LTCHQR Program Quality Data for the 

FY 2018 Payment Determination 

NQF Measure ID Data Collection Timelines 

NQF #1717 January 1, 2016-December 31, 2016 

Timeline for Submission of LTCHQR Program Quality Data for the FY 2018 

Payment Determination for All Measures 

Except Influenza Vaccination Coverage Among Healthcare Personnel (NQF #0431) 

and Percent of Residents or Patients Who Were Assessed and Appropriately Given 

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

Data collection timeline: 

CY 2016 

Final submission deadlines for the LTCHQR 

Program FY 2018 payment determination 

Q1 (January–March 2016) May 15, 2016 

Q2 (April–June 2016) August 15, 2016 

Q3 (July–September 2016) November 15, 2016 

Q4 (October–December 2016) February 15, 2017 

Timeline for Submission of LTCHQR Program Quality Data 

for the FY 2018 Payment Determination: 

Influenza Vaccination Coverage among Healthcare Personnel (NQF #0431) 

Data collection timeline Final submission deadlines for the LTCHQR 

Program FY 2018 payment determination 

October 1 2016 (or when vaccine 

becomes available)-

March 31, 2017 

May 15, 2017 

 For the new measures that we are proposing to adopt for the FY 2018 payment 

determination and subsequent years, we are proposing the following data collection 

timelines and submission deadlines. 

 
 1216 

Proposed Data Collection Timelines for New LTCHQR Program Measures for the 

FY 2018 Payment Determination 

NQF Measure ID or Measure Name 

(when NQF Measure ID not available) 

Data Collection Timeline 

National Healthcare Safety Network 

(NHSN) Ventilator-Associated Event 

(VAE) Outcome Measure 

January 1, 2016-December 31, 2016 

Functional Outcome Measure: Change in 

Mobility among Long-Term Care Hospital 

Patients Requiring Ventilator Support 

April 1, 2016-December 31, 2016 

Percent of Long-Term Care Hospital 

Patients with an Admission and Discharge 

Functional Assessment and a Care Plan 

That Addresses Function 

April 1, 2016-December 31, 2016 

Proposed Submission Deadlines of LTCHQR Program Quality Data for the 

FY 2018 Payment Determination: National Healthcare Safety Network (NHSN) 

Ventilator-Associated Event (VAE) Outcome Measure 

Data Collection Timeline Final submission deadlines for the LTCHQR 

Program FY 2018 payment determination 

Q1 (January-March 2016) May 15, 2016 

Q2 (April-June 2016) August 15, 2016 

Q3 (July-September 2016) November 15, 2016 

Q4 (October-December 2016) February 15, 2017 

Proposed Submission Deadlines of LTCHQR Program Quality Data for the 

FY 2018 Payment Determination: 

Functional Outcome Measure: Change in Mobility Among Long-Term Care 

Hospital Patients Requiring Ventilator Support and Percent of Long-Term Care 

Hospital Patients with an Admission and Discharge Functional Assessment and a 

Care Plan That Addresses Function 

Data Collection Timeline Final submission deadlines for the LTCHQR 

Program FY 2018 payment determination 

Q2 (April-June 2016) August 15, 2016 

Q3 (July-September 2016) November 15, 2016 

Q4 (October-December 2016) February 15, 2017 
 1217 

 We invite public comments on these data collection timelines and submission 

deadlines for the three proposed new quality measures for FY 2018 payment 

determination. 

f. Proposed Data Collection Timelines and Submission Deadlines for the Application of 

Percent of Residents Experiencing One or More Falls with Major Injury (Long Stay) 

(NQF #0674) for the FY 2018 Payment Determination and Subsequent Years 

 In the FY 2014 IPPS/LTCH PPS final rule, we revised the Application of the 

Percent of Residents Experiencing One or More Falls with Major Injury (Long Stay) 

(NQF #0674) measure for the FY 2018 payment determination and subsequent years 

(78 FR 50874 through 50877). We are proposing, for the FY 2018 payment 

determination only, to move the start date for data collection of this measure to April 1, 

2016, instead of the previously finalized start date of January 1, 2016. Data collection 

and submission of this measure would continue through December 31, 2016, as 

previously finalized for the FY 2018 payment determination. This proposed change in 

the data collection start date would only affect CY 2016 data collection and submission 

for the LTCHQR Program for the FY 2018 payment determination. For all subsequent 

years, data collection for this measure would begin on January 1 and continue through 

December 31. We note that these proposed changes would be applicable only to the 

Application of Percent of Residents Experiencing One or More Falls with Major Injury 

(Long Stay) (NQF #0674) measure, and not applicable to any other LTCHQR Program 

measures, proposed or adopted, unless explicitly stated. We refer readers to 
 1218 

section IX.C.6. of the preamble of this proposed rule for further information and 

rationale. 

Proposed Data Collection Timelines and Submission Deadlines of LTCHQR 

Program Quality Data for the FY 2018 Payment Determination for the Application 

of Percent of Residents Experiencing One or More Falls with Major Injury 

(Long Stay) (NQF #0674) 

Data collection timeline: 

CY 2016 

Final submission deadlines for the LTCHQR 

Program FY 2018 payment determination 

Q2 (April–June 2016) August 15, 2016 

Q3 (July–September 2016) November 15, 2016 

Q4 (October–December 2016) February 15, 2017 

 We invite public comment on the proposed data collection timeline and quarterly 

submission deadlines for the Application of Percent of Residents Experiencing One or 

More Falls with Major Injury (Long Stay) (NQF #0674) for the FY 2018 payment 

determination. 

g. Proposed Data Collection Timelines and Submission Deadlines under the LTCHQR 

Program for the FY 2019 Payment Determination and Subsequent Years 

 For the quality measures applicable to the FY 2019 payment determination and 

subsequent years, including those that we are proposing in section IX.C.7. of the 

preamble of this proposed rule, if finalized, we are proposing the following data 

collection timelines and submission deadlines. 
 1219 

Proposed Data Collection Timelines and Submission Deadlines of LTCHQR 

Program Quality Data for the FY 2019 Payment Determination 

NQF Measure ID or Measure Name 

(when NQF Measure ID not available) 

Data Collection Timeline 

National Healthcare Safety Network 

(NHSN) Catheter-Associated Urinary Tract 

Infection (CAUTI) Outcome Measure 

(NQF #0138) 

January 1, 2017-December 31, 2017 

National Healthcare Safety Network 

(NHSN) Central Line-Associated 

Bloodstream Infection (CLABSI) Outcome 

Measure (NQF #0139) 

January 1, 2017-December 31, 2017 

Percent of Residents or Patients with 

Pressure Ulcers That Are New or Worsened 

(Short-Stay) (NQF #0678) 

January 1, 2017-December 31, 2017 

Percent of Residents or Patients Who Were 

Assessed and Appropriately Given the 

Seasonal Influenza Vaccine (Short-Stay) 

(NQF #0680) 

October 1, 2017-March 31, 2018 

Influenza Vaccination Coverage among 

Healthcare Personnel (NQF #0431) 

October 1, 2017-March 31, 2018 

National Healthcare Safety Network 

(NHSN) Facility-Wide Inpatient HospitalOnset Methicillin-resistant Staphylococcus 

areus (MRSA) Bacteremia Outcome 

Measure (NQF #1716) 

January 1, 2017-December 31, 2017 

National Healthcare Safety Network 

(NHSN) Facility-Wide Inpatient HospitalOnset Clostridium difficile Infection (CDI) 

Outcome Measure (NQF #1717) 

January 1, 2017-December 31, 2017 

Application of Percent of Residents 

Experiencing One or More Falls with Major 

Injury (Long-Stay) (NQF #0674) 

January 1, 2017-December 31, 2017 

National Healthcare Safety Network 

(NHSN) Ventilator-Associated Event 

(VAE) Outcome Measure 

January 1, 2017-December 31, 2017 

Functional Outcome Measure: Change in 

Mobility among Patients Requiring 

Ventilator Support 

January 1, 2017-December 31, 2017 

Percent of LTCH Patients with an 

Admission and Discharge Functional 

Assessment and a Care Plan That Addresses 

Function 

January 1, 2017-December 31, 2017 
 1220 

Proposed Data Collection Timelines and Submission Deadlines of LTCHQR 

Program Quality Data 

for the FY 2019 Payment Determination for All Measures Except Influenza 

Vaccination Coverage among Healthcare Personnel (NQF #0431) and Percent of 

Residents or Patients Who Were Assessed and Appropriately Given the Seasonal 

Influenza Vaccine (Short-Stay) (NQF #0680) 

Data collection timeline: CY 2017 Final submission deadlines for the LTCHQR 

Program FY 2019 payment determination 

Q1 (January–March 2017) May 15, 2017 

Q2 (April–June 2017) August 15, 2017 

Q3 (July–September 2017) November 15, 2017 

Q4 (October–December 2017) February 15, 2018 

Proposed Data Collection Timelines and Submission Deadlines of LTCHQR 

Program Quality Data 

for the FY 2019 Payment Determination: 

Percent of Residents or Patients Who Were Assessed and Appropriately Given the 

Seasonal Influenza Vaccine (Short-Stay) (NQF #0680) 

Data collection timeline Final submission deadlines for the LTCHQR 

Program FY 2019 payment determination 

October 1, 2017-December 31, 2017 February 15, 2018 

January 1, 2018 – March 31, 2018 May 15, 2018 

Proposed Data Collection Timelines and Submission Deadlines of LTCHQR 

Program Quality Data 

for the FY 2019 Payment Determination: 

Influenza Vaccination Coverage among Healthcare Personnel (NQF #0431) 

Data collection timeline Final submission deadlines for the LTCHQR 

Program FY 2019 payment determination 

October 1 2017-March 31, 2018 May 15, 2018 

 We invite public comment on these proposals. 
 1221 

10. Proposed LTCHQR Program Data Completion Thresholds for the FY 2016 Payment 

Determination and Subsequent Years 

a. Overview 

 Section 1886(m)(5)(C) of the Act requires that, for the FY 2014 payment 

determination and subsequent years, each LTCH submit to the Secretary data on quality 

measures specified by the Secretary in a form and manner, and at a time, specified by the 

Secretary. As required by section 1886(m)(5)(A)(i) of the Act, for any LTCH that does 

not submit data in accordance with section 1886(m)(5)(C) of the Act with respect to a 

given fiscal year, any annual update to the standard Federal rate for discharges for the 

hospital during the rate fiscal year must be reduced by two percentage points. To date, 

we have not established a standard for compliance other than that LTCHs submit all 

applicable required data for all finalized measures, by the previously finalized quarterly 

deadlines. In response to input from our stakeholders seeking additional specificity 

related to the LTCHQR Program compliance affecting FY payment update 

determinations and, due to the importance of ensuring the integrity of quality data 

submitted to CMS, we are proposing to set specific LTCHQR Program thresholds for 

completeness of LTCH quality data beginning with data affecting the FY 2016 payment 

determination and subsequent years. 

 The LTCHQR Program, through the FY 2012, FY 2013, and FY 2014 

IPPS/LTCH PPS final rules, requires LTCHs to submit quality data using two separate 

data collection/submission mechanisms: measures collected using the LTCH CARE Data 

Set (LCDS) are submitted through the CMS Quality Improvement Evaluation System 
 1222 

(QIES); and measures stewarded by the CDC (such as Healthcare Acquired Infection 

(HAI) and vaccination measures), are submitted using the CDC’s National Healthcare 

Safety Network (NHSN). We have also previously finalized a claims-based measure 

(All-Cause Unplanned Readmission Measure for 30 Days Post Discharge from Long 

Term Care Hospitals); however, claims-based measures do not require LTCHs to actually 

submit quality data to CMS, as they are calculated using claims data submitted to CMS 

for payment purposes. Thus, with claims-based measures, there is no submitted quality 

data to which we could apply data completion thresholds. 

 To ensure that LTCHs are meeting an acceptable standard for completeness of 

submitted data, we are proposing that for the FY 2016 payment determination and 

subsequent years, LTCHs meet or exceed two separate program thresholds: one 

threshold for completion of quality measures data collected using the LCDS and 

submitted through QIES; and a second threshold for quality measures data collected and 

submitted using the CDC’s NHSN. We are proposing that LTCHs must meet or exceed 

both thresholds discussed below, in order to avoid receiving a 2 percentage point 

reduction to their annual payment update for a given FY, beginning with FY 2016. 

 We are proposing to hold LTCHs accountable for different data completion 

thresholds for each of the two data submission mechanisms; an 80 percent data 

completion threshold for data collected using the LCDS and submitted through the QIES 

mechanism; and a 100 percent data completion threshold for data submitted through the 

CDC’s NHSN. We are proposing to hold LTCHs to the higher data completion threshold 

for the CDC’s NHSN initially, because many LTCHs have been mandated by States to 
 1223 

report infection data using the CDC’s NHSN system for surveillance purposes, prior to 

the start of the LTCHQR Program on October 1, 2012, and, therefore, we believe LTCHs 

are more familiar with the NHSN collection and submission process. 

 In contrast, LTCHs had never submitted quality data using a standardized data 

collection instrument before October 1, 2012, such as the LCDS submitted through the 

QIES mechanism. In addition, we require the submission of LCDS admission and 

discharge data through QIES, in order for LTCHs to meet the proposed data accuracy 

compliance standard, which with regard to discharge data, may be more difficult to 

collect on patients that are discharged emergently or against medical advice, in effect 

making it more difficult to meet a higher level of compliance initially. Lastly, through 

the FY 2014 IPPS/LTCH PPS final rule, we finalized accelerated quarterly deadlines for 

submission of quality data, beginning January 2014, of 45 days beyond the end of each 

CY quarter, as opposed to the previous 135 day post-quarterly deadline LTCHs were 

previously required to meet. We feel that this is an additional challenge that LTCHs may 

face. We invite comment on other obstacles LTCHs may face in meeting a higher level 

of compliance with regard to submission of quality data using the LCDS. 

b. Proposed LTCHQR Program Data Completion Threshold for the Required LTCH 

CARE Data Set (LCDS) Data Items 

 The LCDS is composed of data collection items designed to inform quality 

measure calculations, including risk-adjustment calculations, as well as internal 

consistency checks for logical inaccuracies. We are proposing that beginning with 

quality data affecting the FY 2016 payment determination and subsequent years, LTCHs 
 1224 

must meet or exceed a proposed LCDS data completion threshold of 80 percent. We are 

proposing to assess the completeness of submitted data by verifying that for all LCDS 

assessments submitted by any given LTCH, at least 80 percent of those LCDS 

Assessments must have 100 percent of the required quality data items completed, where, 

for the purposes of this proposed rule, “completed” is defined as having provided actual 

patient data, as opposed to a non-informative response, such as a dash (-), that indicates 

the LTCH was unable to provide patient data. The proposed threshold of 80 percent is 

based on the need for substantially complete records, which allows appropriate analysis 

of quality measure data for the purposes of updating quality measure specifications as 

they undergo yearly and triennial measure maintenance reviews with the NQF. In 

addition, complete data is needed to understand the validity and reliability of quality data 

items, including risk-adjustment models. Finally, we want to ensure complete quality 

data from LTCHs, which will ultimately be reported to the public, allowing our 

beneficiaries to gain an understanding of LTCH performance related to these quality 

metrics, and helping them to make informed health care choices. 

 Our data suggest that the majority of current LTCHs are in compliance with, or 

exceeding, this proposed threshold already. Our decision to set this proposed data 

completion threshold at a lower level initially, with the intent to raise the proposed 

80 percent threshold in subsequent program years, is based on our understanding that 

LTCHs are still new to quality reporting, and that their experience and understanding, 

with respect to reporting quality data using a standardized data collection instrument, and 

thus their compliance, will increase over time. However, we invite public comment on 
 1225 

circumstances that might prevent LTCHs from meeting this level of compliance. All 

items that we are proposing to require under the LTCHQR Program are identified in 

Appendix D of the LTCHQR Program Manual version 2.01, which is available for 

download on the CMS Web site at: http://www.cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/LTCH-QualityReporting/LTCHTechnicalInformation.html. 

 We are also proposing that any LTCH that does not meet the proposed 

requirement that 80 percent of all LCDS assessments submitted contain 100 percent of all 

required quality data items, will be subject to a reduction of 2 percentage points to the 

applicable FY annual payment update beginning with FY 2016. In order to establish this 

program threshold, we analyzed all LCDS submissions from January 2013 through 

September 2013, and we believe that the majority of LTCHs will be able to meet the 

proposed 80 percent data completion threshold. It is our intent to raise this threshold over 

the next 2 years, through the formal notice-and-comment rulemaking process. As stated 

above, we feel that as LTCHs continue to submit data using a standardized data 

collection instrument, such as the LCDS, and as they continue to take advantage of the 

resources we provide to guide LTCHs in their submission of this data (national trainings, 

CMS Special Open Door Forums, LTCHQR Program Manual, and technical trainings 

available on our Web site), we feel LTCH performance with respect to data completion 

will improve over time. We are proposing that this threshold will have to be met by 

LTCHs, in addition to the CDC NHSN threshold discussed below, in order to avoid 

receiving a 2 percentage point reduction to the applicable FY annual payment update. 
 1226 

c. LTCHQR Program Data Completion Threshold For Measures Submitted Using the 

Centers for Disease Control and Prevention (CDC) National Healthcare Safety Network 

(NHSN) 

 The LTCHQR Program through the FY 2012, FY 2013, and FY 2014 IPPS/LTCH 

PPS final rules, requires that LTCHs submit CDC-stewarded quality measure data using 

the CDC’s NHSN, including data for the previously finalized CAUTI, CLABSI, and 

Influenza Vaccination Coverage among Healthcare Personnel (HCP) quality measures. 

More specifically, we require LTCHs follow CDC quality measure protocols, which 

require them LTCHs to complete all data fields required for both numerator and 

denominator data within NHSN, including the “no events” field for any month during 

which no infection events were identified. LTCHs are required to submit this data on a 

monthly basis (except for the HCP measure, which is only required to be reported once 

per year). However, LTCHs have until the associated quarterly deadline (45 calendar 

days beyond the end of each CY quarter) by which to report infection data to the CDC for 

each of the three months within any given quarter. For more information on the 

LTCHQR Program quarterly deadlines, we refer readers to section IX.C.9.b. of the 

preamble of this proposed rule. 

 We are proposing that beginning with FY 2016 payment determination and 

subsequent years, this previously finalized requirement for monthly reporting must be 

met in addition to the proposed LCDS data completion threshold discussed above in 

order to avoid a 2 percentage point reduction to the applicable FY annual payment 

update. That is, we are proposing that LTCHs must meet a threshold of 100 percent for 
 1227 

measures submitted via the NHSN, achieved by submitting relevant infection, 

vaccination, or other required quality measure data for each month of any given CY, in 

addition to meeting the above-proposed data item completion threshold for required 

quality data items on the LCDS. As the LTCHQR Program expands, and LTCHs begin 

reporting measures that were previously finalized, but not yet implemented, or newly 

proposed and finalized measures, we are proposing to apply this same threshold. 

d. Application of the 2 Percentage Point Reduction for LTCHs that Fail to Meet the 

Proposed Data Completion Thresholds 

 Above we have proposed that LTCHs must meet two separate data completion 

thresholds in order to avoid a 2 percentage point reduction to their applicable FY annual 

payment update; a data completion threshold of 80 percent for those required data 

elements collected using the LCDS and submitted through QIES; and a second data 

completion threshold of 100 percent for quality measure data submitted through the 

CDC’s NHSN. We are proposing that these data completion thresholds must be met in 

addition to the data validation threshold of 75 percent we are proposing below, in order to 

avoid a 2 percentage point reduction to their applicable FY annual payment update. 

While we are proposing that LTCHs must meet both the proposed data completion and 

data validation thresholds, LTCHs cannot have their applicable annual payment update 

reduced twice. That is, should an LTCH fail to meet either one or both of the proposed 

thresholds, it will only receive one reduction of 2 percentage points to its applicable fiscal 

year annual payment update. 

 We invite public comment on these proposals. 
 1228 

11. Proposed Data Validation Process for the FY 2016 Payment Determination and 

Subsequent Years 

a. Proposed Data Validation Process 

 Historically, we have built consistency and internal validation checks into our 

data submission specifications to ensure that the basic elements of the LCDS assessments 

conform to requirements such as proper format and facility information. These internal 

consistency checks are automated and occur during the LTCH submission process, and 

help ensure the integrity of the data submitted by LTCHs by rejecting submissions or 

issuing warnings when LTCH data contain logical inconsistencies. These internal 

consistency checks are referred to as “system edits” and are further outlined in the LTCH 

Data Submission Specifications version 1.01, which are available for download on the 

LTCH Quality Reporting Technical Information Web page at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/LTCHTechnicalInformation.html. 

 Validation is intended to provide added assurance of the accuracy of the data that 

will be reported to the public as required by section 1886(m)(5)(E) of the Act. We are 

proposing, for the FY 2016 payment determination and subsequent years, to validate the 

data elements submitted to CMS for quality purposes. Initially, for the FY 2016 payment 

determination, this data accuracy validation will apply only to the LCDS items that 

inform the measures Percent of Patients or Residents with Pressure Ulcers That are New 

or Worsened (Short-Stay) (NQF #0678). We intend to expand this validation process for 
 1229 

quality measures affecting the FY 2017 payment determination and subsequent years 

through future notice-and-comment rulemaking. 

 We are proposing to validate the data elements submitted to CMS for Percent of 

Residents or Patients with Pressure Ulcers That are New or Have Worsened (Short-Stay) 

(NQF #0678) under the LTCHQR Program by requesting the minimum chart data 

necessary to confirm a statistically valid random sample of 260 LTCHs. From the 

random sample of 260 LTCHs, 5 LCDS assessments submitted through the National 

Assessment Collection Database would be randomly selected by the CMS validation 

contractor. In accordance with § 164.512 (d)(1)(iii) of the HIPAA Privacy Rule, we 

would request from these LTCHs the specified portions of the 5 Medicare patient charts 

that correspond to the randomly selected assessments, which would need to be copied and 

submitted via traceable mail to a CMS contractor for validation. We are proposing that 

the specific portions of the 5 beneficiary charts would be identified in the written request, 

but may include: admission and discharge assessments, relevant nursing notes following 

the admission, relevant nursing notes preceding the discharge, physician admission 

summary and discharge summary, and any Assessment of Pressure Ulcer Form the 

facility may utilize. We are proposing that the CMS contractor would utilize the portions 

of the patient charts to compare that information with the quality data submitted to CMS. 

Differences that would affect measure outcomes or measure rates would be identified and 

reported to CMS. These differences could include but are not limited to unreported 

worsened pressure ulcers. 
 1230 

 We are proposing that all data that has been submitted to the National Assessment 

Collection Database under the LTCHQR Program would be subject to the data validation 

process. Specifically, we are proposing that the contractor would request copies of the 

randomly selected medical charts from each LTCH via certified mail (or other traceable 

methods that require an LTCH representative to sign for CMS correspondence), and the 

LTCH would have 45 days from the date of the request (as documented on the request 

letter) to submit the requested records to the contractor. If the LTCH does not comply 

within 30 days, the contractor would send a second certified letter to them, reminding the 

LTCH that it must return copies of the requested medical records within 45 calendar days 

following the date of the initial contractor medical record request. If the LTCH still does 

not comply, then the contractor would assign a “zero” score to each measure in each 

missing record. If, however, the LTCH does comply, the contractor would review the 

data submitted by the LTCH on the LCDS assessments for the required data elements 

associated with the Pressure Ulcer measure, until such time that LTCHs begin to submit 

additional quality measures that are collected using the LCDS. Initially, this review 

would consist solely of those required data elements that inform the Pressure Ulcer 

measure calculation and checks for logical inconsistencies. As LTCHs begin to report 

additional finalized measures, we intend to expand this validation process to quality 

measures affecting the FY 2017 payment determination and subsequent years, through 

future notice-and-comment rulemaking. The contractor would then calculate the 

percentage of matching data elements which would constitute a validation score. 
 1231 

Because we would not be validating all records, we would need to calculate a confidence 

interval that incorporates a potential sampling error. 

 To receive the full FY 2016 annual payment update, we are proposing that 

LTCHs in the random sample must attain at least a 75 percent validation score, based 

upon our validation process, which would use charts requested from patient assessments 

submitted for CY 2013. We would calculate a 95 percent confidence interval associated 

with the observed validation score. If the upper bound of this confidence interval is 

below the 75 percent cutoff point, we would not consider a hospital's data to be 

“validated” for payment purposes. We are proposing that LTCHs failing the validation 

requirements would be subject to the 2 percent annual payment update reduction, 

beginning with their fiscal year annual payment update. In addition, all LTCHs validated 

would receive educational feedback, including specific case details. 

b. Application of the 2 Percentage Point Reduction for LTCHs that Fail to Meet the 

Proposed Data Accuracy Threshold 

 We are proposing that LTCHs must meet a data accuracy threshold of 75 percent 

in order to avoid receiving a 2 percentage point reduction to their applicable fiscal year 

annual payment update. We are proposing that this proposed data accuracy threshold of 

75 percent must be met in addition to the proposed data completion thresholds 

(80 percent for data collected using the LTCH CARE Data Set and submitted using 

QIES, and 100 percent for data submitted using the CDC’s NHSN), in order to avoid 

receiving a 2 percentage point reduction to their applicable FY annual payment update. 

While we are proposing that LTCHs must meet both the proposed data accuracy and data 
 1232 

completion thresholds, LTCHs cannot have their applicable annual payment update 

reduced twice. That is, should an LTCH fail to meet either one or both of the proposed 

thresholds (data completion and/or data accuracy), it will only receive one reduction of 

2 percentage points to its applicable FY annual payment update. 

 We invite public comment on these proposals and suggestions to improve the 

utility of the approach or to reduce the burden on LTCHs. 

12. Public Display of Quality Measure Data for the LTCHQR Program 

 Under section 1886(m)(5)(E) of the Act, the Secretary is required to establish 

procedures for making data submitted under section 1886(m)(5)(C) of the Act available 

to the public. Section 1886(m)(5)(E) of the Act requires that such procedures shall 

ensure that an LTCH has the opportunity to review the data that is to be made public with 

respect to the LTCH prior to such data being made public. The statute also requires that 

the Secretary report quality measures that relate to services furnished in inpatient settings 

in LTCHs on our Web site. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53637), 

we received and responded to public comments regarding the public reporting of quality 

data under the LTCHQR Program. 

 Currently, we are developing plans regarding the implementation of these 

provisions. We appreciate the need for transparency into the processes and procedures 

that will be implemented to allow for public reporting of the LTCHQR Program data and 

to afford LTCHs the opportunity to review that data before it is made public. At this 

time, we have not established procedures or timelines for public reporting of data, but we 

intend to include related proposals in future rulemaking. 
 1233 

 We welcome public comment on what we should consider when developing 

future proposals related to public reporting of quality measures for the LTCHQR 

Program. 

13. Proposed LTCHQR Program Submission Exception and Extension Requirements for 

the FY 2017 Payment Determination and Subsequent Years 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50883 through 50885), we 

referred to these requirements as submission "waiver" requirements. We are proposing to 

instead use the phrase "exception and extension" requirements for purposes of clarity. 

For the FY 2017 payment determination and subsequent years, we are proposing to 

continue using the LTCHQR Program's requirements that we adopted in the FY 2014 

IPPS/LTCH PPS final rule for the FY 2015 payment determination and subsequent years, 

although the term “waiver” is replaced by “exception and extension.” 

 In the FY 2014 IPPS/LTCH PPS final rule, we finalized a process for LTCHs to 

request and for us to grant waivers with respect to the quality data reporting requirements 

of the LTCHQR Program for one or more quarters, beginning with the FY 2015 payment 

determination, when there are certain extraordinary circumstances beyond the control of 

the LTCH. We are proposing to continue to use this previously finalized process. 

 In the event that an LTCH seeks to request a submission exception or extension 

for quality reporting purposes, the LTCH must request an exception or extension within 

30 days of the date that the extraordinary circumstances occurred by submitting a written 

request to CMS via e-mail to the LTCH mailbox at 

LTCHQRPReconsiderations@cms.hhs.gov. Exception or extension requests sent to 
 1234 

CMS through any other channel will not be considered as a valid request for an exception 

or extension from the LTCHQR Program's reporting requirements for any payment 

determination. The written request must contain all of the finalized requirements in the 

FY 2014 IPPS/LTCH PPS final rule, and on our Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Reconsideration-andDisaster-Waiver-Requests.html. 

 When an exception or extension is granted, an LTCH will not incur payment 

reduction penalties for failure to comply with the requirements of the LTCHQR Program, 

for the timeframe specified by CMS. If an LTCH is granted an exception, we will not 

require that the LTCH submit any quality data for a given period of time. If we grant an 

extension to an LTCH, the LTCH will still remain responsible for submitting quality data 

collected during the timeframe in question, although we will specify a revised deadline 

by which the LTCH must submit this quality data. 

 In addition, in the FY 2014 IPPS/LTCH PPS final rule, we finalized a policy that 

allowed CMS to grant exceptions or extensions to LTCHs that have not requested them if 

it is determined that extraordinary circumstances affects an entire region or locale. We 

stated that if this determination was made, we will communicate this decision through 

routine communication channels to LTCHs and vendors, including, but not limited to, 

issuing memos, e-mails, and notices at: http://www.cms.gov/Medicare/QualityInitiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html. More 

information on the LTCHQR Program exception and extension requirements and 
 1235 

processes, and all related announcements may be found at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/index.html. 

 For the FY 2017 payment determination and subsequent years, we are proposing 

that we may grant an exception or extension to LTCHs if we determine that a systemic 

problem with one of our data collection systems directly affected the ability of the LTCH 

to submit data. Because we do not anticipate that these types of systemic errors will 

happen often, we do not anticipate granting a waiver or extension on this proposed basis 

frequently. We are proposing that if we make the determination to grant an exception or 

extension, we would communicate this decision through routine communication channels 

to LTCHs and vendors, including, but not limited to, issuing memos, e-mails, and notices 

on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/LTCH-Quality-Reporting/index.html. 

 We invite public comment on these proposals. 

14. Proposed LTCHQR Program Reconsideration and Appeals Procedures for the 

FY 2016 Payment Determination and Subsequent Years 

a. Previously Finalized LTCHQR Program Reconsideration and Appeals Procedures for 

the FY 2014 and FY 2015 Payment Determinations 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50885 through 50887), we 

finalized a voluntary process that allowed LTCHs the opportunity to seek reconsideration 

of our initial noncompliance decision for the FY 2014 and FY 2015 payment 

determinations. We refer readers to that rule for a discussion of this process. 
 1236 

b. Proposed LTCHQR Program Reconsideration and Appeals Procedures for the 

FY 2016 Payment Determination and Subsequent Years 

 For the FY 2016 payment determination and subsequent years, we are proposing 

to adopt an updated process, as described below, that will enable an LTCH to request a 

reconsideration of our initial noncompliance decision in the event that an LTCH believes 

that it was incorrectly identified as being subject to the 2-percentage point reduction to its 

annual payment due to noncompliance with the LTCHQR Program reporting 

requirements for a given reporting period. 

 For the FY 2016 payment determination, and subsequent years, we are proposing 

that an LTCH would receive a notification of noncompliance if we determine that the 

LTCH did not submit data in accordance with section 1886(m)(5)(C) of the Act with 

respect to the applicable fiscal year and that the LTCH is therefore subject to a 

2-percentage point reduction in the applicable payment determination as required by 

section 1886(m)(5)(A)(i) of the Act. We would only consider requests for 

reconsideration after an LTCH has been found to be noncompliant and not before. 

 An LTCH would have 30 days from the date of the initial notification of 

noncompliance to review its payment determination and submit to us a request for 

reconsideration. This proposed time frame would allow us to balance our desire to 

ensure that LTCHs have the opportunity to request reconsideration with our need to 

complete the process and provide LTCHs with our reconsideration decision in a timely 

manner. Notifications of noncompliance and any subsequent notifications from CMS 

would be sent via a traceable delivery method, such as certified U.S. mail or registered 
 1237 

U.S. mail. We are proposing that an LTCH may withdraw its request at any time and 

may file an updated request within the proposed 30-day deadline. We also are proposing 

that, in very limited circumstances, we may grant a request by an LTCH to extend the 

proposed deadline for reconsideration requests. It would be the responsibility of an 

LTCH to request an extension and demonstrate that extenuating circumstances existed 

that prevented the filing of the reconsideration request by the proposed deadline. 

 We also are proposing that as part of the LTCH's request for reconsideration, the 

LTCH would be required to submit all supporting documentation and evidence 

demonstrating: (1) full compliance with all LTCHQR Program reporting requirements 

during the reporting period; or (2) extenuating circumstances that affected noncompliance 

if the LTCH was not able to comply with the requirements during the reporting period. 

We would not review any reconsideration request that fails to provide the necessary 

documentation and evidence along with the request. The documentation and evidence 

may include copies of any communications that demonstrate its compliance with the 

program's requirements, as well as any other records that support the LTCH's rationale 

for seeking reconsideration. A sample list of acceptable supporting documentation and 

evidence, as well as instructions for LTCHs to retrieve copies of the data submitted to 

CMS for the appropriate program year can be found on our Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Reconsideration-andDisaster-Waiver-Requests.html. 
 1238 

 We are proposing that an LTCH wishing to request a reconsideration of our initial 

noncompliance determination would be required to do so by submitting an email to the 

following e-mail address: LTCHQRPReconsiderations@cms.hhs.gov. Any request for 

reconsideration submitted to us by an LTCH would be required to follow the guidelines 

outlined on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-ReportingReconsideration-and-Disaster-Waiver-Requests.html. 

 Following receipt of a request for reconsideration, we will provide— 

● An email acknowledgment, using the contact information provided in the 

reconsideration request, to the CEO or CEO-designated representative that the request 

has been received; and 

● Once we have reached a decision regarding the reconsideration request, an 

email to the LTCH CEO or CEO-designated representative, using the contact information 

provided in the reconsideration request, regarding our decision. 

 We are proposing to require an LTCH that believes it was incorrectly identified as 

being subject to the 2-percentage point reduction to its annual payment update to submit a 

timely request for reconsideration and receive a decision on that request before the LTCH 

can file an appeal with the PRRB. If the LTCH is dissatisfied with the decision rendered 

at the reconsideration level, the LTCH could appeal the decision with the PRRB under 

42 CFR 405.1835. We believe this proposed process is more efficient and less costly for 

CMS and for LTCHs because it decreases the number of PRRB appeals by resolving 

issues earlier in the process. Additional information about the reconsideration process 
 1239 

including requirements for submitting a reconsideration request is posted on our Web site 

at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Reconsideration-andDisaster-Waiver-Requests.html. 

 We invite public comment on the proposed procedures for reconsideration and 

appeals. 

15. Electronic Health Records (EHR) and Health Information Exchange (HIE) 

 We are also interested in understanding the current state of electronic health 

record (EHR) adoption and use of Health Information Exchange (HIE) in the LTCH 

community. Therefore, we are soliciting feedback and input from LTCHs and the public 

on EHR adoption and HIE usage. We are especially interested in LTCH feedback and 

input on the following questions: 

● Have you adopted an EHR in your LTCH setting? 

● If your LTCH setting uses EHRs, what functional aspects of EHRs do you find 

most important (for example, the ability to send or receive transfer of care information; 

the ability to support medication orders/medication reconciliation)? 

● Does the EHR system used in your LTCH setting support interoperable 

document exchange with other healthcare providers (for example, acute care hospitals, 

physician practices, skilled nursing facilities, etc.)? 

 In addition to seeking public feedback and input on the feasibility and desirability 

of EHR adoption and use of HIE in LTCHs, we are also interested in public comment on 
 1240 

the need to develop electronic clinical quality measures, and the benefits and limitations 

of implementing these measures for LTCHs. 
 1241 

D. Electronic Health Record (EHR) Incentive Program and Meaningful Use (MU) 

1. Background 

 The HITECH Act (Title IV of Division B of the ARRA, together with Title XIII 

of Division A of the ARRA) authorizes incentive payments under Medicare and 

Medicaid for the adoption and meaningful use of certified electronic health record (EHR) 

technology (CEHRT). We refer to this program as the EHR Incentive Program. Eligible 

hospitals (EHs) and critical access hospitals (CAHs) may qualify for these incentive 

payments under Medicare (as authorized under sections 1886(n) and 1814(l) of the Act, 

respectively) if they successfully demonstrate meaningful use of CEHRT, which includes 

reporting on clinical quality measures (CQMs) using CEHRT. Sections 1886(b)(3)(B) 

and 1814(l) of the Act also establish downward payment adjustments under Medicare, 

beginning with fiscal year 2015, for eligible hospitals and CAHs that are not meaningful 

users of CEHRT for certain associated reporting periods. We refer to this part of the 

EHR Incentive Program as the Medicare EHR Incentive Program. Sections 

1903(a)(3)(F) and 1903(t) of the Act provide the statutory basis for Medicaid incentive 

payments. 

 The set of CQMs from which eligible hospitals and CAHs will report under the 

EHR Incentive Program beginning in FY 2014 is listed in Table 10 of the EHR Incentive 

Program Stage 2 final rule (77 FR 54083 through 54087). We continue to believe there 

are important synergies with respect to the Medicare EHR Incentive Program and the 

Hospital IQR Program. We believe the financial incentives under the Medicare EHR 

Incentive Program for the adoption and meaningful use of CEHRT by EHs and CAHs 
 1242 

will encourage the adoption and use of CEHRT for the electronic reporting of CQMs 

under the Hospital IQR Program. We expect that the electronic submission of quality 

data from EHRs under the EHR Incentive Program will provide a foundation for 

establishing the capacity of hospitals to send, and for CMS to receive, CQMs via CEHRT 

for certain Hospital IQR Program measures. 

2. Alignment of the Medicare EHR Incentive Program Reporting and Submission 

Timelines for Clinical Quality Measures with Hospital IQR Program Reporting and 

Submission Timelines 

 We believe it is important to continue our goal of aligning the EHR Incentive 

Program with the Hospital IQR Program because alignment of these programs will serve 

to reduce hospital reporting burden and encourage the adoption and meaningful use of 

CEHRT by eligible hospitals and CAHs. Section 1886(n)(3)(B)(iii) of the Act requires 

that, in selecting measures and establishing the form and manner for reporting measures 

under the EHR Incentive Program, the Secretary shall seek to avoid redundant or 

duplicative reporting with reporting otherwise required, including reporting under 

section 1886(b)(3)(B)(viii) of the Act (the Hospital IQR Program). The reporting and 

submission timelines for the EHR Incentive Program for eligible hospitals and CAHs 

currently operate on a Federal fiscal year basis, while the reporting and submission 

timelines for the Hospital IQR Program currently operate on a calendar year basis. This 

difference may create confusion and additional burden for hospitals attempting to report 

data to both programs. To alleviate this possible confusion, reduce provider burden, and 

strengthen our commitment to aligning programs, we are proposing to align the reporting 
 1243 

and submission periods for clinical quality measures for the Medicare EHR Incentive 

Program with that of the Hospital IQR Program on a calendar year basis in 2015 and 

2016. 

 We realize that aligning the Medicare EHR Incentive Program to the calendar 

year would mean shifting the timeline for reporting and submission of CQMs such that 

the submission period would continue through February of the subsequent calendar year 

rather than ending in November as it is currently done, and therefore would delay the 

incentive eligibility assessment, and subsequently delay the EHR incentive payments 

under Medicare made to eligible hospitals and CAHs. In order to ease the transition of 

the reporting period to the calendar year, and to prevent the delay of Medicare EHR 

incentive payments, we are proposing to incrementally shift the Medicare EHR Incentive 

Program reporting periods for CQMs. Specifically, for 2015 and 2016, we are proposing 

for the Medicare EHR Incentive Program to require calendar year reporting for CQM 

data that are submitted electronically, but require that the data be reported only for the 

first three calendar quarters (that is, January through March, April through June and 

July through September) allowing the reporting period, incentive eligibility assessment, 

and incentive payments to remain on their current schedule. 

 We note that this proposal would only apply for eligible hospitals and CAHs 

submitting CQMs electronically for 2015 and 2016, and that hospitals demonstrating 

meaningful use for the first time in 2015 or 2016 would still be required to report CQMs 

by attestation for a continuous 90-day period in FY 2015 or 2016, or report CQMs 

electronically for a 3-month calendar year quarter, by July 1 of the given year to avoid 
 1244 

the Medicare penalty in the subsequent year as finalized in the FY 2014 IPPS/LTCH PPS 

final rule (78 FR 50903 through 50905). Medicaid-only providers would continue to 

report according to State requirements. The proposal would not change the reporting 

periods or requirements for the meaningful use objectives and associated measures under 

42 CFR 495.6 or for CQMs that are reported by attestation via the Registration and 

Attestation System. This proposal would allow us to align the CQM reporting periods for 

the Medicare EHR Incentive Program with that of the Hospital IQR Program without 

delaying payment of the Medicare EHR incentive payments for 2015 and 2016. 

 To further align CQM reporting for the two programs, we are proposing to require 

quarterly reporting of electronically reported CQMs for the Medicare EHR Incentive 

Program to align with the currently established quarterly electronic CQM reporting 

periods for the Hospital IQR Program. Additionally, the Hospital IQR Program is 

proposing to change its submission period for electronic CQMs from annual to quarterly 

submission in this rule. We refer readers to the Hospital IQR Program discussion in 

section IX.A.7.h. of the preamble of this proposed rule for more information about this 

proposal. Therefore, for the CY 2015 and 2016 reporting periods, we are also proposing 

to align the Medicare EHR Incentive Program submission period with that being 

proposed for the Hospital IQR Program. The table below illustrates the current reporting 

periods, and the following table further illustrates our proposals. 

 
 1245 

Current (2014) Timelines For 

EHR Incentive Program and Hospital IQR Program Reporting and Submission 

 EHR Incentive Program 

CQM Reporting 

Requirements 

Hospital IQR Program Reporting 

Requirements for FY 2016 Payment 

Determination 

2014 

Reporting 

Period 

FY 2014 

October 1, 

2013 – 

September 

30, 2014 

Report one full 

year 

OR 

Report one threemonth quarter 

OR 

Report any 

continuous 90-day 

period 

 Q4 

CY 2013

October 1, 2013 – 

December 31, 2013 

N/A for 2014 Hospital 

IQR Program reporting 

Q1 CY 

2014 

January 1 – March 31, 

2014 

Q2 CY 

2014 

April 1 – June 30, 2014 

Q3 CY 

2014 

July 1 – September 30, 

2014 

Submission 

Period 

Jan 2, 2014 – Nov 30, 2014 October 1, 2013 – November 30, 2014 

 
 1246 

Proposed Timelines to Align the EHR Incentive Program 

with Proposed Hospital IQR Program Reporting and Submission 

CY EHR Incentive 

Program Reporting 

Requirements* 

Hospital IQR 

Program Reporting 

Requirements 

Submission 

Period** 

2015 

Reporting 

Period 

Q1 January 1 – March 31, 

2015 

January 1 – March 

31, 2015 

Data must be 

submitted by May 

30, 2015 

Q2 April 1 – June 30, 

2015 

April 1 – June 30, 

2015 

Data must be 

submitted by August 

30, 2015 

Q3 July 1 – September 

30, 2015 

July 1 – September 

30, 2015 

Data must be 

submitted by 

November 30, 2015 

Q4 N/A for EHR 

Incentive Program 

October 1 – 

December 31, 2015 

For Hospital IQR 

Program, data must 

be submitted by 

February 28, 2016 

2016 

Reporting 

Period 

Q1 January 1 – March 31, 

2016 

January 1 – March 

31, 2016 

Data must be 

submitted by May 

30, 2016 

Q2 April 1 – June 30, 

2016 

April 1 – June 30, 

2016 

Data must be 

submitted by August 

30, 2016 

Q3 July 1 – September 

30, 2016 

July 1 – September 

30, 2016 

Data must be 

submitted by 

November 30, 2016 

Q4 N/A for EHR 

Incentive Program 

October 1 – 

December 31, 2016 

For Hospital IQR 

Program, data must 

be submitted by 

February 28, 2017 

*Calendar year alignment and quarterly reporting for 2015 and 2016 would apply for electronically 

reported CQM data only. 

**Proposed EHR Incentive Program and Hospital IQR Program submission period would allow data 

submission on an ongoing basis starting January 2 of the reporting year, and ending approximately 60 days 

after the end of the quarter. 

 We invite public comment on these proposals. 

3. Quality Reporting Data Architecture Category III (QRDA-III) Option in 2015 

 In the EHR Incentive Program Stage 2 final rule (77 FR 54088), we finalized two 

options for eligible hospitals and CAHs to electronically submit CQMs beginning in 
 1247 

FY 2014 under the Medicare EHR Incentive Program. Option 1 was to electronically 

submit aggregate-level CQM data using QRDA-III. Option 2 was to electronically 

submit data using a method similar to the 2012 and 2013 EHR Incentive Program 

electronic reporting pilot for EHs and CAHs, which used QRDA-I (patient-level data). 

We also stated in that final rule that, consistent with section 1886(n)(3)(B)(ii) of the Act, 

in the event the Secretary does not have the capacity to receive CQM data electronically, 

eligible hospitals and CAHs that are beyond their first year of meaningful use may 

continue to report aggregate CQM results through attestation. 

 We noted in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50904 through 

50905) that we had determined that the electronic submission of aggregate-level data 

using QRDA-III would not be feasible in 2014 for eligible hospitals and CAHs under the 

Medicare EHR Incentive Program. Therefore, for the 2014 reporting period under the 

Medicare EHR Incentive Program, eligible hospitals and CAHs would have the option to 

continue to report aggregate CQM results through attestation. We stated that we would 

reassess this policy for the 2015 and future reporting periods. 

 We have determined that the electronic submission of aggregate-level data using 

QRDA–III will not be feasible in 2015 for eligible hospitals and CAHs under the 

Medicare EHR Incentive Program. Therefore, for the 2015 reporting period under the 

Medicare EHR Incentive Program, eligible hospitals and CAHs would have the option to 

continue to report aggregate CQM results through attestation. We note that submissions 

of aggregate CQM data via attestation would not satisfy the reporting requirements for 

the Hospital IQR Program, and consistent with our proposal above regarding alignment 
 1248 

of these programs, attested CQM data would need to be submitted for one full fiscal year 

in 2015 via the Registration and Attestation System, and would not require quarterly 

submissions. Hospitals in their first year of demonstrating meaningful use in 2015 would 

still be required to report CQMs by attestation for a continuous 90-day period in 

FY 2015, or report CQMs electronically for a 3-month calendar year quarter, by 

July 1, 2015 to avoid the Medicare penalty in FY 2016 as finalized in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50903 through 50905). We also note that this policy 

does not apply to the Medicaid EHR Incentive Program. Therefore, States may still 

require the submission of QRDA-III files to fulfill the CQM reporting requirements for 

hospitals that participate in the Medicaid EHR Incentive Program. 

 In order to remain aligned with the Hospital IQR Program, and because over 

66 percent of hospitals that participate in the Hospital IQR Program are already 

meaningful users, we strongly recommend that hospitals that are eligible to participate in 

both programs electronically submit up to 16 electronic clinical quality measures of the 

28 inpatient measures identified by the Hospital IQR Program. We believe that keeping 

the two programs aligned will ultimately reduce reporting burden for hospitals. We note 

again that reporting via attestation would not count towards the reporting requirements 

for the Hospital IQR Program. 

4. Electronically Specified Clinical Quality Measures (CQMs) Reporting for 2015 

 In the EHR Incentive Program Stage 2 final rule, we finalized the CQMs that 

eligible hospitals and CAHs would be required to report for purposes of meeting the 

CQM component of meaningful use under the EHR Incentive Program starting in 2014 
 1249 

(77 FR 54083 through 54077 Table 10). These CQMs are updated routinely to account 

for changes, including but not limited to changes in billing and diagnosis codes and 

changes in medical practices. The requirements specified in the EHR Incentive Program 

Stage 2 final rule allow for the reporting of different versions of the CQMs. For 2015, it 

is not technically feasible for CMS to accept data that is electronically reported according 

to the specifications of the older versions of the CQMs, including versions that may be 

allowed for reporting under the EHR Incentive Program. We stated in the EHR Incentive 

Program Stage 2 final rule that, consistent with section 1886(n)(3)(B)(ii) of the Act, in 

the event that the Secretary does not have the capacity to receive CQM data 

electronically, eligible hospitals and CAHs may continue to report aggregate CQM 

results through attestation (77 FR 54088). We are proposing that eligible hospitals and 

CAHs that seek to report CQMs electronically under the Medicare EHR Incentive 

Program must use the most recent version of the electronic specifications for the CQMs 

and have CEHRT that is tested and certified to the most recent version of the electronic 

specifications for the CQMs. 

 Eligible hospitals and CAHs that do not wish to report CQMs electronically using 

the most recent version of the electronic specifications (for example, if their CEHRT has 

not been certified for that particular version) would be allowed to report CQM data by 

attestation for the Medicare EHR Incentive Program. 

 We invite public comment on these proposals. 
 1250 

5. Clarification Regarding Reporting Zero Denominators 

 As we stated in the EHR Incentive Program Stage 2 final rule (77 FR 54079) we 

expect eligible hospitals and CAHs to adopt EHR technology that includes CQMs 

relevant to each eligible hospital’s or CAH’s patient mix. We understand, however, that 

there are situations in which an eligible hospital or CAH does not have data to report on a 

particular CQM, and its EHR is not certified to additional CQMs that can be used to 

replace that CQM with another for which it has data. For example, a health system with 

multiple eligible hospitals or CAHs may have an EHR certified for 16 CQMs, which is 

the minimum number of required CQMs for reporting, but not all of the eligible hospitals 

or CAHs in the health system may have cases to report on those particular 16 CQMs. We 

have received questions on how eligible hospitals and CAHs should meet their reporting 

requirements in this situation; therefore, we are clarifying our policy as set forth below 

regarding the reporting of a zero denominator for the purposes of the EHR Incentive 

Program and the Hospital IQR Program. 

 If the eligible hospital’s or CAH’s EHR is certified to a CQM, but the eligible 

hospital or CAH does not have patients that meet the denominator criteria of that CQM, 

the eligible hospital or CAH can submit a zero in the denominator for that CQM. 

Submission of a zero in the denominator for a CQM counts as a successful submission 

for that CQM for both the EHR Incentive Program and the Hospital IQR Program. For 

example, if the eligible hospital or CAH within the previously mentioned health system 

does not provide maternity services, but one of the 16 CQMs the health system’s EHR is 

certified to is a maternity measure, that eligible hospital’s or CAH’s EHR may render a 
 1251 

zero in the denominator for that CQM. The eligible hospital or CAH would therefore 

report a zero denominator for that maternity care CQM, and this would count toward the 

16 required CQMs for the EHR Incentive Program and the Hospital IQR Program. 

Eligible hospitals or CAHs within that health system for which that maternity CQM does 

apply would provide data on that measure. 

6. Case Threshold Exemption Policy; Clarification for 2014 and Proposed Change for 

2015 

 In the EHR Incentive Program―Stage 2 final rule (77 FR 54080), we finalized 

the policy that eligible hospitals and CAHs that have 5 or fewer discharges per quarter in 

the same quarter as their reporting period in FY 2014, or 20 or fewer discharges per full 

FY reporting period beginning in FY 2015, for which data are being electronically 

submitted (Medicare and non-Medicare combined) as defined by the clinical quality 

measure’s denominator population are exempted from reporting the CQM. To be eligible 

for the exemption, eligible hospitals and CAHs must submit their aggregate population 

and sample size counts for Medicare and non-Medicare discharges for the CQM for the 

reporting period. 

 In the Health Information Technology: Revisions to the 2014 Edition Electronic 

Health Record Certification Criteria; and Medicare and Medicaid Programs; Revisions to 

the Electronic Health Record Incentive Program interim final rule, we revised the case 

threshold exemption policy to make it applicable for eligible hospitals and CAHs in all 

stages of meaningful use beginning with FY 2013, including those that are demonstrating 

meaningful use for the first time and submitting CQMs by attestation (77 FR 72988 
 1252 

through 72989). Eligible hospitals and CAHs with 5 or fewer discharges during the 

relevant EHR reporting period (if attesting to a 90-day EHR reporting period), or 20 or 

fewer discharges during the year (if attesting to a full year EHR reporting period) as 

defined by the CQM’s denominator population would be exempted from reporting on that 

CQM. 

 We stated in the interim final rule (77 FR 72989) that beginning in FY 2014, the 

reporting requirement is to report 16 CQMs covering at least 3 domains from a list of 

29 CQMs. We stated further that in order to be exempted from reporting fewer than 

16 CQMs, the eligible hospital or CAH would need to qualify for the case threshold 

exemption for more than 13 of the 29 CQMs. If the eligible hospital or CAH does not 

meet the criteria for a case threshold exemption for 13 or more CQMs, the eligible 

hospital or CAH would be able to report at least 16 CQMs. Likewise, we stated that if 

the CQMs for which the eligible hospital or CAH can meet the case threshold of 

discharges do not cover at least 3 domains, the eligible hospital or CAH would be exempt 

from the requirement to cover the remaining domains. For example, if the eligible 

hospital or CAH does not meet the case threshold of discharges for 13 clinical quality 

measures, and thus could report 16 clinical quality measures, but the 16 clinical quality 

measures cover only 2 of the 3 domains, the eligible hospital or CAH would be exempt 

from covering the third domain. 

 For the reporting periods in 2014, our policy requires that an eligible hospital or 

CAH that claims a case threshold exemption for one CQM must choose another CQM on 

which to submit data, or continue to invoke the case threshold exemption until it exceeds 
 1253 

13 case threshold exemptions and may therefore report fewer than the 16 required CQMs. 

This policy assumes that the eligible hospital or CAH has an EHR that is certified to 

more than the minimum of 16 CQMs, and the eligible hospital or CAH has other CQMs 

in its EHR to choose from for reporting. We realize, however, that there could be many 

EHRs that are certified to only the minimum of 16 CQMs required by ONC’s regulations 

at 45 CFR 170.102 (the definition of “Base EHR”), and for eligible hospitals and CAHs 

using those EHRs, this policy may result in the eligible hospital or CAH needing to 

submit data on a CQM for which the EHR is not certified. It was not our intent to have 

eligible hospitals or CAHs report on measures for which their EHRs are not certified. 

 Beginning with the reporting periods in 2015, we are proposing to change the case 

threshold exemption policy so that if an eligible hospital or CAH qualifies for an 

exemption from reporting on a particular CQM, the exemption would count toward the 

16 required CQMs. For example, if the eligible hospital’s or CAH’s EHR is certified to 

report 16 CQMs, and for one of those CQMs the eligible hospital or CAH has 5 or fewer 

discharges during the relevant EHR reporting period (if attesting to a 90-day EHR 

reporting period), or 20 or fewer discharges during the year (if attesting to a full year 

EHR reporting period) as defined by the CQM’s denominator population, the eligible 

hospital or CAH would report data for the 15 CQMs for which the case threshold 

exemption does not apply, and invoke a case threshold exemption for the one CQM for 

which the exemption does apply for a total of 16 CQMs. 

 We expect eligible hospitals and CAHs to adopt EHR technology that includes 

CQMs relevant to the eligible hospital’s or CAH’s case mix, though we understand that 
 1254 

in some cases, the eligible hospital or CAH may not meet the case threshold of discharges 

for a particular CQM. We believe this proposed policy better reflects our intent for 

eligible hospitals and CAHs to report on only those measures for which their EHRs are 

certified while meeting the reporting requirements for the EHR Incentive Program and 

Hospital IQR Program. 

 We invite public comment on this proposal. 
 1255 

X. Proposed Revision of Regulations Governing Use and Release of Medicare 

Advantage Risk Adjustment Data 

A. Background 

 Section 1853 of the Act requires the Secretary to make payments to Medicare 

Advantage (MA) organizations offering local and regional MA plans with respect to 

coverage of individuals enrolled under Medicare Part C. Section 1853(a)(1)(C) of the 

Act requires the Secretary to adjust such payments for such risk factors as age, disability 

status, gender, institutional status, and such other factors as the Secretary determines 

appropriate, including health status. To support these risk adjustments, section 

1853(a)(3)(B) of the Act requires submission of data by MA organizations regarding the 

services provided to enrollees and other information the Secretary deems necessary but 

does not limit the Secretary’s use of such data or information. In addition, section 1106 

of the Act authorizes the Secretary to adopt regulations governing release of information 

gathered in the course of administering programs under the Act. 

 Implementing regulations at 42 CFR 422.310 set forth the requirements for the 

submission of risk adjustment data that CMS uses to risk-adjust payments. MA 

organizations must submit data, in accordance with CMS instructions, to characterize the 

context and purposes of items and services provided to their enrollees by a provider, 

supplier, physician, or other practitioner. Section 422.310(d)(1) provides that MA 

organizations submit risk adjustment data to CMS as specified by CMS. This includes 

comprehensive data equivalent to Medicare fee-for-service claims data (often referred to 
 1256 

as encounter data) or data in abbreviated formats. Section 422.310(f) currently specifies 

CMS’ uses of the risk adjustment data. 

 In this proposed rule, we are proposing to revise the existing regulation at 

§ 422.310(f) to broaden the specified uses of risk adjustment data in order to strengthen 

program management and increase transparency in the MA program and to specify the 

conditions for release of risk adjustment data to entities outside of CMS. 

B. Proposed Regulatory Changes 

1. Proposed Expansion of Uses and Reasons for Disclosure of Risk Adjustment Data 

 We are first proposing to revise a reference in existing § 422.310(f) (now 

proposed paragraph (f)(1)) from “data obtained under this section” to “data described in 

paragraphs (a) through (d) of this section” in order to indicate that the data used or 

released under proposed paragraph (f)(1) would not include the medical records and other 

data collected separately under paragraph (e) for the purpose of risk adjustment data 

validation (RADV) audits. We do not intend for the proposed § 422.310(f) to authorize 

any additional use or release of the data described in paragraph (e). The data described in 

paragraphs (a) through (d) would include those elements that constitute an encounter data 

record, including contract, plan, and provider identifiers, with the exception of 

disaggregated payment data as discussed below. In addition, we note that paragraph 

(d)(1) also authorizes the collection of abbreviated data. 

 The existing regulation at § 422.310(f) specifies five purposes for which CMS 

may use risk adjustment data obtained from MA organizations. We are clarifying in this 

proposed rule that CMS’ uses of these data may include disclosure to CMS contractors or 
 1257 

other agents that perform activities or analyses on CMS’ behalf in connection with 

authorized use of the data. The existing specified purposes are: (1) to determine the risk 

adjustment factors used to adjust payments, as required under §§ 422.304(a) and (c); 

(2) to update risk adjustment models; (3) to calculate Medicare DSH percentages; (4) to 

conduct quality review and improvement activities; and (5) for Medicare coverage 

purposes. Under our proposal, paragraph (f) would be restructured to identify the 

purposes for which CMS may use and release risk adjustment data and to impose certain 

conditions on any release of that data. 

 We are proposing to revise paragraph (f) to add four purposes for which CMS 

may use risk adjustment data submitted by MA organizations: (1) to conduct evaluations 

and other analysis to support the Medicare program (including demonstrations) and to 

support public health initiatives and other health care-related research; (2) for activities to 

support the administration of the Medicare program; (3) for activities conducted to 

support program integrity; and (4) for purposes permitted by other laws. These new 

authorized purposes are proposed at § 422.310(f)(1)(vi) through (f)(1)(ix). In general, we 

anticipate that comprehensive risk adjustment data submitted by MA organizations, 

which MA organizations began submitting to CMS effective CY 2012, will enable CMS 

to generate improved data analyses that could support Medicare program evaluations, 

demonstration designs, and CMS’ effective and efficient operational management of the 

Medicare program. Risk adjustment data also could be useful to support public health 

initiatives by governmental entities and to advance health care-related research by 

universities and other research organizations. We also believe that risk adjustment data 
 1258 

can support CMS’ program integrity activities in the Medicare program and other Federal 

health care and related programs; we intend this general term to encompass audits, 

investigations, efforts to combat waste, fraud, and abuse, and any other actions designed 

to ensure that the program operates within its authority. This includes audits, evaluations, 

and investigations by the Office of the Inspector General (OIG) as well as CMS’ own 

efforts. In addition, risk adjustment data may be useful in supporting Medicare 

administrative activities, such as the review of the validity of bid and medical loss ratio 

data submitted by MA organizations. Finally, we are proposing to acknowledge that 

other laws may permit other uses of risk adjustment data and that this regulation is not 

intended to supersede such other laws. 

 Regarding the use of risk adjustment data outside of CMS, we are proposing at 

§ 422.310(f )(2) that other HHS agencies, other Federal executive branch agencies, 

States, and external entities would only be able to obtain from CMS and use risk 

adjustment data for one or more of the purposes listed in proposed paragraph (f)(1). An 

external entity may be an individual, group, or organization. We anticipate that other 

HHS agencies and other Federal executive branch agencies may request this data for the 

same purposes CMS proposes to use the data and believe such use is appropriate. Under 

our proposal, other agencies that evaluate and analyze the Medicare program, perform 

health care-related research, support public health initiatives, perform activities in the 

administration of the Medicare program, or conduct activities to support program 

integrity in the Medicare program and other Federal health care and related programs 

would be able to access and use risk adjustment data for these purposes. States, such as 
 1259 

while conducting program integrity activities for Medicaid programs or in the 

administration of Medicare-Medicaid demonstrations (for example, refer to the Web site 

at: http://www.cms.gov/Medicare-Medicaid-Coordination/Medicare-and-MedicaidCoordination/Medicare-Medicaid-CoordinationOffice/FinancialAlignmentInitiative/FinancialModelstoSupportStatesEffortsinCareCoordi

nation.html), may access and use risk adjustment data under this proposal. We anticipate 

that nongovernmental external entities would generally only gain access to risk 

adjustment data under this proposal in connection with public health initiatives and health 

care-related research, as such external entities appear to have limited, if any, roles in the 

other purposes identified in our proposal. 

CMS is seeking to balance protection of confidential beneficiary information and 

the proprietary interests of MA organizations with the need to effectively administer 

Federal health care programs and to encourage research into better ways to provide 

health care. CMS is seeking public comments on the proposed uses and release of data 

and how else to achieve the necessary balance. In particular, we are soliciting public 

comment on the extent to which a commercial purpose underlying a request for risk 

adjustment data should be a factor in evaluating whether the request is for one of the 

purposes that permit a disclosure under this regulation or if one of the purposes in 

paragraph (f)(1) of § 422.310, for which CMS would disclose data under this section, 

should address commercial uses of the data. 

2. Proposed Conditions for CMS Release of Data 
 1260 

 The existing regulations at § 422.310 do not specify conditions for release by 

CMS of risk adjustment data that are submitted by MA organizations to CMS. We are 

proposing to add a paragraph (2) to § 422.310(f) to address CMS’ release of such data to 

non-CMS entities. First, as discussed above in connection with proposed paragraph 

(f)(1), our proposal is limited to the risk adjustment data described in § 422.310(a) 

through (d) and does not include the medical records and other data collected separately 

under paragraph (e) for the purpose of risk adjustment data validation (RADV) audits. 

We do not intend for the proposed revision to § 422.310(f) to authorize any additional use 

or release of the data described in paragraph (e). 

 Second, we are proposing that CMS would release only the minimum data that 

CMS determines is necessary to fulfill the analytical or operational goal for a particular 

project. In other words, CMS may determine that the appropriate data release for an 

approved research project is a subset of encounter data records requested to conduct the 

proposed inquiry (instead of all encounter data in CMS’ systems for all years and 

provider types) or is a subset of the abbreviated data requested. 

 Third, we are proposing that CMS may release data under this authority to Federal 

executive branch agencies, States, and external entities, only for purposes identified in 

paragraph (f)(1) (discussed above) and subject to a number of additional limitations: 

(i) applicable Federal laws; (ii) CMS data sharing procedures; (iii) protection of 

beneficiary identifier elements and beneficiary confidentiality, including: (A) a 

prohibition against public disclosure of beneficiary identifying information; (B) release of 

beneficiary identifying information to other HHS agencies, other Federal executive 
 1261 

branch agencies, Congressional support agencies, and States only when such information 

is needed to accomplish the purpose(s) of the disclosure; and (C) release of beneficiary 

identifying information to external entities only to the extent needed to link datasets; and 

(iv) the aggregation of payment data to protect commercially sensitive data. 

 These limitations are included at proposed paragraphs (f)(2)(i) through (f)(2)(iv), 

respectively, of § 422.310. We are soliciting public comment on other conditions or 

limitations on the release of this data that will help maintain a balance between protecting 

confidential and proprietary information with the need to effectively administer Federal 

health care programs and to encourage research into better ways to provide health care. 

 Under the provisions at proposed § 422.310(f)(2)(iv), we would not release 

payment data at the encounter level. We believe that release of payment data at the level 

of the encounter record might reveal proprietary negotiated payment rates between MA 

plans and providers. Given the commercially sensitive nature of this information, we are 

not proposing to release payment data at the level of the encounter record. In the interest 

of providing as much transparency as possible, while at the same time protecting 

proprietary information, we are proposing to authorize release of aggregate payment 

information. For example, we could aggregate the payment data by service category, by 

plan, by contract, or across contracts. We are seeking public comments on these or other 

approaches to aggregating payment data for release and whether the specified options are 

sufficiently aggregated to protect commercially sensitive information. In addition, we are 

seeking public comment on our conclusion that releasing payment rates at the level of the 

encounter data record would reveal proprietary negotiated payment rates. Specifically, 
 1262 

we are requesting public comment on what strategies might be used under which 

payment data could be released while protecting commercially sensitive information. 

 To the extent that a requestor has separate statutory authority for requiring CMS 

disclosure of data, these proposed provisions do not limit or supersede such authority. 

For example, some Congressional support agencies may compel release of data under 

separate statutory authority, such as 31 U.S.C. 716; 2 U.S.C. 166(d)(1) and 601(d); and 

section 1805 of the Act (42 U.S.C. 1395b-6), for the purposes of conducting 

Congressional oversight, monitoring, making recommendations and analysis of the 

Medicare program. In addition, the OIG has separate statutory authority under section 

1128J of the Act (42 U.S.C. 1320a-7k), coupled with section 6(a) of the Inspector 

General Act of 1978 (5 U.S.C. App. 3) authorizing the OIG to access data as necessary to 

perform its responsibilities. This regulation would not limit that authority. 

3. Proposed Technical Change 

 We are proposing to amend § 422.300, which identifies the basis and scope of the 

regulations for payments to MA organizations, to add a reference to section 1106 of the 

Social Security Act, which governs the release of information gathered in the course of 

administering our programs under the Act.
 1263 

XI. Proposed Changes to Enforcement Provisions for Organ Transplant Centers 

A. Background 

 In February 2004, the Office of the Inspector General (OIG) published a report 

entitled “Medicare-Approved Heart Transplant Centers” (OEI-01-02-00520), in which 

the OIG outlined three recommendations for CMS’ oversight of heart transplant centers: 

(1) that CMS expedite the development of continuing criteria for volume and 

survival-rate performance and for periodic recertification; (2) that CMS develop 

guidelines and procedures for taking actions against centers that do not meet Medicare 

criteria for volume and survival-rate performance requirements; and (3) that CMS take 

immediate steps to improve its ability to maintain accurate and timely data regarding the 

performance of transplant centers. 

 As part of CMS’ efforts to strengthen oversight of organ transplant centers, we 

published the final rule “Medicare Program: Hospital Conditions of Participation, 

Requirements for Approval and Reapproval of Transplant Centers to Perform Organ 

Transplants” on March 30, 2007 in the Federal Register (72 FR 15198) that established 

conditions of participation (CoPs) for organ transplant centers and applied the survey and 

certification enforcement process (that is used for all other providers and suppliers of 

Medicare services) to Medicare-approved transplant centers. In the preamble of that final 

rule, we discussed our efforts to improve organ donation and transplantation services and 

our goals to: (1) protect patients who are awaiting organs for transplantation; 

(2) establish key quality and procedural standards; and (3) improve outcomes for patients 
 1264 

(such as patient survival) and reduce Medicare expenses by decreasing the likelihood that 

a transplant would fail. 

 In the March 30, 2007 final rule, we codified the CoPs for transplant centers at 

42 CFR Part 482, Subpart E (§§ 482.68 through 482.104) and the special procedures for 

approval and re-approval of organ transplant centers at 42 CFR 488.61. The CoPs set 

forth explicit expectations for outcomes, patient safety, informed choice, and quality of 

transplantation services. In particular, §§ 482.80 and 482.82 specify that a transplant 

center’s outcomes are not acceptable if, among other factors, the number of observed 

patient deaths or graft failures 1 year after receipt of a transplant exceeds the 

risk-adjusted expected number by 1.5 times, based on the most recent program-specific 

report from the Scientific Registry of Transplant Recipients (SRTR). 

 Failure to meet the transplant center requirements will lead CMS to deny approval 

or re-approval of a center’s Medicare participation under § 488.61. However, 

§§ 488.61(a)(4) and (c)(4) authorize CMS to consider mitigating factors when 

determining approval and re-approval, respectively, for a transplant center that has not 

met the data submission, clinical experience, or outcome requirements, or other CoPs, if 

the center submits a formal, written request for such a review. The existing regulations 

do not limit the factors that CMS may consider, but enumerates, at a minimum, the 

following factors to be considered: (1) the extent to which outcome measures are met or 

exceeded; (2) the availability of Medicare-approved transplant centers in the area; and 

(3) extenuating circumstances that may have a temporary effect on a transplant center 

meeting the requirements under the CoPs, such as a natural disaster. CMS approval or 
 1265 

re-approval based on mitigating factors permits a transplant center to operate as a 

Medicare-approved transplant center under certain circumstances despite a finding of 

noncompliance. Under existing regulations at §§488.61(b)(4)(iv) and (c)(4)(iv), CMS 

will not approve a center with condition-level deficiencies but may re-approve a center 

with standard-level deficiencies. 

B. Basis for Proposals in This Proposed Rule 

 In this proposed rule, we are proposing to strengthen, clarify, and provide 

additional transparency for the survey, certification, and enforcement procedures under 

§ 488.61 for transplant centers that are requesting initial approval or re-approval for 

participation in the Medicare program when the centers have not met one or more of the 

CoPs but wish to have certain mitigating factors taken into consideration. 

1. Proposed Expansion of Mitigating Factors Based on CMS’ Experience 

 The existing organ transplant enforcement regulation at § 488.61 does not provide 

detailed information on the factors generally needed for approval or re-approval of a 

request based on mitigating factors that a transplant center may make in order to 

participate, or continue to participate, in Medicare. However, since the adoption of the 

organ transplant CoPs and corresponding enforcement regulations, we have expanded our 

knowledge regarding: (a) the factors and processes that promote improvement in 

transplant center outcomes; and (b) other mitigating factors that merit explicit recognition 

under CMS regulations. 

 The preponderance of requests for initial approval or re-approval based on 

mitigating factors that we have approved are for the transplant centers that have been able 
 1266 

to effect substantial program improvements and, based on meaningful post-transplant 

survival data, demonstrated much-improved patient and graft survival subsequent to 

those program reforms. These performance improvements occurred after the program 

was cited for substandard performance by CMS and was at risk of losing Medicare 

participation, usually while the program was operating during the mitigating factors 

review process or under a binding Systems Improvement Agreement (SIA) with CMS. 

Under an SIA, CMS agrees to extend the effective date of a prospectively scheduled 

termination from Medicare participation (that is, denial of re-approval) and holds in 

temporary abeyance a final review of the transplant center’s mitigating factors request if 

the transplant center agrees to engage in a structured regimen of quality improvement to 

improve performance during a specified period of time. At the end of the SIA period 

(typically 12 months), we review the transplant center’s performance and make a final 

decision as to whether: (a) the transplant center’s patient and graft survival is within the 

acceptable limits set forth in the regulations; or (b) the transplant center qualifies for 

approval or re-approval based on mitigating factors. 

 As of August 2013, CMS had rendered a final determination for 129 requests for 

approval to operate as a Medicare-approved transplant center based on mitigating factors. 

Of those determinations, 48 of the requests (37.8 percent) were approved based on 

information provided by the transplant center on its mitigating factors alone (that is, 

without entering into an SIA) because the transplant center had implemented substantial 

program improvements during the extended CMS review period, and CMS concluded 

that the most recent patient and graft survival data (taking into consideration the lag time 
 1267 

in data inherent in the SRTR reports) demonstrated compliance with outcome 

requirements; 33 of the requests (25.6 percent) were eventually approved on the basis of 

the transplant center’s successful SIA completion and much-improved outcomes data for 

the affected program; 24 of the requests (18.6 percent) involved transplant centers that 

were approved and the transplant centers were permitted to continue operation because 

CMS determined that the transplant centers met the outcome requirements during the 

time period it took for CMS to review the mitigating factors request; 2 of the requests 

(1.6 percent) were approved where the transplant center did not enter into a SIA but had 

made extensive use of innovative practices that were not included in the SRTR 

risk-adjustment methodology; 2 of the requests (1.6 percent) were approved because 

natural disasters temporarily impacted the transplant centers; and 20 of the requests (15.5 

percent) were denied because the center failed to meet the outcome or clinical experience 

requirements and therefore voluntarily withdrew its participation from the Medicare 

program. 

2. Coordination with Efforts of the Organ Procurement and Transplantation Network 

(OPTN) and Health Resources and Services Administration 

 When we adopted the outcome standards for transplant programs in 2007, we 

sought to harmonize CMS’ outcome standards with standards of the Organ Procurement 

and Transplantation Network (OPTN) so that transplant centers would have a single, 

consistent set of outcome expectations on which to focus. We also sought to organize 

CMS activities in a manner that would reinforce and continue the OPTN as the first line 

of external review and quality improvement for transplant centers.
 1268 

The OPTN is the unified transplant network established under the National Organ 

Transplant Act (NOTA) of 1984. The NOTA called for the network to be operated by a 

private, nonprofit organization under Federal contract. The OPTN is a public-private 

partnership that links all of the professionals involved in the donation and transplantation 

system. The primary goals of the OPTN are to: (a) increase the effectiveness and 

efficiency of organ-sharing and equity in the national system of organ allocation; and 

(b) increase the supply of donated organs available for transplantation. For more details 

about the OPTN, we refer readers to the Web site at: 

http://optn.transplant.hrsa.gov/optn/profile.asp. 

 The OPTN and the Health Resources and Services Administration (HRSA) are 

considering adoption of an alternative methodology for calculating expected transplant 

outcomes, known as the “Bayesian” methodology, and for setting a threshold that would 

“flag” a transplant center for OPTN review of performance. However, CMS has 

insufficient experience with the new “Bayesian” methodology, and insufficient data to 

determine an appropriate threshold for a Medicare outcomes deficiency under a 

“Bayesian” methodology. Therefore, we are not proposing any changes in our 

regulations regarding this new methodology. However, we wish to continue to 

coordinate with, and reinforce, the OPTN’s efforts if the OPTN chooses to adopt a new 

methodology. Therefore, we are proposing that if a program has been cited for an 

outcomes deficiency by CMS, but has not been flagged for review by the OPTN, CMS 

would take these facts into consideration if the transplant program has requested approval 
 1269 

based on mitigating factors. For a perspective on the “Bayesian” methodology, we refer 

readers to the Web site at: http://www.srtr.org/faqs/16.aspx.

C. Provisions of the Proposed Regulations 

 We are proposing to revise the regulations at § 488.61 to include specific 

additional provisions describing and expanding the mitigating factors that CMS may 

consider when determining requests and explain the conditions under which each factor 

would apply. 
 1270 

1. Proposed Expansion of Mitigating Factors List 

 Existing §§ 488.61(a)(4) and (c)(4) provide three specific mitigating factors for 

review by CMS when determining whether a transplant center can be approved or 

re-approved, respectively, based on mitigating factors. These mitigating factors are: 

(1) the extent to which outcome measures are met or exceeded; (2) the availability of 

Medicare-approved transplant centers in the area; and (3) extenuating circumstances that 

may have a temporary effect on meeting the CoPs. We are proposing to move the listing 

of mitigating factors from paragraphs (a)(4)(i) through (a)(4)(iii) and (c)(4)(i) through 

(c)(4)(iii) to new proposed paragraphs (f), (g), and (h) under § 488.61, and to include 

additional factors under these three new proposed paragraphs that may be reviewed in 

addition to the existing three factors. We are proposing to move existing paragraphs 

(a)(4)(iv) and (c)(4)(iv) to the proposed new paragraph (g)(2). We also are proposing to 

provide clarification of the existing three mitigating factors and the conditions under 

which they would apply. Finally, we are proposing to revise existing paragraphs (a)(4) 

and (c)(4) of § 488.61 to include cross-references to the new proposed paragraphs (f), (g), 

and (h). 

 Under proposed new paragraph (f) of § 488.61, we are proposing to relist the 

existing three mitigating factors under paragraphs (a)(4)(i) through (a)(4)(iii) and 

paragraphs (c)(4)(i) through (c)(4)(iii) and expand the mitigating factors that CMS may 

consider by adding more description to those factors, as well as by adding new factors for 

review. We also are proposing to specify the procedures and timeframes for transplant 

centers to request consideration for approval based on mitigating factors. 
 1271 

 Specifically, in proposed new paragraph (f)(1), we are proposing to specify the 

mitigating factors, except for situations of immediate jeopardy, as follows: 

● The extent to which outcome measures are not met or exceeded (existing 

paragraphs (a)(4)(i) and (c)(4)(i); now proposed paragraph (f)(1)(i)). 

● Availability of Medicare-approved transplant centers in the area (existing 

paragraphs (a)(4)(ii) and (c)(4)(ii); now proposed paragraph (f)(1)(ii)). 

● Extenuating circumstances (for example, natural disaster) that may have a 

temporary effect on meeting the CoPs (existing paragraphs (a)(4)(iii) and (c)(4)(iii); now 

proposed paragraph (f)(1)(iii)). 

● Program improvements that substantially address root causes of graft failures 

or patient deaths and that have been implemented and institutionalized on a sustainable 

basis (proposed new paragraph (f)(1)(iv)). 

● Recent patient and graft survival data to determine if there is sufficient clinical 

experience and survival for CMS to conclude that the program is in compliance with 

CMS requirements, except for the data lag inherent in the reports from the SRTR 

(proposed new paragraph (f)(1)(v)). 

● Extensive use of innovative transplantation practices relative to other transplant 

programs, such as a high rate of transplantation of individuals who are highly sensitized 

or children who have undergone the Fontan procedure, where CMS finds that the 

innovative practices are supported by evidence-based, published research or nationally 

recognized standards or Institutional Review Board (IRB) approvals, and the SRTR risk-
 1272 

adjustment methodology does not take the relevant key factors into consideration 

(proposed new paragraph (f)(1)(vi)). 

● The program’s performance, based on the OPTN method of calculating patient 

and graft survival, is within the OPTN’s thresholds for acceptable performance and does 

not flag OPTN performance review under the applicable OPTN policy (proposed new 

paragraph (f)(1)(vii)). 

 Under proposed new paragraph (f)(2), we are proposing to include details on the 

content of the request for consideration of mitigating factors, based on examples that 

have proven to be most useful in considering successful mitigating requests. Specifically, 

we are proposing that a request for consideration of mitigating factors include sufficient 

information to permit an adequate review and understanding of the transplant program, 

the factors that have contributed to outcomes, program improvements or innovations that 

have been implemented or planned, and, in the case of natural disasters, the recovery 

actions planned. Examples of information to be submitted with each request could 

include, but are not limited to, the following: 

 (i) The name and contact information for the transplant hospital and the names 

and roles of key personnel of the transplant program; 

 (ii) The type of organ transplant program(s) for which approval is requested; 

 (iii) The CoPs that the program failed to meet, and with respect to which the 

transplant center is requesting CMS’ review of mitigating factors; 

 (iv) The rationale and relevant supporting evidence for CMS’ review must 

include, but not be limited to— 
 1273 

◦ Root Cause Analysis of patient deaths and graft failures, including factors the 

program has identified as likely causal or contributing factors for patient deaths and graft 

failures; 

◦ Program improvements or innovations (where applicable) that have been 

implemented and improvements that are planned; 

◦ Patient and donor/organ selection criteria and evaluation protocols, including 

methods for pre-transplant patient evaluation by cardiologists, hematologists, 

nephrologists, and psychiatrists or psychologists, to the extent applicable; 

◦ Organizational chart with full-time equivalent levels, roles, and structure for 

reporting to hospital leadership; 

◦ Waitlist management protocols and practices relevant to outcomes; 

◦ Pre-operative management protocols and practices; 

◦ Immunosuppression/infection prophylaxis protocols; 

◦ Post-transplant monitoring and management protocols and practices; 

◦ Quality Assessment and Performance Improvement (QAPI) Program meeting 

minutes from the most recent four meetings and attendance rosters from the most recent 

12 months; 

◦ Quality dashboard and other performance indicators; 

◦ Recent outcomes data for both patient survival and graft survival; and 

◦ Documentation of whether the program has engaged with the OPTN to review 

program outcomes, the status of any such review, and any steps taken to address program 

outcomes in accordance with the OPTN review. 
 1274 

 Under proposed new paragraph (f)(3), we are proposing to specify a timeline for 

the transplant program to submit a request for mitigating factors and to make clear that, 

for requests related to clinical experience or outcomes, the program has additional time 

within which to submit supporting information. Specifically, we are proposing that 

within 10 days after CMS has issued formal written notice of a condition-level deficiency 

to the program, CMS must receive notice of the program’s request to seek consideration 

of mitigating factors. CMS would require that all information necessary for 

consideration be received within 30 days of CMS’ initial notification for any deficiency, 

except a deficiency based on insufficient clinical experience or outcomes; and within 120 

days of CMS’ written notification for a deficiency based on insufficient clinical 

experience or outcomes. Failure of a transplant program to meet these timeframes may 

be the basis for denial of requests for consideration based on mitigating factors. 

2. Content and Timeframe for Mitigating Factors Requests 

 Under proposed new § 488.61(g), we propose to clarify and expand on the 

description of the mitigating factors application and review process. Under existing 

regulations, a transplant center seeking initial approval or re-approval of Medicare 

participation based on the presence of mitigating factors is required to submit a formal 

written request to the CMS Central Office, as described earlier. If there are no 

deficiencies that constitute immediate jeopardy to a patient’s health and safety, in limited 

circumstances, CMS may approve continued Medicare participation based on mitigating 

factors. However, where a transplant program demonstrates that it is making significant 

progress toward correction and program improvement, but does not yet qualify for 
 1275 

approval based on mitigating factors, we believe there may be merit in many cases to 

temporarily extend the effective date of the program’s Medicare participation termination 

in exchange for a hospital’s agreement to engage in a significant and directed regimen of 

further quality improvement under a Systems Improvement Agreement (SIA). As we 

noted above, programs that have entered into SIAs have demonstrated significant 

improvements. Therefore, we are proposing to provide an explicit procedure in the 

regulations at proposed new § 488.61(g)(1)(iii) for CMS to offer an SIA and hold in 

abeyance a final decision on the mitigating factors request until the SIA period has ended. 

Proposed new paragraphs (g)(1)(i), (g)(1)(ii), and (g)(1)(iii) outline the three outcomes of 

CMS mitigating factors decisions: (i) initial approval or re-approval of a program’s 

Medicare participation based upon consideration of mitigating factors; (ii) denial of the 

program’s request; or (iii) offer of a time-limited SIA when a transplant program has 

waived its appeal rights, has committed to substantial program improvements that address 

root causes and are institutionally supported by the hospital’s governing body on a 

sustainable basis, and has requested more time to design or implement additional 

improvements or demonstrate compliance with CMS outcome requirements. The 

proposed new paragraph (g)(1)(iii) would clarify that, during the SIA, CMS holds the 

mitigating factors request in abeyance and makes a final decision to approve or deny 

Medicare participation when the SIA is ended, based on the results of the program’s 

performance of the SIA. 

 Existing regulations at§§ 488.61(a)(4)(iv) and (c)(4)(iv)) state that CMS will not 

approve any program with a condition-level deficiency. However, CMS could approve a 
 1276 

program with a standard-level deficiency upon receipt of an acceptable plan of 

correction. A condition-level deficiency represents a serious classification and, unless 

the deficiency is remedied, precludes a provider from participating in Medicare. A 

standard-level deficiency represents a less serious deficiency, such as one in which just a 

small part of a CoP is found to be out of compliance. We are proposing to move this to 

the proposed new paragraph § 488.61(g)(2). 

3. System Improvement Agreements (SIAs) 

 We are proposing to add proposed new paragraph (h) to § 488.61 to set forth the 

purpose, intent, and contents of an SIA and the timeframes for an approved SIA with 

CMS. 

a. Purpose and Intent of an SIA 

 Based on information and documentation provided by the transplant program at 

the time of its request, CMS may determine that, despite a deficiency or deficiencies, the 

transplant center has made substantial progress, has full support of the hospital governing 

body, and is on a quality improvement path that promises to improve prospects for 

patient survival. In such cases, we exercise our limited discretion to offer the transplant 

program the opportunity to enter into an SIA. In the absence of a written request for 

consideration on the basis of mitigating factors, CMS would otherwise proceed with the 

proposed date of termination based on noncompliance with one or more of the CoPs. In 

this proposed regulation, we are clarifying and specifying the terms for such SIAs. 

 CMS may offer an SIA to a transplant program if the transplant center can show 

that it has identified, or is actively improving its identification of, the root causes of its 
 1277 

noncompliance and if the transplant center has initiated actions to correct those root 

causes. However, if we conclude that a transplant center does not qualify for initial 

approval or re-approval based on mitigating factors, the proposed rule would explicitly 

provide CMS with the option of offering a time-limited SIA to those transplant centers 

that have demonstrated progress in making substantive program improvements to address 

root causes of deficient outcomes, agree to undertake a structured regimen of further 

quality improvement, and agree to waive their appeal rights. In some instances, a 

voluntary period of inactivity of the transplant center is warranted, or a period of 

inactivity may be required by CMS as a condition of an SIA approval, as a requirement 

of initiating an SIA for a specified period, or until certain milestones are achieved. 

 During the SIA period, CMS’ oversight and enforcement authority continue and 

CMS may conduct routine unannounced surveys, complaint investigations, and/or 

terminate the transplant center’s participation in the Medicare program if there is not 

substantial compliance with Federal requirements under 42 CFR Part 482 or if the 

program fails to follow the terms of the SIA. In consideration for the opportunity to 

continue to participate in the Medicare program under an SIA during the time that 

structured improvements and corrections are made, despite having been found to be in 

noncompliance with the requirements, a transplant center would be required to waive any 

appeal rights that they may have, either administratively or judicially, if CMS ultimately 

terminates Medicare participation or denies initial approval of the transplant center. We 

are proposing that such a waiver applies, regardless of whether revocation or termination 

of approval/re-approval occurs due to a finding that the hospital failed to fulfill the terms 
 1278 

of the SIA or due to the deficiency findings that the SIA was designed to address, 

pursuant to CMS’ enforcement authority under the regulations. 

 A transplant center’s approval to operate as a Medicare-approved transplant 

center does not guarantee any subsequent re-approvals and may be time- limited. The 

transplant center must submit a separate request for consideration of mitigating factors, 

including updated supporting documentation each time a CMS review (generally a 3-5 

year cycle) or complaint investigation determines that the transplant center does not meet 

one or more of the data submission, clinical experience, and outcomes requirements, or 

other CoPs. At such time, we would review any prior mitigating factors approval to 

determine if the circumstances that originally warranted approval would still apply. 

However, in the case of past mitigating factors approval based on innovative practice, 

CMS may seek information in advance of a recertification survey to determine if the 

reasons for past approval still prevail and, in such a case, CMS may consider mitigating 

factors concomitantly with the recertification survey. 

b. Description and Contents of an SIA 

 The SIA is a binding agreement between CMS and the hospital within which a 

transplant center operates. A transplant center, in turn, may have one or more organspecific programs, such as a heart, kidney, pancreas, liver, or lung transplant program. 

Each SIA is focused on a particular organ transplant program. The SIA is a plan for a 

series of actions, activities, and goals that provide opportunities for the hospital and 

transplant center to conduct internal improvement analysis and action, and engage 
 1279 

external experts to ensure that the transplant center is in compliance with evidence-based 

standards and advances in the field that would optimize the care provided to patients. 

 Through an SIA, CMS is able to offer transplant centers additional time to 

achieve compliance with the CoPs through a structured and monitored process. In 

particular, the use of the formal SIA process reflects CMS’ recognition that it may 

sometimes require more than the usual time to correct the 1-year post-transplant patient 

or graft survival and have the results of such improvement become manifest in the 

tracking data, or to develop and implement a plan to correct low-volume performance 

rates. We generally do not expect to use an SIA in cases of noncompliance with other 

CoPs, although we do not preclude such a possibility if highly unusual circumstances are 

present. 

 The SIA process (discussed in more detail below) has demonstrated effectiveness 

in improving patient and graft survival. An important measure of outcome is the extent 

to which observed patient deaths 1 year after transplant compare with the risk-adjusted 

expected number of deaths or graft failure for a particular transplant program. The SRTR 

risk adjustment methodology (used to calculate the expected numbers) takes into 

consideration the organs transplanted and the characteristics of the donors and recipients 

(for example, factors that have a bearing on the risk to patient or graft survival, such as 

diabetes, hypertension, advanced age, cold ischemic time of the organ to be transplanted, 

among others). For example, the national number of expected deaths 1 year after 

transplant for all transplant centers in the United States is 1.0. A transplant center that 

had twice the expected number of deaths would have a standardized mortality ratio 
 1280 

(SMR) of 2.0. As of August 2013, adult kidney transplant programs cited by CMS for 

substandard outcomes and placed on a Medicare enforcement track, for which there was a 

2-year post-CMS survey tracking period (N=15), improved their average SMR for 1-year 

post-transplant patient survival performance rate from 2.05 to 1.17 (close to the 1.0 

national average). The transplant centers under an approved SIA improved their 

outcomes from an average SMR ranging from 2.41 before the SIA to 0.76 after the SIA 

(much better than the national average). Transplant centers not cited for substandard 

kidney transplant outcomes improved outcomes slightly from 0.89 to 0. 84.185

 The proposed new § 488.61(h) explicitly incorporates and specifies elements that 

have been important to the successful use of the SIA structure. We propose to define an 

SIA as a binding agreement, entered into voluntarily by the hospital and CMS, through 

which CMS extends the effective date of a prospectively scheduled termination of the 

center’s Medicare participation (thereby permitting the program additional time to 

achieve compliance with the CoPs), contingent on the hospital’s agreement to participate 

in a structured regimen of quality improvement activities and subsequent demonstration 

of improved outcomes. In some cases, transplant programs have entered a period of 

inactivity—voluntarily, or imposed as a condition of the SIA. 

 Under proposed new §488.61(h)(1)(i) through (h)(1)(x), we are proposing that in 

the SIA, in exchange for additional time to initiate or continue activities to achieve 

compliance with the CoPs, the transplant center must agree to a regimen of specified 

activities, including (but not limited to) all of the following: 

 

185 Hamilton, Thomas E., Regulatory Oversight in Transplantation: Are Patients Really Better Off, Curr 

Opin Organ Transplant 2013, 18:203–209. Available at: at http://www.co-transplantation.com.
 1281 

● Patient notification about the degree and type of noncompliance by the 

program, an explanation of what the program improvement efforts mean for patients, and 

financial assistance to defray the out-of-pocket costs of copayments and testing expenses 

for any wait-listed individual who wishes to be listed with another program (proposed 

paragraph (h)(1)(i)). 

● An external independent peer review team that conducts an onsite assessment 

of program policies, staffing, operations, relationship to hospital services, and factors that 

contribute to program outcomes; that suggests quality improvements the hospital should 

consider; that provides both verbal and written feedback to the hospital; and that provides 

a verbal debriefing to CMS. Neither the hospital nor the peer review team may be 

required to provide a written report to CMS. The peer review team would include a 

transplant surgeon with expertise in the relevant organ type(s), a transplant administrator, 

an individual with expertise in transplant QAPI systems, a social worker or psychologist 

or psychiatrist, and a specialty physician with expertise in conditions particularly relevant 

to the applicable organ types(s) such as a cardiologist, nephrologist, or hepatologist. 

Except for the transplant surgeon, CMS may permit substitution of an individual with one 

type of expertise for another individual who has expertise particularly needed for the type 

of challenges experienced by the program, such as substitution of an infection control 

specialist in lieu of, or in addition to, a social worker (proposed paragraph (h)(1)(ii)). 

● An action plan that addresses systemic quality improvements and is updated 

after the onsite peer review (proposed paragraph (h)(1)(iii)). 
 1282 

● An onsite consultant whose qualifications are approved by CMS, and who 

provides services for 8 days per month on average for the duration of the agreement, 

except that CMS may permit a portion of the time to be spent offsite and may agree to 

fewer consultant days each month after the first 3 months of the SIA (proposed paragraph 

(h)(1)(iv)). 

● A comparative effectiveness analysis that compares policies, procedures, and 

protocols of the transplant program with those of other programs in areas of endeavor that 

are relevant to the transplant center’s current quality improvement needs (proposed 

paragraph (h)(1)(v)). 

● Development of increased proficiency, or demonstration of current proficiency, 

with patient-level data from the SRTR and the use of registry data to analyze outcomes 

and inform quality improvement efforts (proposed paragraph (h)(1)(vi)). 

● A staffing analysis that examines the level, type, training, and skill of staff in 

order to inform transplant center efforts to ensure the engagement and appropriate 

training and credentialing of staff (proposed paragraph (h)(1)(vii)). 

● Activities to strengthen performance of the Quality Assessment and 

Performance Improvement (QAPI) Program to ensure full compliance with the 

requirements at § 482.96 (proposed paragraph (h)(1)(viii)). 

● Monthly (unless otherwise specified) reporting and conference calls with CMS 

regarding the status of programmatic improvements, the results of the actions, data, 

reports, or other deliverables specified in the SIA, and regarding the number of 
 1283 

transplants, the death and graft failures that occur within 1 year post-transplant (proposed 

paragraph (h)(1)(ix)). 

● Additional or alternative requirements specified by CMS, tailored to the 

transplant program type and circumstances (proposed paragraph (h)(1)(x)). 

c. Effective Period for an SIA 

 Under proposed new § 488.61(h)(2), we are proposing to specify that an SIA will 

be established for a 12-month period, subject to CMS’ discretion to determine if a shorter 

time period would suffice. At the hospital’s request and at CMS’s discretion, CMS may 

extend an SIA for up to one additional 6-month period.
 1284 

XII. 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 2014 “Report to the Congress: Medicare Payment Policy” 

and have given the recommendations in the report consideration in conjunction with the 

proposed policies set forth in this proposed rule. MedPAC recommendations for the 

IPPS for FY 2015 are addressed in Appendix B to this proposed rule. 

 For further information relating specifically to the MedPAC reports or to obtain a 

copy of the reports, contact MedPAC at (202) 653-7226, or visit MedPAC’s Web site at: 

http://www.medpac.gov. 

XIII. Other Required Information 

A. Requests for Data from the Public 

 In order to respond promptly to public requests for data related to the prospective 

payment system, we have established a process under which commenters can gain access 

to raw data on an expedited basis. Generally, the data are now available on compact disc 

(CD) format. However, many of the files are available on the Internet at: 

http://www.cms.hhs.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html. Data files and the cost for each file, if 

applicable, are listed below. Anyone wishing to purchase data tapes, cartridges, or 

diskettes should submit a written request along with a company check or money order 
 1285 

(payable to CMS-PUF) to cover the cost to the following address: Centers for Medicare 

& Medicaid Services, Public Use Files, Accounting Division, P.O. Box 7520, Baltimore, 

MD 21207-0520, (410) 786-3691. Files on the Internet may be downloaded without 

charge. 

1. CMS Wage Data Public Use File 

 This file contains the hospital hours and salaries from Worksheet S-3, Parts II and 

III from FY 2011 Medicare cost reports used to create the proposed FY 2015 prospective 

payment system wage index. Multiple versions of this file are created each year. For a 

complete schedule on the release of different versions of this file, we refer readers to the 

wage index schedule in section III.J. of the preamble of this proposed rule. 

Processing Year Wage Data Year PPS Fiscal Year 

2014 2011 2015 

2013 2010 2014 

2012 2009 2013 

2011 2008 2012 

2010 2007 2011 

2009 2006 2010 

2008 2005 2009 

2007 2004 2008 

 Media: Internet at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage. 

 Periods Available: FY 2007 through FY 2015 IPPS Update. 

2. CMS Occupational Mix Data Public Use File 

 This file contains the 2010 occupational mix survey data to be used to compute 

the occupational mix adjustment wage indexes. Multiple versions of this file are created 

each year. For a complete schedule on the release of different versions of this file, we 
 1286 

refer readers to the wage index schedule in section III.J. of the preamble of this proposed 

rule. 

 Media: Internet at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage. 

 Period Available: FY 2015 IPPS Update. 

3. Provider Occupational Mix Adjustment Factors for Each Occupational Category 

Public Use File 

 This file contains each hospital’s occupational mix adjustment factors by 

occupational category. Two versions of these files are created each year to support the 

rulemaking. 

 Media: Internet at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage. 

 Period Available: FY 2015 IPPS Update. 

4. Other Wage Index Files 

 CMS releases other wage index analysis files after each proposed and final rule. 

 Media: Internet at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage. 

 Periods Available: FY 2005 through FY 2015 IPPS Update. 
 1287 

5. FY 2015 IPPS SSA/FIPS CBSA State and County Crosswalk 

 This file contains a crosswalk of State and county codes used by the Social 

Security Administration (SSA) and the Federal Information Processing Standards (FIPS), 

county name, and a historical list of Metropolitan Statistical Areas (MSAs). 

 Media: Internet at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage. 

 Period Available: FY 2015 IPPS Update. 

6. HCRIS Cost Report Data 

 The data included in this file contain cost reports with fiscal years ending on or 

after September 30, 1996. These data files contain the highest level of cost report status. 

 Media: Internet at: 

http://www.cms.hhs.gov/CostReports/02_HospitalCostReport.asp and Compact Disc 

(CD). 

 File Cost: $100.00 per year. 

7. Provider-Specific File 

 This file is a component of the PRICER program used in the MAC’s system to 

compute DRG/MS-DRG payments for individual bills. The file contains records for all 

prospective payment system eligible hospitals, including hospitals in waiver States, and 

data elements used in the prospective payment system recalibration processes and related 

activities. Beginning with December 1988, the individual records were enlarged to 

include pass-through per diems and other elements. 
 1288 

 Media: Internet at: 

http://www.cms.hhs.gov/ProspMedicareFeeSvcPmtGen/03_psf_text.asp 

 Period Available: Quarterly Update. 

8. CMS Medicare Case-Mix Index File 

 This file contains the Medicare case-mix index by provider number as published 

in each year’s update of the Medicare hospital inpatient prospective payment system. 

The case-mix index is a measure of the costliness of cases treated by a hospital relative to 

the cost of the national average of all Medicare hospital cases, using DRG/MS-DRG 

weights as a measure of relative costliness of cases. Two versions of this file are created 

each year to support the rulemaking. 

 Media: Internet at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage 

 Periods Available: FY 1985 through FY 2015. 

9. MS-DRG Relative Weights (Also Table 5 - MS-DRGs) 

 This file contains a listing of MS-DRGs, MS-DRG narrative descriptions, relative 

weights, and geometric and arithmetic mean lengths of stay for the annual rulemaking. 

There are two versions of this file to support the rulemaking. (We note that Table 5 is 

issued concurrently with the proposed rule and the final rule and is available only via the 

Internet on the CMS Web site.) 

 Media: Internet at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage 

 Periods Available: FY 2005 through FY 2015 IPPS Update. 
 1289 

10. IPPS Payment Impact File 

 This file contains data used to estimate payments under Medicare’s hospital 

impatient prospective payment systems for operating and capital-related costs. The data 

are taken from various sources, including the Provider-Specific File, HCRIS Cost Report 

Data, Minimum Data Sets, and prior impact files. The data set is abstracted from an 

internal file used for the impact analysis of the changes to the prospective payment 

systems published in the Federal Register. Two versions of this file are created each 

year to support the rulemaking. 

 Media: Internet at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/HIF/list.asp#TopOfPage. 

 Periods Available: FY 1994 through FY 2015 IPPS Update. 

11. AOR/BOR Tables 

 This file contains data used to develop the MS-DRG relative weights. It contains 

mean, maximum, minimum, standard deviation, and coefficient of variation statistics by 

MS-DRG for length of stay and standardized charges. The BOR tables are “Before 

Outliers Removed” and the AOR is “After Outliers Removed.” (Outliers refer to 

statistical outliers, not payment outliers.) 

 Two versions of this file are created each year to support the rulemaking. 

 Media: Internet at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage. 

 Periods Available: FY 2005 through FY 2015 IPPS Update. 
 1290 

12. Prospective Payment System (PPS) Standardizing File 

 This file contains information that standardizes the charges used to calculate 

relative weights to determine payments under the hospital inpatient operating and capital 

prospective payment systems. Variables include wage index, cost-of-living adjustment 

(COLA), case-mix index, indirect medical education (IME) adjustment, disproportionate 

share, and the Core-based Statistical Area (CBSA). The file supports the rulemaking. 

 Media: Internet at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage. 

 Period Available: FY 2015 IPPS Update. 

13. Hospital Readmissions Reduction Program File 

 This file contains information on the calculation of the Hospital Readmissions 

Reduction Program payment adjustment. Variables include the proxy excess readmission 

ratios for acute myocardial infarction, pneumonia and heart failure and the proxy 

readmissions payment adjustment for each provider included in the program. The file 

supports the rulemaking. 

 Media: Internet at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage. 

 Period Available: FY 2015 IPPS Update. 

14. Medicare Disproportionate Share Hospital (DSH) Supplemental File 

 This file contains information on the calculation of the uncompensated care 

payments for FY 2015. Variables include a hospital’s SSI days and Medicaid days used 

to determine a hospital’s share of uncompensated care payments, total uncompensated 
 1291 

care payments and estimated per claim uncompensated care payment amounts. The file 

supports the rulemaking. 

 Media: Internet at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage. 

 Period Available: FY 2015 IPPS Update. 

15. Hospital-Acquired Condition (HAC) Reduction Program File 

 This file contains information on the calculation of the payment adjustment under 

the HAC Reduction Program. Variables include the current estimate of a hospital’s total 

HAC Score for use in the FY 2015 HAC reduction program, the associated percentile, 

and a flag if the hospital would be subject to the FY 2015 reduction under section 

1886(p)(1) of the Act based on this percentile. The file supports the rulemaking. 

 Media: Internet at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage. 

 Period Available: FY 2015 IPPS Update. 

 For further information concerning these data tapes, contact the CMS Public Use 

Files Hotline at (410) 786-3691. 

 Commenters interested in discussing any data used in constructing this proposed 

rule should contact Nisha Bhat at (410) 786-5320. 

B. Collection of Information Requirements 

1. Statutory Requirement for Solicitation of Comments 

 Under the Paperwork Reduction Act of 1995, we are required to provide 60-day 

notice in the Federal Register and solicit public comment before a collection of 
 1292 

information requirement is submitted to the Office of Management and Budget (OMB) 

for review and approval. In order to fairly evaluate whether an information collection 

should be approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act of 

1995 requires that we solicit comment on the following issues: 

● The need for the information collection and its usefulness in carrying out the 

proper functions of our agency. 

● The accuracy of our estimate of the information collection burden. 

● The quality, utility, and clarity of the information to be collected. 

● Recommendations to minimize the information collection burden on the 

affected public, including automated collection techniques. 

 In this proposed rule, we are soliciting public comment on each of these issues for 

the following sections of this document that contain information collection requirements 

(ICRs). 
 1293 

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

 Section II.I.1. of the preamble of this proposed rule discusses add-on payments 

for new services and technologies. Specifically, this section states that applicants for 

add-on payments for new medical services or technologies for FY 2016 must submit a 

formal request. A formal request includes a full description of the clinical applications of 

the medical service or technology and the results of any clinical evaluations 

demonstrating that the new medical service or technology represents a substantial clinical 

improvement. In addition, the request must contain a significant sample of the data to 

demonstrate that the medical service or technology meets the high-cost threshold. 

 We believe the burden associated with this requirement is exempt from the PRA 

under 5 CFR 1320.3(c), which defines the agency collection of information subject to the 

requirements of the PRA as information collection imposed on 10 or more persons within 

any 12-month period. This information collection does not impact 10 or more entities in 

a 12-month period. In FYs 2008, 2009, 2010, 2011, 2012, 2013, FY 2014, and FY 2015, 

we received 1, 4, 5, 3, 3, 5, 5, and 7 applications, respectively. 

3. ICRs for the Proposed Occupational Mix Adjustment to the Proposed FY 2015 Index 

(Hospital Wage Index Occupational Mix Survey) 

 Section III.F. of the preamble of this proposed rule discusses the occupational mix 

adjustment to the proposed FY 2015 wage index, respectively. While the preamble of 

this proposed rule does not contain any new ICRs, we note that there is an OMB 

approved information collection request associated with the hospital wage index. 
 1294 

 Section 304(c) of Pub. L. 106–554 amended section 1886(d)(3)(E) of the Act to 

require CMS to collect data at least once every 3 years on the occupational mix of 

employees for each short-term, acute care hospital participating in the Medicare program 

in order to construct an occupational mix adjustment to the wage index. We collect the 

data via the occupational mix survey. 

 The burden associated with this information collection requirement is the time 

and effort required to collect and submit the data in the Hospital Wage Index 

Occupational Mix Survey to CMS. The aforementioned burden is subject to the PRA; it 

is currently approved under OCN 0938-0907. 

4. Hospital Applications for Geographic Reclassifications by the MGCRB 

 Section III.H.2. of the preamble of this proposed rule discusses proposed changes 

to the wage index based on hospital reclassifications. 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 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. The burden associated with this requirement is subject to the PRA. It is 

currently approved under OCN 0938–0573. 
 1295 

5. ICRs for Application for GME Resident Slots 

 The information collection requirements associated with the preservation of 

resident cap positions from closed hospitals, addressed under section IV.J.3. of this 

preamble, are not subject to the Paperwork Reduction Act, as stated in section 5506 of 

the Affordable Care Act. 

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

 The Hospital IQR Program (formerly referred to as the Reporting Hospital 

Quality Data for Annual Payment (RHQDAPU) Program) was originally established to 

implement section 501(b) of the MMA, Pub. L. 108-173. This program expanded our 

voluntary Hospital Quality Initiative. The Hospital IQR Program originally consisted of 

a “starter set” of 10 quality measures. The collection of information associated with the 

original starter set of quality measures was previously approved under OMB control 

number 0938-0918. All of the information collection requirements previously approved 

under OMB control number 0938-0918 have been combined with the information 

collection request previously approved under OMB control number 0938-1022. We no 

longer use OMB control number 0938-0918. 

 We added additional quality measures to the Hospital IQR Program and submitted 

the information collection request to OMB for approval. This expansion of the Hospital 

IQR measures was part of our implementation of section 5001(a) of the DRA. 

Section 1886(b)(3)(B)(viii)(III) of the Act, added by section 5001(a) of the DRA, 

requires that the Secretary expand the “starter set” of 10 quality measures that were 

established by the Secretary as of November 1, 2003, to include measures “that the 
 1296 

Secretary determines to be appropriate for the measurement of the quality of care 

furnished by hospitals in inpatient settings.” The burden associated with these reporting 

requirements was previously approved under OMB control number 0938-1022. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53666), we stated that, for the 

FY 2016 payment determinations and subsequent years updates, we sought OMB 

approval for a revised information collection request using the same OMB control 

number (0938-1022). The FY 2014 IPPS/LTCH PPS final rule (78 FR 50955) does not 

change the method for information collection requests. In a revised request for the 

FY 2017 payment determination, we will add the 4 claims-based measures that we are 

proposing in this proposed rule: (1) Hospital 30-day, all-cause, unplanned, riskstandardized readmission rate (RSRR) following coronary artery bypass graft (CABG) 

surgery; (2) Hospital 30-day, all-cause, risk-standardized mortality rate (RSMR) 

following coronary artery bypass graft (CABG) surgery; (3) Hospital-level, 

risk-standardized 30-day episode-of-care payment measure for pneumonia; and 

(4) Hospital-level, risk-standardized 30-day episode-of-care payment measure for heart 

failure. We will also add the chart-abstracted measure we are proposing in this proposed 

rule: Severe sepsis and septic shock: management bundle (NQF#0500). 

 In addition, we believe there will be a reduction in the burden associated with the 

removal of 20 total measures proposed for removal in this rule:186 (1) AMI-1 Aspirin at 

Arrival; (2) AMI-3 ACEI/ARB for left ventricular systolic dysfunction; (3) AMI-5 

Beta-blocker prescribed at discharge; (4) AMI-8a Timing of Receipt of Primary 

 

186 We note that some of these measures are being proposed to be removed as chart-abstracted measures, 

but are being proposed to be retained as electronic clinical quality measures. We refer readers to 

section IX.A.2.b. of the preamble of this proposed rule for further discussion. 
 1297 

Percutaneous Coronary Intervention (PCI); (5) HF-2 Evaluation of left ventricular 

systolic function; (6) SCIP-INF-1 Prophylactic antibiotic received within 1 hour prior to 

surgical incision; (7) SCIP-INF-2 Prophylactic antibiotic selection for surgical patients; 

(8) SCIP INF-3 Prophylactic antibiotics discontinued within 24 hours after surgery end 

time (48 hours for cardiac surgery); (9) SCIP INF-4: Cardiac surgery patients with 

controlled 6AM postoperative serum glucose; (10) SCIP INF-6 Appropriate hair removal; 

(11) SCIP-INF-9 Postoperative urinary catheter removal on post-operative day 1 or 2 

with day of surgery being day zero; (12) SCIP-VTE-2: Surgery patients who received 

appropriate VTE prophylaxis within 24 hours pre/post-surgery; (13) SCIP 

Cardiovascular-2: Surgery Patients on a Beta Blocker prior to arrival who received a 

Beta Blocker during the perioperative period; (14) PN-6 Appropriate initial antibiotic 

selection; (15) STK-2 Antithrombotic therapy for ischemic stroke; (16) STK-3 

Anticoagulation therapy for Afib/flutter; (17) STK-5 Antithrombotic therapy by the end 

of hospital day 2; (18) STK-10 Assessed for rehab; and (19) VTE-4 Patients receiving 

un-fractionated Heparin with doses/labs monitored by protocol, and (20) one structural 

measure: Participation in a systematic database for cardiac surgery. 

 Because claims-based measures can be calculated based on data that are already 

reported to the Medicare program for payment purposes, we believe no additional 

information collection will be required from the hospitals for the four proposed 

claims-based measures. However, we believe that the proposed chart-abstracted measure 

will cause some additional burden. For the FY 2017 payment determination, we estimate 

the burden to be 1,775 hours annually per hospital. We estimate the total burden for chart 
 1298 

abstraction and structural measures for the approximately 3,300 Hospital IQR Programparticipating hospitals to be 5.86 million hours. The table below describes the hospital 

burden associated with the all Hospital IQR Program requirements. 

Burden Impact of Hospital IQR Program Requirements 

Hospital IQR 

Program 

Requirement 

Number 

of 

hospitals 

impacted 

Burden per 

hospital for 

previously finalized 

requirements 

Burden per hospital 

for all requirements 

as proposed 

(continuing, 

removed, added) 

Net 

change in 

burden 

per 

hospital 

Chartabstracted and 

structural 

measures, 

forms 

3,300 1,291 hours 963 hours -328 hours 

Review reports 

for claimsbased measures 

3,300 4 hours 4 hours 0 

Reporting of 

voluntary 

electronic 

clinical quality 

measures (ECQM) in place 

of chartabstracted 

measures 

Unknown -570 hours -554 hours 16 hours 

Validation 

templates 

Up to 

600 

144 hours 144 hours 0 

E-CQM 

validation test 

Up to 

100 

0 16 hours 16 hours 

Validation 

charts 

photocopying 

Up to 

600 

$8,640 $8,496 -$144 

 In addition, we believe that there will be a reduction in burden for 15 of 

the 20 chart-abstracted measures that we are proposing for removal: (1) AMI-8a Timing 
 1299 

of Receipt of Primary Percutaneous Coronary Intervention (PCI); (2) HF-2 Evaluation of 

left ventricular systolic function; (3) SCIP-INF-1 Prophylactic antibiotic received within 

1 hour prior to surgical incision; (4) SCIP-INF-2 Prophylactic antibiotic selection for 

surgical patients; (5) SCIP INF-3 Prophylactic antibiotics discontinued within 24 hours 

after surgery end time (48 hours for cardiac surgery); (6) SCIP INF-4: Cardiac surgery 

patients with controlled 6AM postoperative serum glucose; (7) SCIP-INF-9 Postoperative 

urinary catheter removal on postoperative day 1 or 2 with day of surgery being day zero; 

(8) SCIP-VTE-2: Surgery patients who received appropriate VTE prophylaxis within 

24 hours pre/postsurgery; (9) SCIP Cardiovascular-2: Surgery Patients on a Beta Blocker 

prior to arrival who received a Beta Blocker during the perioperative period; (10) PN-6 

Appropriate initial antibiotic selection; (11) STK-2 Antithrombotic therapy for ischemic 

stroke; (12) STK-3 Anticoagulation therapy for Afib/flutter; (13) STK-5 Antithrombotic 

therapy by the end of hospital day 2; (14) STK-10 Assessed for rehab; and (15) VTE-4 

Patients receiving un-fractionated Heparin with doses/labs monitored by protocol. 

 The four chart-abstracted measures that we are proposing to remove have been 

suspended from the program; therefore, their removal will not impact the reporting 

burden. The structural measure we have proposed to remove, participation in a 

systematic database for cardiac surgery (NQF #0113), has an estimated a burden of 

nearly zero hours; therefore, its removal will not result a reduction in a significant 

burden reduction. Therefore, for the FY 2017 payment determination, we estimate a 

reduction in burden from our proposed removal of 20 measures (both chart-abstracted 

and structural) to be 1,775 hours annually per hospital. We estimate the total reduction in 
 1300 

burden for chart abstraction and structural measures for the approximately 3,300 Hospital 

IQR Program-participating hospitals to be 5.86 million hours. 

 Utilizing the estimates above, we estimate an overall reduction in burden from the 

from the FY 2016 estimate of 5.9 million hours annually to 3.7 million hours annually for 

the FY 2017 payment determination year. This burden estimate includes both the new 

proposed measures and the measures which we are reproposing. It excludes the burden 

associated with the NHSN and HCAHPS measures, both of which are submitted under 

separate information collection requests and are approved under separate OMB control 

numbers. 

 We intend to enroll up to 100 hospitals in a voluntary large scale test of validation 

for electronic clinical quality measures for the Hospital IQR Program. We estimate a 

total of 16 hours each. We intend to reimburse hospitals $26 per hour for up to 16 hours 

for their participation in this test. Details regarding this reimbursement rate are as 

follows: 

● The labor performed can be accomplished by medical records and health 

information technology staff, with a mean hourly wage in general medical and surgical 

hospitals of $19.24.187

. ● Applying OMB Circular A-76, we assumed full fringe benefits of 36.25 

percent, for a fully burdened labor rate of $26.25 per hour, rounding to $26 per hour, that 

accounts for the full cost of labor. The circular is available at 

 

187 In May 2012, the hourly wage was $18.68. Occupational employment and wages, May 2012, 29-2071 

Medical records and health information technicians. Bureau of Labor Statistics, 

http://www.bls.gov/oes/2012/may/oes292071.htm, last accessed 3/31/2014. We increased this wage by 3.0 

percent to account for inflation in the past 24 months. U.S. Inflation Calculator. 

http://www.usinflationcalculator.com/inflation/current-inflation-rates/, last accessed 3/31/2014. 
 1301 

http://www.whitehouse.gov/sites/default/files/omb/assets/omb/circulars/a076/a76_incl_te

ch_correction.pdf. 

 For the FY 2017 payment determination, we also are encouraging hospitals to 

voluntarily submit up to 16 measures electronically for the Hospital IQR Program in a 

manner that would permit eligible hospitals to partially align Hospital IQR Program 

requirements with some requirements under the Medicare EHR Incentive Program. We 

estimate that the total burden associated with the electronic clinical quality measure 

reporting option will be similar to the burden outlined for hospitals in the EHR Incentive 

Program Stage 2 final rule (77 FR 53968 through 54162). As described above for 

participation in the test of validation for electronic clinical quality metrics in the Hospital 

IQR Program, we believe an individual with commensurate skills will submit electronic 

clinical quality measures on behalf of the hospital at a rate of approximately $26.00 per 

hour. Therefore, we believe it will cost a hospital approximately $277.33 ($26.00 x 10 

hours and 40 minutes) to report 16 electronic clinical quality measures. Additional 

information about the chart abstraction burden is detailed in section II.K. of Appendix A 

to this proposed rule. 

 Previously, we required hospitals to provide 96 patient charts for validation per 

hospital per year, including 36 charts for HAI validation (with an average page length of 

1,500) and 60 charts for clinical process of care measure validation (with an average page 

length of 300) for a total of 72,000 pages per hospital per year. For the FY 2017 payment 

determination and subsequent years, we are proposing to reduce this requirement to 

72 charts per hospital per year, including 40 charts for HAI validation and 36 charts for 
 1302 

clinical process of care validation, for a total of 70,800 pages per hospital per year – a 

decrease of 1,200 pages per hospital per year. We reimburse hospitals at 12 cents per 

photocopied page (68 FR 67956 and 70 FR 23667). Therefore, the reduced burden is 

$144 per hospital for up to 600 hospitals. 

 To support validation of four HAI measures for the FY 2017 payment 

determination and subsequent years, we estimate an annual burden of 43,200 hours. This 

estimate is based on up to 600 hospitals completing HAI Templates averaging 18 hours 

per quarter over 4 quarters. This burden is 10,800 hours more than that for the FY 2016 

payment determination as finalized in the FY 2014 IPPPS/LTCH PPS final rule 

(78 FR 50822 through 50825) of 32,400 hours because the HAI measures are to be 

validated for 4 quarters instead of 3 quarters. 

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

 As discussed in section IX.B. of the preamble of this proposed rule, 

section 1866(k)(1) of the Act requires, for purposes of FY 2014 and each subsequent 

fiscal year, that a hospital described in section 1886(d)(1)(B)(v) of the Act (a PPS-exempt 

cancer hospital, or a PCH) submit data in accordance with section 1866(k)(2) of the Act 

with respect to such fiscal year. 

 In this proposed rule, we are proposing to adopt one new clinical effectiveness 

measure (External Beam Radiotherapy for Bone Metastases) for the FY 2017 program 

and subsequent years, which, if finalized, would increase the total number of measures 

for the FY 2017 PCHQR measure set to 19 measures. 
 1303 

 We also are proposing to update the specifications for the 5 previously finalized 

clinical process/oncology care measures to require PCHs to report all-patient data for 

each of these measures, and to adopt a new sampling methodology that PCHs can use to 

report these measures. Furthermore, we are proposing to require PCHs to submit 

population and sample size counts for these measures. 

 We believe that requiring PCHs to submit the proposed new clinical effectiveness 

measure data as well as the proposed sample and population size data will not prove 

burdensome. At least seven PCHs are currently reporting quality measure data (including 

population and sampling data for HCAHPS measures) on a voluntary basis to CMS. 

PCHs may also have experience submitting quality and population/sample size data to 

other entities, such as State survey agencies and The Joint Commission. As a result, we 

believe that the new reporting requirements we are proposing to adopt will not 

significantly impact PCHs. 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50957 through 50959), we 

included burden estimates for the FY 2015 and FY 2016 programs. We noted in that 

final rule that those estimates represented a worst case scenario of estimated burden. In 

this proposed rule, we are providing a revised burden estimate for FY 2016 and a burden 

estimate for FY 2017. The revised estimate for FY 2016 takes into account our proposal 

to adopt a new sampling methodology that PCHs can use to report the five clinical 

process/oncology care measures. The revised FY 2016 and new FY 2017 burden 

estimates also incorporate the sampling methodology allowed for the SCIP measures and 

HCAHPS Survey because last year’s burden reflected the “worst-case scenario” of our 
 1304 

burden estimates (78 FR 50958). The anticipated revised burden on PCHs for the 

FY 2016 program and the anticipated new burden on PCHs for the FY 2017 program 

consist of the following: new measure training and measure maintenance, as well as the 

time required for collection, aggregation, and submission of data for all measures. 

 We estimate that 11 PCHs will submit quality measure data on approximately 

37,496 cancer cases annually beginning with FY 2016 and 43,266 cancer cases annually 

beginning with FY 2017.188 In addition, we estimate that PCHs will spend 0.5 hours on 

chart abstraction and data submission per case/event, 0.5 hours on training per each new 

measure, 0.25 hours on measure maintenance per each existing measure, and a maximum 

of 5 hours summarizing and reporting population and sample size counts for the six SCIP 

measures and five oncology care measures. 

 We are reducing the burden estimates for the HCAHPS Survey, the six SCIP 

measures, and the five clinical process/oncology care measures in this proposed rule to 

take into consideration the sampling that PCHs may use for these measures. As a result, 

we estimate that the reporting burden on each PCH for the FY 2016 program will be 

18,758 hours. We estimate that the reporting burden on each PCH for FY 2017 would 

increase by 2,885 hours because PCHs would be required to report an additional quality 

measure (External Beam Radiotherapy for Bone Metastases). Therefore, we estimate the 

overall burden for all of the FY 2017 PCHQR Program requirements to be 21,643 hours 

per PCH. This FY 2017 estimate, which includes an additional proposed measure, 

 

188FY 2011 CMS MedPAR file based on Medicare data alone. 
 1305 

represents a decrease of 30,287 hours189 per PCH from the FY 2016 burden estimate that 

we published in the FY 2014 IPPS/LTCH final rule (78 FR 50957 through 50959), or an 

overall decrease of 58 percent in the number of hours for each PCH. Coupled with our 

estimated salary costs,190 this revised estimate results in a net reduction in estimated cost 

of $285,252 per PCH. We believe that this burden estimate more accurately captures the 

hour and cost impact on PCHs participating in the PCHQR Program and reflects efforts 

to minimize the burden impact through the proposed adoption of a new sampling 

methodology that PCHs can use to report the clinical process/oncology care measures. 

 However, we note that these estimates are based on PCH reporting of Medicare 

data only. We intend to update the burden estimate to more accurately reflect the burden 

to PCHs for reporting all-patient data in future years, should we adopt our proposal to use 

all-patient data. 

 We will be submitting a revision of the information collection request currently 

approved under ONC 0938-1175 to account for the aforementioned proposed changes to 

the program when they are finalized. 

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

 In section IV.I. of the preamble of this proposed rule, we discuss requirements for 

the Hospital VBP Program. Specifically, in this proposed rule, we are proposing to adopt 

three new measures for the FY 2017 Hospital VBP Program: (1) Methicillin-Resistant 

Staphylococcus aureus (MRSA) Bacteremia; (2) Clostridium difficile are measures of 

 

189Represents the difference between previous burden estimate (51,930 hours) in the FY 2014 IPPS/LTCH 

PPS final rule (78 FR 50958) and current burden estimate (21,643 hours). 190We are now estimating an hourly salary of $33 (http://swz.salary.com/salarywizard/Staff-Nurse-RNHourly-Salary-Details.aspxper). After accounting for employee benefits and overhead, this results in a total 

cost of $66 per labor hour. 
 1306 

healthcare-associated infections reported via the CDC’s National Healthcare Safety 

Network; and (3) PC-01: Elective Delivery Prior to 39 Completed Weeks Gestation is a 

chart-abstracted measure. We also are proposing to adopt Hospital-level RiskStandardized Complication Rate (RSCR) Following Elective Primary Total Hip 

Arthroplasty (THA) and Total Knee Arthroplasty (TKA) for the FY 2019 Hospital VBP 

Program. 

 As provided for in section 1886(o)(2)(A) of the Act, all of these additional 

measures are required for the Hospital IQR Program. Therefore, their inclusion in the 

Hospital VBP Program does not result in any additional burden because the Hospital 

VBP Program uses data that are required for the Hospital IQR Program. 

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

 As discussed in sections IX.C.3. through IX.C.5. of the preamble of this proposed 

rule, for the LTCHQR Program, for the FY 2015 payment determination and subsequent 

years, we are retaining the following three quality measures: (1) National Healthcare 

Safety Network (NHSN) Catheter-Associated Urinary Tract Infections (CAUTI) 

Outcome Measure (NQF #0138); (2) National Healthcare Safety Network (NHSN) 

Central Line Catheter-Associated Blood Stream Infection Event (CLABSI) Outcome 

Measure (NQF #0139); and (3) and Percent of Residents or Patients with Pressure Ulcers 

That Are New or Worsened (Short-Stay) (NQF #0678). For the FY 2016 payment 

determination and subsequent years, we are retaining the following two measures in 

addition to the measures finalized for previous years: (1) Percent of Residents or Patients 

Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short-
 1307 

Stay) (NQF #0680); and (2) Influenza Vaccination Coverage among Healthcare 

Personnel (NQF #0431). For the FY 2017 payment determination and subsequent years, 

we are retaining the following three measures in addition to the measures finalized for 

previous years: (1) National Health Safety Network (NHSN) Facility-Wide Inpatient 

Hospital-Onset Methicillin-resistant Staphylococcus aureus (MRSA) Bacteremia 

Outcome Measure (NQF #1716); (2) National Health Safety Network (NHSN) 

Facility-Wide Inpatient Hospital-Onset Clostridium Difficile Infection (CDI) Outcome 

Measure (NQF #1717); and (3) All-Cause Unplanned Readmission Measure for 30 Days 

Post-Discharge from Long-Term Care Hospitals. For the FY 2018 payment 

determination and subsequent years, we are retaining the following measure in addition 

to the measures finalized for previous years: Application of Percent of Residents 

Experiencing One or More Falls with Major Injury (Long Stay) (NQF #0674). 

 As discussed in section IX.C.7.of the preamble of this proposed rule, we are 

proposing three new quality measures for inclusion in the LTCHQR Program for the 

FY 2018 payment determination and subsequent years: (1) Percent of Long-Term Care 

Hospital Patients with an Admission and Discharge Functional Assessment and a Care 

Plan That Addresses Function; (2) Functional Outcome Measure: Change in Mobility 

among Long-Term Care Hospital Patients Requiring Ventilator Support; and (3) National 

Healthcare Safety Network (NHSN) Ventilator-Associated Event (VAE) Outcome 

Measure. 

 Six of the previously adopted and newly proposed measures either will or would 

be collected via the NHSN. The NHSN is a secure, Internet-based healthcare-associated 
 1308 

infection (HAI) tracking system maintained and managed by the CDC. The NHSN 

enables health care facilities to collect and use data about HAIs, adherence to clinical 

practices known to prevent HAIs, and other adverse events within their organizations. 

NHSN data collection occurs via a Web-based tool hosted by the CDC and provided free 

of charge to facilities. We believe that any burden increase related to complying with the 

submission of the proposed NHSN VAE Outcome Measure would be minimal because 

LTCHs have already completed the initial setup of the NHSN submission process and 

have become familiar with reporting data in the NHSN system due to the requirement to 

report CAUTI and CLABSI measures. While this requirement is subject to the PRA, we 

believe that the associated burden is approved under OMB control number 0920-0666, 

for those measures previously finalized, with an expiration date of November, 31, 2016. 

 The All-Cause Unplanned Readmission Measure for 30 Days Post-Discharge 

from Long-Term Care Hospitals is a Medicare claims-based measure. Because 

claims-based measures can be calculated based on data that are already reported to the 

Medicare program for payment purposes, we believe that this measure will not add any 

additional reporting burden for LTCHs. 

 The remaining five previously adopted and newly proposed measures either will 

or would be collected utilizing the LTCH CARE Data Set. The LTCH CARE Data Set, 

in its current form, has been approved under OMB control number 0938-1163. Additions 

will need to be made to the LTCH CARE Data Set in order to allow for collection of the 

two functional status measures we are proposing in section IX.C.7.a. of the preamble of 

this proposed rule: (1) Percent of Long-Term Care Hospital Patients with an Admission 
 1309 

and Discharge Functional Assessment and a Care Plan That Addresses Function; and 

(2) Functional Outcome Measure: Change in Mobility among Long-Term Care Hospital 

Patients Requiring Ventilator Support. The revised data collection will be resubmitted to 

OMB for approval. While this requirement is subject to the PRA, we believe the 

associated burden is either approved under OMB control number 0938-1163, for those 

measures previously finalized, with an expiration date of June 30, 2016, or will be 

contained in the updated information collection request. 

 Assuring data accuracy is vital to public reporting programs. In section IX.C.11. 

of the preamble of this proposed rule, we are proposing, for the FY 2016 payment 

determination and subsequent years, to validate data submitted to CMS on the LTCH 

CARE Data Set by requesting that a statistically valid random sample of 260 LTCHs 

copy and send portions of five patient charts each from a given CY (for a total of portions 

of 1,300 LTCH patient charts) to a CMS validation contractor. We are proposing that the 

specific portions of the patient charts would be identified in the written request, but may 

include the following sections, which are listed with our estimated number of pages for 

each: first 3 days of nurses’ notes would be approximately 15 pages; the last 3 days of 

nurses’ notes would be approximately 10 pages; the physician, physician’s assistant, or 

nurse practitioner’s admission history and physical would be approximately 30 pages; the 

physician, physician’s assistant, or nurse practitioner’s discharge summary would be 

approximately 15 pages; the nurses’ admission database would be approximately 40 

pages; pressure ulcer assessments will would approximately 30 pages; physician’s 

progress notes would be approximately 30 pages; physician’s orders would be 
 1310 

approximately 30 pages; and laboratory reports would be approximately 70 pages. We 

estimate the total submission to be no more than 270 pages in length. We estimate that 

1,300 charts will allow us to validate data submitted to CMS with an estimated reliability 

of 70 percent, with a 5-percent margin of error, at a 95-percent confidence level. 

Although charts will be randomly selected, we are proposing to limit the request to 

specific portions of five charts per LTCH. 

10. Electronic Health Record (EHR) Incentive Program and Meaningful Use (MU) 

 In section IX.D. of the preamble of this proposed rule, we are proposing to align 

the Medicare EHR Incentive Program reporting and submission timelines for clinical 

quality measures for eligible hospitals and CAHs with the Hospital IQR Program’s 

reporting and submission timelines. In addition, we provide guidance and clarification of 

certain policies for reporting zero denominators on clinical quality measures and our 

policy on case threshold exemptions. Because these proposals for data collection would 

align with the reporting requirements in place for the Hospital IQR Program, we do not 

believe there is any additional burden for this collection of information. 

11. ICR Regarding Proposed Revision of Regulations Governing Use and Release of 

Medicare Advantage (MA) Risk Adjustment Data (§ 422.310(f)) 

 Medicare Advantage (MA) organizations are required to submit risk adjustment 

data to CMS organizations under current authority at § 422.310(b) through (d). The 

proposed changes we are proposing to make to the use and release of MA risk adjustment 

data under section X. of the preamble of this proposed rule provision do not change the 

requirements on MA organizations for submission of information to CMS, which have 
 1311 

been in place for several years. Therefore, this proposal does not impose new 

information collection requirements on MA organizations. Consequently, because there 

are no new information collection requirements in our proposal, the proposal does not 

require a review by OMB under the authority of the Paperwork Reduction Act of 1995. 

If you comment on these information collection and recordkeeping requirements, 

please submit your comments electronically as specified in the ADDRESSES section of 

this proposed rule. 

 

C. Response to Public Comments 

 Because of the large number of public comments we normally receive on Federal 

Register documents, we are not able to acknowledge or respond to them individually. 

We will consider all public comments we receive by the date and time specified in the 

DATES section of this preamble, and, when we proceed with a subsequent document, we 

will respond to the public comments in the preamble of that document.
 1312 

List of Subjects 

42 CFR Part 405

 Administrative practice and procedure, Health facilities, Health professions, 

Kidney diseases, Medicare, Reporting and recordkeeping, rural areas, X-rays. 

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 422 

 Administrative practice and procedure, Health facilities, Health maintenance, 

organizations (HMO), Medicare, Penalties, Privacy, Reporting and recordkeeping 

requirements. 

42 CFR Part 424 

 Emergency medical services, Health facilities, Health professions, Medicare. 

42 CFR Part 485 

 Grant programs—health, Health facilities, Medicaid, Medicare, Reporting and 

recordkeeping requirements. 
 1313 

42 CFR Part 488 

 Administrative practice and procedure, Health facilities, Medicare, Reporting and 

recordkeeping requirements. 

For the reasons stated in the preamble of this proposed rule, the Centers for 

Medicare & Medicaid Services is proposing to amend 42 CFR Chapter IV as set forth 

below:

Title 42—Public Health 

PART 405—FEDERAL HEALTH INSURANCE FOR THE AGED AND 

DISABLED 

Subpart R—Provider Reimbursement Determinations and Appeals 

 1. The authority citation for Subpart R is revised to read as follows: 

 Authority: Secs. 205, 1102, 1814(b), 1815(a), 1816, 1833, 1861(v), 1871, 1872, 

1874A, 1878, and 1886 of the Social Security Act (42 U.S.C. 405, 1302, 1395f(b), 

1395g(a), 1395l, 1395x(v), 1395hh, 1395ii, 1395oo, and 1395ww). 

 2. Section 405.1801 is amended by— 

 a. Removing the definition of “Intermediary determination” under paragraph (a). 

 b. Adding in alphabetical order a new definition of “Medicare Administrative 

Contractor determination (contractor determination)” under paragraph (a). 

 c. Revising paragraph (b)(1). 

 The additions and revisions read as follows: 

§ 405.1801 Introduction. 

(a) * * * 
 1314 

Medicare Administrative Contractor determination (contractor determination) 

means the following: 

 (1) With respect to a provider of services that has filed a cost report under 

§§ 413.20 and 413.24 of this chapter, the term means a final determination of the amount 

of total reimbursement due the provider, pursuant to § 405.1803 following the close of 

the provider’s cost reporting period, for items and services furnished to beneficiaries for 

which reimbursement may be made on a reasonable cost basis under Medicare for the 

period covered by the cost report. 

 (2) With respect to a hospital that receives payments for inpatient hospital 

services under the prospective payment system (part 412 of this chapter), the term means 

a final determination of the total amount of payment due the hospital, pursuant to 

§ 405.1803 following the close of the hospital’s cost reporting period, under that system 

for the period covered by the final determination. 

 (3) For purposes of appeal to the Provider Reimbursement Review Board, the 

term is synonymous with the phrases “intermediary's final determination,” “final 

determination of the organization serving as its fiscal intermediary,” “Secretary’s final 

determination” and “final determination of the Secretary”, as those phrases are used in 

section 1878(a) of the Act, and with the phrases “final Medicare administrative contractor 

determination, ” “final contractor determination”, and “final Secretary determination” as 

those phrases are used in this subpart. 

 (4) For purposes of § 405.376 concerning claims collection activities, the term 

does not include an action by CMS with respect to a compromise of a Medicare 
 1315 

overpayment claim, or termination or suspension of collection action on an overpayment 

claim, against a provider or physician or other supplier. 

* * * * * 

 (b) * * *(1) Providers. In order to be paid for covered services furnished to 

Medicare beneficiaries, a provider must file a cost report with its contractor as specified 

in § 413.24 of this chapter. For purposes of this subpart, the term ‘‘provider’’ includes a 

hospital (as described in part 482 of this chapter), hospice program (as described in 

§ 418.3 of this chapter), critical access hospital (CAH), comprehensive outpatient 

rehabilitation facility (CORF), renal dialysis facility, Federally qualified health center 

(FQHC), home health agency (HHA), rural health clinic (RHC), skilled nursing facility 

(SNF), and any other entity included under the Act. (FQHCs and RHCs are providers, 

for purposes of this subpart, effective with cost reporting periods beginning on or after 

October 1, 1991). 

* * * * * 

 3. Section 405.1803 is amended by revising the section heading and paragraph 

(a) introductory text to read as follows: 

§ 405.1803 Contractor determination and notice of amount of program 

reimbursement. 

(a) General requirement. Upon receipt of a provider’s cost report, or amended 

cost report where permitted or required, the contractor must within a reasonable period of 

time (as described in § 405.1835(a)(2)(ii)), furnish the provider and other parties as 

appropriate (see § 405.1805) a written notice reflecting the contractor’s final 
 1316 

determination of the total amount of reimbursement due the provider. The contractor 

must include the following information in the notice, as appropriate: 

* * * * * 

 4. Section 405.1811 is amended by— 

 a. Revising the section heading. 

 b. Revising paragraph (a). 

 c. Revising paragraph (b) introductory text and paragraphs (b)(1) and (b)(2). 

 d. Revising paragraphs (c)(1), (c)(2), and (c)(3). 

 The revisions read as follows: 

§ 405.1811 Right to contractor hearing; contents of, and adding issues to, hearing 

request. 

 (a) Right to a contractor hearing on final contractor determination. A provider 

(but no other individual, entity, or party) has a right to a contractor hearing, as a single 

provider appeal, for specific items claimed for a cost reporting period that is subject to a 

final contractor or Secretary determination if— 

 (1) The amount in controversy (as determined in accordance with §405.1839) is 

at least $1,000 but less than $10,000; and 

 (2) Unless the provider qualifies for a good cause extension under § 405.1813, 

the date of receipt by the contractor of the provider's hearing request is— 

 (i) No later than 180 days after the date of receipt by the provider of the final 

contractor or Secretary determination; or 
 1317 

 (ii) If the final contractor determination is not issued (through no fault of the 

provider) within 12 months of the date of receipt by the contractor of the provider's 

perfected cost report or amended cost report (as specified in § 413.24(f) of this chapter), 

no later than 180 days after the expiration of the 12-month period for issuance of the final 

contractor determination. The date of receipt by the contractor of the provider's perfected 

cost report or amended cost report is presumed to be the date the contractor stamped 

“Received” unless it is shown by a preponderance of the evidence that the contractor 

received the cost report on an earlier date. 

 (b) Contents of request for a contractor hearing. The provider’s request for a 

contractor hearing must be submitted in writing to the contractor, and the request must 

include the elements described in paragraphs (b)(1) through (b)(3) of this section. If the 

provider submits a hearing request that does not meet the requirements of paragraph 

(b)(1), (b)(2), or (b)(3) of this section, the contractor hearing officer may dismiss with 

prejudice the appeal, or take any other remedial action he or she considers appropriate. 

 (1) A demonstration that the provider satisfies the requirements for a contractor 

hearing as specified in paragraph (a) of this section, including a specific identification of 

the final contractor or Secretary determination under appeal. 

 (2) For each specific item under appeal, a separate explanation of why, and a 

description of how, the provider disagrees with the specific aspects of the final 

contractor or Secretary determination under appeal, including an account of all of the 

following: 
 1318 

 (i) Why the provider believes Medicare payment is incorrect for each disputed 

item (or, where applicable, why the provider is unable to determine whether Medicare 

payment is correct because it allegedly does not have access to underlying information 

concerning the calculation of its payment); 

 (ii) How and why the provider believes Medicare payment should be determined 

differently for each disputed item; and 

 (iii) If the provider self-disallows a specific item (as specified in § 413.24(j) of 

this chapter), an explanation of the nature and amount of each self-disallowed item, the 

reimbursement sought for the item, and why the provider self-disallowed the item instead 

of claiming reimbursement for the item. 

* * * * * 

 (c) * * * 

 (1) The request to add issues complies with the requirements of paragraphs (a) 

and (b) of this section as to each new specific item at issue. 

 (2) The specific items raised in the initial hearing request and the specific matters 

identified in subsequent requests to add issues, when combined, satisfy the requirements 

of paragraph (a)(1) of this section. 

 (3) The contractor hearing officer receives the requests to add issues no later than 

60 days after the expiration of the applicable 180-day period prescribed in paragraph 

(a)(2) of this section. 
 1319 

§ 405.1813 [Amended] 

 5. In § 405.1813, paragraphs (a) and (b) are amended by removing the 

cross-reference “§ 405.1811(a)(3)” and adding in its place the cross-reference 

“§ 405.1811(a)(2)”. 

§ 405.1814 [Amended] 

 6. Section 405.1814 is amended by removing paragraph (b)(3). 

 7. A new § 405.1832 is added to read as follows: 

§ 405.1832 Contractor hearing officer review of compliance with the substantive 

reimbursement requirement of an appropriate cost report claim. 

 (a) General. In order to receive or potentially qualify for reimbursement for a 

specific item, the provider must include in its cost report an appropriate claim for the 

specific item (as prescribed in § 413.24(j) of this chapter). If the provider files an appeal 

to the contractor seeking reimbursement for a specific item and any party to such appeal 

questions whether the provider’s cost report included an appropriate claim for the specific 

item, the contractor hearing officer(s) must address such questions in accordance with the 

procedures set forth in this section. 

 (b) Summary of procedures. (1) Preliminary steps. The contractor hearing 

officer(s) must give each party to the appeal an adequate opportunity to submit factual 

evidence and legal argument regarding the question of whether the provider’s cost report 

included an appropriate claim for the specific item under appeal. Upon receipt of timely 

submitted factual evidence and legal argument (if any), the contractor hearing officer(s) 

must review such evidence and argument, and prepare written specific findings of fact 
 1320 

and conclusions of law on the question of whether the provider’s cost report complied 

with, for the specific item under appeal, the cost report claim requirements prescribed in 

§ 413.24(j) of this chapter. In reaching such specific factual findings and legal 

conclusions, the contractor hearing officer(s) must follow the procedures set forth in 

§ 413.24(j)(3) of this chapter for determining whether the provider’s cost report included 

an appropriate claim for the specific item under appeal. The contractor hearing officer(s) 

must promptly give a copy of such written specific factual findings and legal conclusions 

to each party to the appeal, and such factual findings and legal conclusions must be 

included in the record of administrative proceedings for the appeal (as prescribed in 

§ 405.1827). 

 (2) Limits on contractor hearing officer(s) actions. The contractor hearing 

officer(s)’s specific findings of fact and conclusions of law (pursuant to paragraph (b)(1) 

of this section) must not be invoked or relied on by the contractor hearing officer(s) as a 

basis to deny, or decline to exercise, jurisdiction over a specific item or take any other of 

the actions specified in paragraph (c) of this section. Upon giving the parties to the 

appeal the contractor hearing officer(s)’s written specific factual findings and legal 

conclusions (pursuant to paragraph (b)(1) of this section) on the question of whether the 

provider’s cost report included an appropriate cost report claim for the specific item 

under appeal, the contractor hearing officer(s) must proceed to issue one of the two types 

of overall decisions specified in paragraphs (d) and (e) of this section with respect to the 

specific item. If the contractor hearing officer(s) issues an overall contractor hearing 

decision (as specified in paragraph (d) of this section) regarding the specific item under 
 1321 

appeal, the contractor hearing officer(s)’s written specific factual findings and legal 

conclusions (pursuant to paragraph (b)(1) of this section) must be included in such 

overall contractor hearing decision regarding the specific item, along with the other 

matters that are required by the regulations for an overall contractor hearing decision. 

However, if the contractor hearing officer(s) issues an overall jurisdictional dismissal 

decision (as specified in paragraph (e) of this section) regarding the specific item under 

appeal, the contractor hearing officer(s)’s written specific factual findings and legal 

conclusions (pursuant to paragraph (b)(1) of this section) must not be included in the 

overall jurisdictional dismissal decision regarding the specific item. The contractor 

hearing officer(s) may permit reimbursement for the specific item under appeal, as part of 

an overall contractor hearing decision, but such reimbursement may be permitted only to 

the extent authorized by paragraph (f) of this section. 

 (c) Prohibition of certain types of decisions, orders, and other actions. (1) If the 

contractor hearing officer(s) determines, in its findings of fact and conclusions of law (as 

prescribed by paragraph (b)(1) of this section), that the provider’s cost report did not 

include an appropriate claim for the specific item under appeal, the contractor hearing 

officer(s) may not-- 

 (i) Deny jurisdiction over the specific item under appeal, based on (in whole or in 

part) the contractor hearing officer(s)’s factual findings and legal conclusions (reached 

under paragraph (b)(1) of this section); 
 1322 

 (ii) Decline to exercise jurisdiction over the specific item under appeal, based on 

(in whole or in part) the contractor hearing officer(s)’s factual findings and legal 

conclusions (reached under paragraph (b)(1) of this section); or 

 (iii) Impose any sanction or take any other action against the interests of any 

party to the appeal except as provided in paragraph (f) of this section, based on (in whole 

or in part) the contractor hearing officer(s)’s factual findings and legal conclusions 

(reached under paragraph (b)(1) of this section). 

 (2) Regardless of whether the contractor hearing officer(s) determines, in its 

findings of fact and conclusions of law (as prescribed by paragraph (b)(1) of this section), 

that the provider’s cost report did or did not include an appropriate claim for the specific 

item under appeal, the contractor hearing officer(s) may not-- 

 (i) Deny jurisdiction over the specific item under appeal, based on (in whole or in 

part) the absence, in the final contractor or Secretary determination under appeal, of an 

adjustment, revision, correction, or other change to the specific item under appeal, or the 

lack of a particular determination by the contractor or the Secretary regarding the specific 

item. Exception: If the provider’s appeal of the specific item is based on a reopening of 

such item (pursuant to § 405.1885) where the specific item is not revised, adjusted, 

corrected, or otherwise changed in a revised final contractor or Secretary determination, 

the contractor must deny jurisdiction over the specific item under appeal (as prescribed in 

§§ 405.1887(d) and 405.1889(b)); 

 (ii) Decline to exercise jurisdiction over the specific item under appeal, based on 

(in whole or in part) the absence, in the final contractor or Secretary determination under 
 1323 

appeal, of an adjustment, revision, correction, or other change to the specific item under 

appeal, or the lack of a particular determination by the contractor or the Secretary 

regarding the specific item; or 

 (iii) Impose any sanction or take any other action against the interests of any 

party to the appeal except as provided in paragraph (f) of this section, based on (in whole 

or in part) the absence, in the final contractor or Secretary determination under appeal, of 

an adjustment, revision, correction, or other change to the specific item under appeal, or 

the lack of a particular determination by the contractor or the Secretary regarding the 

specific item. 

 (d) Contractor hearing decision must include any factual findings and legal 

conclusions under paragraph (b)(1) of this section. If the contractor hearing officer(s) 

issues a hearing decision regarding the specific item under appeal (pursuant to 

§ 405.1831), any specific findings of fact and conclusions of law by the contractor 

hearing officer(s) (reached under paragraph (b)(1) of this section), on the question of 

whether the provider’s cost report included an appropriate claim for the specific item, 

must be included in such hearing decision along with the other matters prescribed by 

§ 405.1831. The contractor hearing officer(s)’s factual findings and legal conclusions 

(reached under paragraph (b)(1) of this section) about whether there was an appropriate 

cost report claim for the specific item under appeal are subject to the provisions of 

§ 405.1833 just as those provisions apply to the other parts of the contractor hearing 

decision. If the contractor hearing officer(s) determines that the provider’s cost report-- 
 1324 

 (1) Included an appropriate claim for the specific item under appeal (as 

prescribed in § 413.24(j) of this chapter), the contractor hearing decision must also 

address whether the other substantive reimbursement requirements for the specific item 

are also satisfied; or 

 (2) Did not include an appropriate claim for the specific item under appeal, the 

contractor hearing officer(s) has discretion whether or not to address in the contractor 

hearing decision whether the other substantive reimbursement requirements for the 

specific item are also satisfied. 

 (e) Contractor jurisdictional dismissal decision must not include factual findings 

and legal conclusions under paragraph (b)(1) of this section. If the contractor hearing 

officer(s) issues a jurisdictional dismissal decision regarding the specific item under 

appeal (pursuant to § 405.1814(c)), the contractor hearing officer(s)’s specific findings of 

fact and conclusions of law (reached under paragraph (b)(1) of this section) on the 

question of whether the provider’s cost report included an appropriate claim for the 

specific item must not be included in such jurisdictional dismissal decision. 

 (f) Effects of the contractor hearing officer(s)’s factual findings and legal 

conclusions under paragraph (b)(1) of this section when part of a final contractor hearing 

decision. If the contractor hearing officer(s) determines, as part of a final and binding 

contractor hearing decision (pursuant to § 405.1833 and paragraphs (b)(1) and (d) of this 

section), that the provider’s cost report-- 

 (1) Included an appropriate claim for the specific item under appeal (as 

prescribed in § 413.24(j) of this chapter), the specific item is reimbursable in accordance 
 1325 

with Medicare policy, but only if the contractor hearing officer(s) further determines in 

such final contractor hearing decision that all the other substantive reimbursement 

requirements for the specific item are also satisfied; or 

 (2) Did not include an appropriate cost report claim for the specific item under 

appeal, then the specific item is not reimbursable, regardless of whether the contractor 

hearing officer(s) further determines in such final contractor hearing decision that the 

other substantive reimbursement requirements for the specific item are or are not 

satisfied. 

 8. Section 405.1834 is amended by adding a new paragraph (b)(2)(iii) to read as 

follows: 

§405.1834 CMS reviewing official procedure. 

* * * * * 

 (b) * * * 

 (2) * * * 

 (iii) If the CMS reviewing official reviews an contractor hearing decision 

regarding a specific item, the CMS reviewing official’s review of such a contractor 

hearing decision will include, and any decision issued by the CMS reviewing official 

(under paragraph (e) of this section) will address, the contractor hearing officer(s)’s 

specific findings of fact and conclusions of law in such contractor hearing decision (as 

prescribed in § 405.1832(b)(1) and (d)) on the question of whether the provider’s cost 

report included an appropriate claim for the specific item under appeal (as prescribed in 

§ 413.24(j) of this chapter). 
 1326 

* * * * * 

 9. Section 405.1835 is amended by-- 

 a. Revising paragraph (a). 

 b. Revising paragraphs (b)(1), (b)(2) introductory text, and (b)(2)(iii). 

 c. Revising paragraphs (c)(1), (c)(2), and (c)(3). 

 The revisions read as follows: 

§ 405.1835 Right to Board hearing; contents of, and adding issues to, hearing 

request. 

 (a) Right to hearing on final contractor determination. A provider (but no other 

individual, entity, or party) has a right to a Board hearing, as a single provider appeal, for 

specific items claimed in its cost report for a cost reporting period that is subject to a final 

contractor or Secretary determination, if— 

 (1) The amount in controversy (as determined in accordance with § 405.1839) is 

$10,000 or more; and 

 (2) Unless the provider qualifies for a good cause extension under § 405.1836, 

the date of receipt by the Board of the provider’s hearing request is— 

 (i) No later than 180 days after the date of receipt by the provider of the final 

contractor or Secretary determination; or 

 (ii) If the final contractor determination is not issued (through no fault of the 

provider) within 12 months of the date of receipt by the contractor of the provider’s 

perfected cost report or amended cost report (as specified in § 413.24(f) of this chapter), 

no later than 180 days after the expiration of the 12-month period for issuance of the final 
 1327 

contractor determination. The date of receipt by the contractor of the provider’s 

perfected cost report or amended cost report is presumed to be the date the contractor 

stamped “Received” unless it is shown by a preponderance of the evidence that the 

contractor received the cost report on an earlier date. 

 (b) * * * 

 (1) A demonstration that the provider satisfies the requirements for a Board 

hearing as specified in paragraph (a) of this section, including a specific identification of 

the final contractor or Secretary determination under appeal. 

 (2) For each specific item under appeal, a separate explanation of why, and a 

description of how, the provider disagrees with the specific aspects of the final contractor 

or Secretary determination under appeal, including an account of all of the following: 

* * * * * 

 (iii) If the provider self-disallows a specific item (as specified in § 413.24(j) of 

this chapter), an explanation of the nature and amount of each self-disallowed item, the 

reimbursement sought for the item, and why the provider self-disallowed the item instead 

of claiming reimbursement for the item. 

* * * * * 

 (c) * * * 

 (1) The request to add issues complies with the requirements of paragraphs (a) 

and (b) of this section as to each new specific item at issue. 
 1328 

 (2) The specific items raised in the initial hearing request and the specific items 

identified in subsequent requests to add issues, when combined, satisfy the requirements 

of paragraph (a)(2) of this section. 

 (3) The Board receives the request to add issues no later than 60 days after the 

expiration of the applicable 180-day period prescribed in paragraph (a)(2) of this section. 

§ 405.1836 [Amended]

 10. In § 405.1836, paragraphs (a) and (b) are amended by removing the 

cross-reference “§ 405.1835(a)(3)” and adding in its place the cross-reference 

“§405.1835(a)(2)”. 

 11. Section 405.1837 is amended by revising paragraphs (a)(1), (c)(2) 

introductory text, (c)(2)(iii) and (e)(4) to read as follows: 

§ 405.1837 Group appeals. 

(a) * * * 

(1) The provider satisfies individually the requirements for a Board hearing under 

§ 405.1835(a)(1); 

* * * * * 

 (c) * * * 

 (2) An explanation (for each specific item at issue) of each provider's 

disagreement with its final contractor or Secretary determination under appeal, including 

an account of— 

* * * * * 
 1329 

 (iii) If the provider self-disallows a specific item (as specified in § 413.24(j) of 

this chapter), an explanation of the nature and amount of each self-disallowed item, the 

reimbursement sought for the item, and why the provider self-disallowed the item instead 

of claiming reimbursement for the item. 

* * * * * 

 (e) * * * 

 (4) A provider may submit a request to the Board to join a group appeal any time 

before the Board issues one of the decisions specified in § 405.1875(a)(1). By submitting 

a request, the provider agrees that, if the request is granted, the provider is bound by the 

Board’s actions and decision in the appeal. If the Board denies a request, the Board’s 

action is without prejudice to any separate appeal the provider may bring in accordance 

with § 405.1811, § 405.1835, or this section. For purposes of determining timeliness for 

the filing of any separate appeal and for the adding of issues to such appeal, the date of 

receipt of the provider’s request to form or join the group appeal is considered the date of 

receipt for purposes of meeting the applicable 180-day period prescribed in 

§ 405.1835(a)(2). 

* * * * * 

§ 405.1839 [Amended]

 12. In 405.1839, paragraph (a)(1) is amended by removing the cross-reference 

“§ 405.1811(a)(2) of this subpart” and adding in its place the cross-reference 

“§405.1811(a)(1)”; and by removing the cross-reference “§ 405.1835(a)(2) of this 

subpart” and adding in its place the cross-reference “§405.1835(a)(1)”. 
 1330 

§ 405.1840 [Amended] 

 13. Section 405.1840 is amended by removing paragraph (b)(3). 

 14. A new § 405.1873 is added to read as follows: 

§ 405.1873 Board review of compliance with the reimbursement requirement of an 

appropriate cost report claim. 

 (a) General. In order to receive or potentially receive reimbursement for a 

specific item, the provider must include in its cost report an appropriate claim for the 

specific item (as prescribed in § 413.24(j) of this chapter). If the provider files an appeal 

to the Board seeking reimbursement for the specific item and any party to such appeal 

questions whether the provider’s cost report included an appropriate claim for the specific 

item, the Board must address such question in accordance with the procedures set forth in 

this section. 

 (b) Summary of procedures. (1) Preliminary steps. The Board must give the 

parties an adequate opportunity to submit factual evidence and legal argument regarding 

the question of whether the provider’s cost report included an appropriate claim for the 

specific item under appeal. Upon receipt of timely submitted factual evidence or legal 

argument (if any), the Board must review such evidence and argument and prepare 

written specific findings of fact and conclusions of law on the question of whether the 

provider’s cost report complied with, for the specific item under appeal, the cost report 

claim requirements prescribed in § 413.24(j) of this chapter. In reaching such specific 

factual findings and legal conclusions, the Board must follow the procedures set forth in 

§ 413.24(j)(3) of this chapter for determining whether the provider’s cost report included 
 1331 

an appropriate claim for the specific item under appeal. The Board must promptly give a 

copy of such written specific factual findings and legal conclusions to each party to the 

appeal, and such factual findings and legal conclusions must be included in the record of 

administrative proceedings for the appeal (as prescribed in § 405.1865). 

 (2) Limits on Board actions. The Board’s specific findings of fact and 

conclusions of law (pursuant to paragraph (b)(1) of this section) must not be invoked or 

relied on by the Board as a basis to deny, or decline to exercise, jurisdiction over a 

specific item or take any other of the actions specified in paragraph (c) of this section. 

Upon giving the parties to the appeal the Board’s written specific factual findings and 

legal conclusions (pursuant to paragraph (b)(1) of this section) on the question of whether 

the provider’s cost report included an appropriate cost report claim for the specific item 

under appeal, the Board must proceed to issue one of the four types of overall decisions 

specified in paragraphs (d) and (e) of this section with respect to the specific item. If the 

Board issues either of two types of overall Board decisions (as specified in paragraph (d) 

of this section) regarding the specific item under appeal, the Board’s written specific 

factual findings and legal conclusions (pursuant to paragraph (b)(1) of this section) must 

be included in such overall Board decision regarding the specific item, along with the 

other matters that are required by the regulations for the pertinent type of overall Board 

decision. However, if the Board issues either of two other types of overall Board 

decisions (as specified in paragraph (e) of this section) regarding the specific item under 

appeal, the Board’s written specific factual findings and legal conclusions (pursuant to 

paragraph (b)(1) of this section) must not be included in the overall Board decision 
 1332 

regarding the specific item. The Board may permit reimbursement for the specific item 

under appeal, as part of one of the two types of overall Board decisions that are specified 

in paragraph (d) of this section, but such reimbursement may be permitted only to the 

extent authorized by paragraph (f) of this section. 

 (c) Prohibition of certain types of decisions, orders, and other actions. (1) If the 

Board determines, in its findings of fact and conclusions of law (as prescribed by 

paragraph (b)(1) of this section), that the provider’s cost report did not include an 

appropriate claim for the specific item under appeal, the Board may not-- 

 (i) Deny jurisdiction over the specific item under appeal, based on (in whole or in 

part) the Board’s factual findings and legal conclusions (reached under paragraph (b)(1) 

of this section); 

 (ii) Decline to exercise jurisdiction over the specific item under appeal, based on 

(in whole or in part) the Board’s factual findings and legal conclusions (reached under 

paragraph (b)(1) of this section); or 

 (iii) Take any of the actions set forth in § 405.1868(b), (c), or (d), impose any 

sanction, or take any other action against the interests of any party to the appeal, except 

as provided in paragraph (f) of this section, based on (in whole or in part) the Board’s 

factual findings and legal conclusions (reached under paragraph (b)(1) of this section). 

 (2) Regardless of whether the Board determines, in its findings of fact and 

conclusions of law (as prescribed by paragraph (b)(1) of this section), that the provider’s 

cost report did or did not include an appropriate claim for the specific item under appeal, 

the Board may not-- 
 1333 

 (i) Deny jurisdiction over the specific item under appeal, based on (in whole or in 

part) the absence, in the final contractor determination or Secretary determination under 

appeal, of an adjustment, revision, correction, or other change to the specific item under 

appeal, or the lack of a particular determination by the contractor or the Secretary 

regarding the specific item. Exception : If the provider’s appeal of the specific item is 

based on a reopening of such item (pursuant to § 405.1885) where the specific item is not 

revised, adjusted, corrected, otherwise changed in a revised final contractor or Secretary 

determination, the Board must deny jurisdiction over the specific item under appeal (as 

prescribed in §§ 405.1887(d) and 405.1889(b)); 

 (ii) Decline to exercise jurisdiction over the specific item under appeal, based on 

(in whole or in part) the absence, in the final contractor determination or Secretary 

determination under appeal, of an adjustment, revision, correction, or other change to the 

specific item under appeal, or the lack of a particular determination by the contractor or 

the Secretary regarding the specific item; or 

 (iii) Take any of the actions set forth in § 405.1868(b), (c), or (d), impose any 

sanction, or take any other action against the interests of any party to the appeal, except 

as provided in paragraph (f) of this section, based on (in whole or in part) the absence, in 

the final contractor determination or Secretary determination under appeal, of an 

adjustment, revision, correction, or other change to the specific item under appeal, or the 

lack of a particular determination by the contractor or the Secretary regarding the specific 

item. 
 1334 

 (d) Two types of Board decisions that must include any factual findings and legal 

conclusions under paragraph (b)(1) of this section. (1) Board hearing decision. If the 

Board issues a hearing decision regarding the specific item under appeal (pursuant to 

§ 405.1871), any specific findings of fact and conclusions of law by the Board (reached 

under paragraph (b)(1) of this section), on the question of whether the provider’s cost 

report included an appropriate claim for the specific item, must be included in such 

hearing decision along with the other matters prescribed by § 405.1871(a). The Board’s 

factual findings and legal conclusions (reached under paragraph (b)(1) of this section), 

about whether there was an appropriate cost report claim for the specific item under 

appeal, are subject to the provisions of § 405.1871(b) just as those provisions apply to the 

other parts of the Board’s hearing decision. If the Board determines that the provider’s 

cost report— 

 (i) Included an appropriate claim for the specific item under appeal (as prescribed 

in § 413.24(j) of this chapter), the Board’s hearing decision must also address whether the 

other substantive reimbursement requirements for the specific item are also satisfied; or 

 (ii) Did not include an appropriate claim for the specific item under appeal, the 

Board has discretion whether or not to address in the Board’s hearing decision whether 

the other substantive reimbursement requirements for the specific item are also satisfied. 

 (2) Board expedited judicial review (EJR) decision, where EJR is granted. If the 

Board issues an EJR decision where EJR is granted regarding a legal question that is 

relevant to the specific item under appeal (pursuant to § 405.1842(f)(1)), the Board’s 

specific findings of fact and conclusions of law (reached under paragraph (b)(1) of this 
 1335 

section), on the question of whether the provider’s cost report included an appropriate 

claim for the specific item, must be included in such EJR decision along with the other 

matters prescribed by § 405.1842(f)(1). The Board’s factual findings and legal 

conclusions (reached under paragraph (b)(1) of this section) about whether there was an 

appropriate cost report claim for the specific item under appeal are subject to the 

provisions of § 405.1842(g)(1), (g)(2), (h)(1), and (h)(3) just as those provisions apply to 

the other parts of the Board’s EJR decision. 

 (e) Two other types of Board decisions that must not include the Board’s factual 

findings and legal conclusions under paragraph (b)(1) of this section. (1) Board 

jurisdictional dismissal decision. If the Board issues a jurisdictional dismissal decision 

regarding the specific item under appeal (pursuant to § 405.1840(c)), the Board’s specific 

findings of fact and conclusions of law (reached under paragraph (b)(1) of this section), 

on the question of whether the provider’s cost report included an appropriate claim for 

the specific item, must not be included in such jurisdictional dismissal decision. 

 (2) Board expedited judicial review (EJR) decision, where EJR is denied. If the 

Board issues an EJR decision where EJR is denied regarding a legal question that is 

relevant to the specific item under appeal (pursuant to § 405.1842(f)(2)), the Board’s 

specific findings of fact and conclusions of law (reached under paragraph (b)(1) of this 

section), on the question of whether the provider’s cost report included an appropriate 

claim for the same item, must not be included in such EJR decision. If the Board 

conducts further proceedings and issues another decision (as specified in 
 1336 

§ 405.1842(h)(2)(i)), the Board’s specific findings of fact and conclusions of law 

(reached under paragraph (b)(1) of this section)-- 

 (i) Must be included in any further hearing decision or EJR decision where EJR 

is granted regarding the specific item under appeal (as prescribed in paragraph (d) of this 

section); but 

 (ii) Must not be included in any further jurisdictional dismissal decision or EJR 

decision where EJR is denied regarding the specific item under appeal (as prescribed in 

paragraph (e) of this section). 

 (f) Effects of the Board’s factual findings and legal conclusions under paragraph 

(b)(1) of this section in two types of final decisions. (1) When part of a final hearing 

decision. If the Board determines, as part of a final and binding hearing decision 

(pursuant to § 405.1871(b) and paragraphs (b)(1) and (d)(1) of this section), that the 

provider’s cost report-- 

 (i) Included an appropriate claim for the specific item under appeal (as prescribed 

in § 413.24(j) of this chapter), the specific item is reimbursable in accordance with 

Medicare policy, but only if the Board further determines in such final hearing decision 

that all the other substantive reimbursement requirements for the specific item are also 

satisfied; or 

 (ii) Did not include an appropriate cost report claim for the specific item under 

appeal, then the specific item is not reimbursable, regardless of whether the Board further 

determines in such final hearing decision that the other substantive reimbursement 

requirements for the specific item are or are not satisfied. 
 1337 

 (2) When part of a final EJR decision that grants EJR. If the Board determines or 

the Administrator of CMS determines (pursuant to § 405.1875), as applicable, in a final 

and binding EJR decision that grants EJR regarding a legal question that is relevant to the 

specific item under appeal (pursuant to § 405.1842(g)(1) and paragraphs (b)(1) and (d)(2) 

of this section), that the provider’s cost report-- 

 (i) Included an appropriate claim for the specific item under appeal (as prescribed 

in § 413.24(j) of this chapter), the specific item is reimbursable in accordance with 

Medicare policy, but only to the extent permitted by the final decision of a Federal court 

pursuant to the EJR provisions of section 1878(f)(1) of the Act (see also §§ 405.1842 and 

405.1877)); or 

 (ii) Did not include an appropriate claim for the specific item under appeal, then 

the specific item is not reimbursable, unless— 

 (A) The specific factual findings and legal conclusions (reached under paragraph 

(b)(1) of this section) of the Board or the Administrator, as applicable, on the question of 

whether the provider’s cost report included an appropriate claim for the specific item 

under appeal, are reversed or modified by the final decision of a Federal court (pursuant 

to section 1878(f)(1) of the Act and § 405.1877); and 

 (B) Only to the extent otherwise permitted by the final decision of a Federal court 

pursuant to the EJR provisions of section 1878(f)(1) of the Act (see also §§ 405.1842 and 

405.1877 ) and by Medicare policy. 

 15. Section 405.1875 is amended by— 

 a. Revising the last sentence of paragraph (a) introductory text. 
 1338 

 b. Adding a new paragraph (a)(2)(v). 

 c. Revising paragraph (f)(5). 

 The revisions and additions read as follows: 

§ 405.1875 Administrator review. 

 (a) * * * The Board is required to send to the Office of the Attorney Advisor 

a copy of each decision specified in paragraphs (a)(2)(i), (a)(2)(ii), and (a)(2)(iii) of this 

section upon issuance of the decision. 

* * * * * 

 (2) * * * 

 (v) If the Administrator reviews a Board hearing decision regarding a specific 

item, or for a Board EJR decision, on the question of whether there is Board jurisdiction 

over a specific item, the Administrator’s review of such a hearing decision or EJR 

decision, as applicable, will include, and any decision issued by the Administrator (under 

paragraph (e) of this section) will address, the Board’s specific findings of fact and 

conclusions of law in such hearing decision or EJR decision (as prescribed in 

§ 405.1873(b)(1) and (d)) on the question of whether the provider’s cost report included 

an appropriate claim for the specific item under appeal (as prescribed in § 413.24(j) of 

this chapter). 

* * * * * 

 (f) * * * 

 (5) In addition to ordering a remand to the Board, the Administrator may order a 

remand to any component of HHS or CMS or to a contractor under appropriate 
 1339 

circumstances, including, but not limited to, for the purpose of effectuating a court order 

(as described in § 405.1877(g)(2)). When the contractor’s denial of the relief, that the 

provider sought before the Board and that is under review by the Administrator, was 

based on procedural grounds (such as the alleged failure of the provider to satisfy a time 

limit) or was based on the alleged failure to supply adequate documentation to support 

the provider’s claim, and the Administrator rules that the basis of the contractor’s denial 

is invalid, the Administrator remands to the contractor for the contractor to make a 

determination on the merits of the provider’s claim. 

Nomenclature Changes 

Subpart R [Amended] 

 16. Amend Subpart R of part 405 by removing the term or phrase in the first 

column and replacing it with the term or phrase in the second column: 

 Remove Add 

 an intermediary “a contractor” 

 intermediary “contractor” 

 intermediaries “contractors” 

 intermediaries “contractors’” 

 “intermediary’s” “contractor’s” 

Subpart X—Rural Health Clinic and Federally Qualified Health Center Services 

 17. The authority citation for Subpart X, continues to read as follows: 

Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 

1395hh). 
 1340 

 18. Section 405.2468 is amended by revising paragraph (f)(1) to read as follows: 

§ 405.2468 Allowable costs. 

* * * * * 

 (f) * * * 

 (1) Effective for portions of cost reporting periods occurring on or after 

January 1, 1999, if an RHC or an FQHC incurs “all or substantially all” of the costs for 

the training program in the nonhospital setting as defined in § 413.75(b) of this chapter, 

the RHC or FQHC may receive direct graduate medical education payment for those 

residents. However, in connection with cost reporting periods for which “all or 

substantially all of the costs for the training program in the nonhospital setting” is not 

defined in § 413.75(b) of this chapter, if an RHC or an FQHC incurs the salaries and 

fringe benefits (including travel and lodging where applicable) of residents training at the 

RHC or FQHC, the RHC or FQHC may receive direct graduate medical education 

payments for those residents. 

* * * * * 

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT 

HOSPITAL SERVICES 

 19. The authority citation for Part 412 is revised to read as follows: 

 Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 

1395hh), sec. 124 of Pub. L. 106-113 (113 Stat. 1501A-332), sec. 1206 of Pub. L. 

113-67, and sec. 112 of Pub. L. 113-93. 

 20. Section 412.23 is amended by— 
 1341 

 a. Revising paragraphs (e)(6)(i), (e)(6)(ii) introductory text, and (e)(6)(ii)(B)(2). 

 b. Revising paragraphs (e)(7)(i) and (e)(7)(ii) introductory text. 

 c. Adding new paragraph (e)(7)(iii). 

 The revisions and additions read as follows: 

§ 412.23 Excluded hospitals: Classifications. 

* * * * * 

 (e) * * * 

 (6) * * *(i) General rule. Except as specified in paragraphs (e)(6)(ii) and 

(e)(6)(iii) of this section for the period beginning December 29, 2007 and ending 

December 28, 2012, and the period beginning April 1, 2014 and ending September 30, 

2017, a moratorium applies to the establishment and classification of a long-term care 

hospital as described in paragraphs (e) and (e)(1) through (e)(5) of this section or a longterm care hospital satellite facility as described in § 412.22(h). 

 (ii) Exception. The moratorium specified in paragraph (e)(6)(i) of this section is 

not applicable to the establishment and classification of a long-term care hospital that 

meets the requirements of paragraphs (e) and (e)(1) through (e)(5) of this section, or a 

long-term care hospital satellite facility that meets the requirements of § 412.22(h), if the 

long-term care hospital or long-term care satellite facility meets the following criteria on 

or before December 29, 2007, or on or before April 1, 2014, as applicable: 

* * * * * 

 (B) * * * 
 1342 

 (2)(i) Has 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 (e)(6)(ii)(B)(1) of 

his section; 

 (ii) Has expended, before April l, 2014, at least 10 percent (or, if less, $2.5 

million) of the estimated cost of the project specified in paragraph (e)(6)(ii)(B)(1) of this 

section. 

* * * * * 

 (7) * * * (i) For purposes of this paragraph, an existing long-term care 

hospital or long-term care hospital satellite facility means a long-term care hospital that 

meets the requirements of paragraph(e) of this section or long-term care hospital satellite 

facility that meets the requirements of § 412.22(h) and received payment under the 

provisions of subpart O of this part prior to the dates noted in the following moratorium 

clauses. 

 (ii) December 29, 2007, through December 28, 2007— 

* * * * * 

 (iii) April l, 2014 through September 30, 2017--The number of Medicarecertified beds in an existing long-term care hospital or an existing long-term care hospital 

satellite facility must not be increased beyond the number of Medicare-certified beds on 

April 1, 2014. 

* * * * * 

 21. Section 412.64 is amended by— 

 a. Removing paragraph (b)(1)(ii)(D). 
 1343 

 b. Revising paragraph (b)(3)(i). 

 c. Revising paragraphs (d)(1), (d)(2)(i) introductory text, (d)(2)(ii), and (d)(3) 

introductory text. 

 d. In paragraphs (h)(4) and (h)(4)(vi), removing the date “October 1, 2014” and 

adding in its place the date “October 1, 2015”. 

 The revisions read as follows: 

§ 412.64 Federal rates for inpatient operating costs for Federal fiscal year 2005 and 

subsequent fiscal years. 

* * * * * 

 (b) * * * 

 (3)(i) For discharges occurring on or after October 1, 2004, a hospital that is 

located in a rural county adjacent to one or more urban areas is deemed to be located in 

an urban area and receives the Federal payment amount for the urban area to which the 

greater 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 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 central counties of all adjacent MSAs. Qualifying 

counties are determined based upon OMB standards, using the most recent OMB 

standards for delineating statistical areas adopted by CMS. 

* * * * * 

 (d) * * * 
 1344 

 (1) The applicable percentage change for updating the standardized amount for 

all hospitals in all areas is— 

 (i) For fiscal year 2005 through fiscal year 2009, the percentage increase in the 

market basket index (as defined in § 413.40(a)(3) of this chapter) for prospective 

payment hospitals, subject to the provisions of paragraph (d)(2) of this section. 

 (ii) For fiscal year 2010, for discharges— 

 (A) On or after October 1, 2009 and before April l, 2010, the percentage increase 

in the market basket index (as defined in § 413.40(a)(3) of this chapter) for prospective 

payment hospitals, subject to the provisions of paragraph (d)(2) of this section; and 

 (B) On or after April 1, 2010 and before October 1, 2010, the percentage increase 

in the market basket index (as defined in § 413.40(a)(3) of this chapter) for prospective 

payment hospitals, subject to the provisions of paragraph (d)(2) of this section, less 0.25 

percentage point. 

 (iii) For fiscal year 2011, the percentage increase in the market basket index (as 

defined in § 413.40(a)(3) of this subchapter) for prospective payment hospitals, subject to 

the provisions of paragraph (d)(2) of this section, less 0.25 percentage point. 

 (iv) For fiscal years 2012 and 2013, the percentage increase in the market basket 

index (as defined in § 413.40(a)(3) of this chapter) for prospective payment hospitals, 

subject to the provisions of paragraph (d)(2) of this section, less a multifactor 

productivity adjustment (as determined by CMS) and less 0.1 percentage point. 

 (v) For fiscal year 2014, the percentage increase in the market basket index (as 

defined in § 413.40(a)(3) of this chapter) for prospective payment hospitals, subject to the 
 1345 

provisions of paragraph (d)(2) of this section, less a multifactor productivity adjustment 

(as determined by CMS) and less 0.3 percentage point. 

 (vi) For fiscal year 2015, the percentage increase in the market basket index (as 

defined in § 413.40(a)(3) of this chapter) for prospective payment hospitals, subject to the 

provisions of paragraphs (d)(2) and (d)(3) of this section, less a multifactor productivity 

adjustment (as determined by CMS) and less 0.2 percentage point. 

 (2)(i) In the case of a “subsection (d) hospital,” as defined under section 

1886(d)(1)(B) of the Act, that does not submit quality data on a quarterly basis to CMS, 

in the form and manner specified by CMS, the percentage increase in the market basket 

index (as defined in § 413.40(a)(3) of this chapter) for prospective payment hospitals is 

reduced— 

* * * * * 

 (ii) Any reduction pursuant to this paragraph (d)(2) will apply only to the fiscal 

year involved and will not be taken into account in computing the applicable percentage 

change for a subsequent fiscal year. 

 (3) Beginning fiscal year 2015, in the case of a “subsection (d) hospital,” as 

defined under section 1886(d)(1)(B) of the Act, that is not a meaningful electronic health 

record (EHR) user as defined in Part 495 of this chapter for the applicable EHR reporting 

period and does not receive an exception, three-fourths of the percentage increase in the 

market basket index (as defined in § 413.40(a)(3) of this chapter) for prospective 

payment hospitals is reduced— 

* * * * * 
 1346 

 22. Section 412.101 is amended by revising paragraphs (b)(2)(i), (b)(2)(ii), (c)(1), 

(c)(2) introductory text, and (d) to read as follows: 

§ 412.101 Special treatment: Inpatient hospital payment adjustment for low-volume 

hospitals. 

* * * * * 

(b) * * * 

 (2) * * * 

 (i) For FY 2005 through FY 2010 and the portion of FY 2015 beginning on 

April 1, 2015, and subsequent fiscal years, a hospital must have fewer than 200 total 

discharges, which includes Medicare and non-Medicare discharges, during the fiscal 

year, based on the hospital's most recently submitted cost report, and be located more 

than 25 road miles (as defined in paragraph (a) of this section) from the nearest 

“subsection (d)” (section 1886(d) of the Act) hospital. 

 (ii) For FY 2011 through FY 2014, and the portion of FY 2015 before 

April 1, 2015, a hospital must have fewer than 1,600 Medicare discharges, as defined in 

paragraph (a) of this section, during the fiscal year, based on the hospital's Medicare 

discharges from the most recently available MedPAR data as determined by CMS, and be 

located more than 15 road miles, as defined in paragraph (a) of this section, from the 

nearest “subsection (d)” (section 1886(d) of the Act) hospital. 

* * * * * 

 (c) * * * 
 1347 

 (1) For FY 2005 through FY 2010 and the portion of FY 2015 beginning on 

April 1, 2015 and subsequent fiscal years, the adjustment is an additional 25 percent for 

each Medicare discharge. 

 (2) For FY 2011 through FY 2014 and the portion of FY 2015 before 

April 1, 2015, the adjustment is as follows: 

* * * * * 

 (d) Eligibility of new hospitals for the adjustment. For FYs 2005 through 2010 

and the portion of FY 2015 beginning on April 1, 2015, and subsequent fiscal years, a 

new hospital will be eligible for a low-volume adjustment under this section once it has 

submitted a cost report for a cost reporting period that indicates that it meets discharge 

requirements during the applicable fiscal year and has provided its fiscal intermediary or 

Medicare administrative contractor with sufficient evidence that it meets the distance 

requirement, as specified under paragraph (b)(2) of this section. 

 23. Section 412.102 is revised to read as follows: 

§ 412.102 Special treatment: Hospitals located in areas that are changing from 

urban to rural as a result of a geographic redesignation. 

 An urban hospital that was part of an MSA, but was redesignated as rural as a 

result of the most recent OMB standards for delineating statistical areas adopted by CMS, 

may receive an adjustment to its rural Federal payment amount for operating costs for 

2 successive fiscal years as provided in paragraphs (a) and (b) of this section. 

 (a) First year adjustment. (1) Effective on or after October 1, 1983 and before 

October 1, 2014, the hospital’s rural average standardized amount and disproportionate 
 1348 

share payments as described in § 412.106 are adjusted on the basis of an additional 

amount that equals two-thirds of the difference between the urban standardized amount 

and disproportionate share payments applicable to the hospital before its geographic 

redesignation and the rural standardized amount and disproportionate share payments 

otherwise applicable to the Federal fiscal year for which the adjustment is made. 

 (2) Effective on or after October 1, 2014, the hospital’s rural disproportionate 

share payments as described in § 412.106 are adjusted on the basis of an additional 

amount that equals two-thirds of the difference between the disproportionate share 

payments as an urban hospital applicable to the hospital before its geographic 

redesignation to a rural area as a result of implementation of the most recent OMB 

standards for delineating statistical areas adopted by CMS and the rural disproportionate 

share payment otherwise applicable to the Federal fiscal year for which the adjustment is 

made. 

 (b) Second year adjustment. (1) Effective on or after October 1, 1983 and before 

October 1, 2014, if a hospital’s status continues to be rural as a result of geographic 

redesignation, its rural average standardized amount and disproportionate share payments 

are adjusted on the basis of an additional amount that equals one-third of the difference 

between the urban standardized amount and disproportionate share payments applicable 

to the hospital before its redesignation and the rural standardized amounts and 

disproportionate share payments otherwise applicable to the Federal fiscal year for which 

the adjustment is made. 
 1349 

 (2) Effective on or after October 1, 2014, if a hospital’s status continues to be 

rural as a result of geographic redesignation, its disproportionate share payments are 

adjusted on the basis of an additional amount that equals one-third of the difference 

between the disproportionate share payments applicable to the hospital before its 

geographic redesignation to a rural area as a result of implementation of the most recent 

OMB standards for delineating statistical areas adopted by CMS and the rural 

disproportionate share payments otherwise applicable to the Federal fiscal year for which 

the adjustment is made. 

 24. Section 412.103 is amended by adding a new paragraph (a)(6) to read as 

follows: 

§ 412.103 Special treatment: Hospitals located in urban areas and that apply for 

reclassification as rural. 

 (a) * * * 

 (6) For any period on or after October 1, 2014, a CAH in a county that was not in 

an urban area as defined by the Office of Management and Budget (OMB), but was 

included in an urban area as a result of the most recent OMB standards for delineating 

statistical areas adopted by CMS and the most recent Census Bureau data, may be 

reclassified as being located in a rural area for purposes of meeting the rural location 

requirement at § 485.610(b) of this chapter for a period of 2 years, beginning with the 

date of the implementation of the new labor market area delineations, if it meets any of 

the requirements under paragraph (a)(1), (a)(2), or (a)(3) of this section. 

* * * * * 
 1350 

 25. Section 412.105 is amended by revising paragraphs (a)(1)(ii), (f)(1)(iv)(D), 

and (f)(1)(v), to read as follows: 

§ 412.105 Special treatment: Hospitals that incur indirect costs for graduate 

medical education programs.

* * * * * 

 (a) * * * 

 (1) * * * 

 (ii) (A) For new programs started prior to October 1, 2012, the exception for new 

programs described in paragraph (f)(1)(vii) of this section applies to each new program 

individually for which the full-time equivalent cap may be adjusted based on the period 

of years equal to the minimum accredited length of each new program. 

 (B) For new programs started on or after October 1, 2012, the exception for new 

programs described in paragraph (f)(1)(vii) of this section applies to each new program 

individually during the cost reporting periods prior to the beginning of the applicable 

hospital’s cost reporting period that precedes the start of the sixth program year of the 

first new program started, for hospitals for which the full-time equivalent cap may be 

adjusted in accordance with § 413.79(e)(1) of this chapter, and prior to the beginning of 

the applicable hospital’s cost reporting period that precedes the start of the sixth program 

year of the each individual new program started, for hospitals for which the full-time 

equivalent cap may be adjusted in accordance with § 413.79(e)(3) of this chapter. 

* * * * * 

 (f) * * * 
 1351 

 (1) * * * 

 (iv) * * * 

 (D) A rural hospital redesignated as urban after September 30, 2004, as a result 

of the most recent census data and implementation of the new labor market area 

definitions announced by OMB on June 6, 2003, may retain the increases to its full-time 

equivalent resident cap that it received under paragraphs (f)(1)(iv)(A) and (f)(1)(vii) of 

this section while it was located in a rural area. Effective for cost reporting periods 

beginning on or after October 1, 2014, if a rural hospital is redesignated as urban due to 

the most recent OMB standards for delineating statistical areas adopted by CMS and was 

training residents in a new program prior to the redesignation becoming effective, the 

redesignated urban hospital may retain any existing increases to its full-time equivalent 

resident cap and receive an increase to its full-time equivalent resident cap for the new 

program in which it was training residents when the redesignation became effective, in 

accordance with paragraph (f)(1)(vii) of this section. 

 (v)(A) For a hospital’s cost reporting periods beginning on or after 

October 1, 1997, and before October 1, 1998, the total number of full-time equivalent 

residents for payment purposes is equal to the average of the actual full-time equivalent 

resident counts (subject to the requirements listed in paragraphs (f)(1)(ii)(C) and 

(f)(1)(iv) of this section) for that cost reporting period and the preceding cost reporting 

period. 

 (B) For a hospital’s cost reporting periods beginning on or after October 1, 1998, 

the total number of full-time equivalent residents for payment purposes is equal to the 
 1352 

average of the actual full-time equivalent resident count (subject to the requirements set 

forth in paragraphs (f)(1)(ii)(C) and (f)(1)(iv) of this section) for that cost reporting 

period and the preceding two cost reporting periods. 

 (C) For new programs started prior to October 1, 2012, if a hospital qualified for 

an adjustment to the limit established under paragraph (f)(1)(iv) of this section for new 

medical residency programs created under paragraph (f)(1)(vii) of this section, the count 

of residents participating in new medical residency training programs above the number 

included in the hospital’s full-time equivalent count for the cost reporting period ending 

during calendar year 1996 is added after applying the averaging rules in paragraphs 

(f)(l)(v)(A), (f)(1)(v)(B), and this paragraph (f)(1)(v)(C) for a period of years. Residents 

participating in new medical residency training programs are included in the hospital’s 

full-time equivalent count before applying the averaging rules after the period of years 

has expired. For purposes of this paragraph, for each new program started, the period of 

years equals the minimum accredited length for each new program. The period of years 

for each new program begins when the first resident begins training in each new program. 

 (D) For new programs started on or after October 1, 2012, for hospitals for which 

the full-time equivalent cap may be adjusted in accordance with § 413.79(e) of this 

chapter, full-time equivalent residents participating in new medical residency training 

programs are excluded from the hospital’s full-time equivalent count before applying the 

averaging rules during the cost reporting periods prior to the beginning of the applicable 

hospital’s cost reporting period that precedes the start of the sixth program year of the 

first new program started, for hospitals for which the full-time equivalent cap may be 
 1353 

adjusted in accordance with § 413.79(e)(1) of this chapter, and prior to the beginning of 

the applicable hospital’s cost reporting period that precedes the start of the sixth program 

year of the each individual new program started, for hospitals for which the full-time 

equivalent cap may be adjusted in accordance with § 413.79(e)(3) of this chapter. After 

the applicable hospital’s cost reporting period that precedes the start of the sixth program 

year of the first new program started for hospitals for which the full-time equivalent cap 

may be adjusted in accordance with § 413.79(e)(1) of this chapter, and after the 

applicable hospital’s cost reporting period that precedes the start of the sixth program 

year of each individual new program started for hospitals for which the full-time 

equivalent cap may be adjusted in accordance with § 413.79(e)(3) of this chapter, fulltime equivalent residents participating in new medical residency training programs are 

included in the hospital’s full-time equivalent count before applying the averaging cap. 

 (E) Subject to the provisions of paragraph (f)(1)(ix) of this section, full-time 

equivalent residents that are displaced by the closure of either another hospital or another 

hospital’s program are added to the full-time equivalent count after applying the 

averaging rules in this paragraph (f)(1)(v)(B) for the receiving hospital for the duration of 

time that the displaced residents are training at the receiving hospital. 

 (F) Subject to the provisions of paragraph (f)(1)(x) of this section, effective for 

cost reporting periods beginning on or after April 1, 2000, full-time equivalent residents 

at an urban hospital in a rural track program are included in the urban hospital’s rolling 

average calculation described in this paragraph (f)(1)(v)(B). 

* * * * * 
 1354 

 26. Section 412.106 is amended by revising paragraph (g)(1)(iii)(C) to read as 

follows: 

§ 412.106 Special treatment: Hospitals that serve a disproportionate share of 

low-income patients. 

* * * * * * 

 (g) * * * 

 (1) 

 (iii) * * * 

 (C) For fiscal year 2014 and for fiscal year 2015, CMS will base its estimates of 

the amount of hospital uncompensated care on the most recent available data on 

utilization for Medicaid and Medicare SSI patients, as determined by CMS in accordance 

with paragraphs (b)(2)(i) and (b)(4) of this section. 

* * * * * 

§ 412.108 [Amended] 

 27. In § 412.108, paragraph (a)(1) introductory text and paragraph (c)(2)(iii) 

introductory text, remove the date “April l, 2014” and add in its place the date 

“April l, 2015”. 

 28. Section 412.140 is amended by revising paragraph (c)(2) to read as follows: 

§ 412.140 Participation, data submission, and validation requirements under the 

Hospital Inpatient Quality Reporting (IQR) Program.

* * * * * 

 (c) * * * 
 1355 

 (2) Exception. Upon request by a hospital, CMS may grant an extension or 

exemption of one or more data submission deadlines in the event of extraordinary 

circumstances beyond the control of the hospital. Specific requirements for submission 

of a request for an extension or exemption are available on QualityNet.org. 

* * * * * 

 29. Section 412.152 is amended by revising the definition of “Applicable 

hospital” to read as follows: 

§ 412.152 Definitions for the Hospital Readmissions Reduction Program.

* * * * * 

 Applicable hospital is a hospital described in section 1886(d)(1)(B) of the Act or a 

hospital paid under section 1814(b)(3) of the Act. 

* * * * * 

§ 412.154 [Amended]

 30. Section 412.154 is amended by removing and reserving paragraph (d). 

 31. Section 412.160 is amended by revising the definitions of “Base operating 

DRG payment amount” and “Performance standards” to read as follows: 

§ 412.160 Definitions for the Hospital Value-Based Purchasing (VBP) Program. 

* * * * * 

 Base operating DRG payment amount means the following: 

 (1) With respect to a subsection (d) hospital (as defined in section 1886(d)(1)(B) 

of the Act), the wage-adjusted DRG operating payment plus any applicable new 

technology add-on payments under subpart F of this part. This amount is determined 
 1356 

without regard to any payment adjustments under the Hospital Readmissions Reduction 

Program, as specified under § 412.154. This amount does not include any additional 

payments for indirect medical education under § 412.105, the treatment of a 

disproportionate share of low-income patients under § 412.106, outliers under subpart F 

of this part, or a low volume of discharges under § 412.101. 

 (2) With respect to a Medicare-dependent, small rural hospital that receives 

payments under § 412.108(c) or a sole community hospital that receives payments under 

§ 412.92(d), the wage-adjusted DRG operating payment plus any applicable new 

technology add-on payments under subpart F of this part. This amount does not include 

any additional payments for indirect medical education under § 412.105, the treatment of 

a disproportionate share of low-income patients under § 412.106, outliers under subpart F 

of this part, or a low volume of discharges under § 412.101. With respect to a 

Medicare-dependent, small rural hospital that receives payments under § 412.108(c) (for 

discharges occurring in FY 2013) or a sole community hospital that receives payments 

under § 412.92(d), this amount also does not include the difference between the hospitalspecific payment rate and the Federal payment rate determined under subpart D of this 

part. 

* * * * * 

Performance standards are the levels of performance that hospitals must meet or 

exceed in order to earn points under the Hospital VBP Program, and are calculated with 

respect to a measure for a fiscal year no later than 60 days prior to the start of the 
 1357 

performance period for that measure for that fiscal year. The performance standards for a 

measure may be updated as follows: 

 (1) To make a single correction to correct a calculation error, data issue, or other 

problem that would significantly change the performance standards; or 

 (2) To incorporate nonsubstantive technical updates made to the measure 

between the time that CMS first displays the performance standards for that measure for a 

fiscal year and the time that CMS calculates hospital performance on that measure at the 

conclusion of the performance period for that measure for a fiscal year.

* * * * * 

 32. Section 412.161 is revised to read as follows: 

§ 412.161 Applicability of the Hospital Value-Based Purchasing (VBP) Program 

 The Hospital VBP Program applies to hospitals, as that term is defined in 

§ 412.160. 

§ 412.172 [Amended] 

 33. Section 412.172 is amended by removing and reserving paragraph (c). 

 34. Section 412.232 is amended by revising paragraph (b)(2) to read as follows: 

§ 412.232 Criteria for all hospitals in a rural county seeking urban redesignation.

* * * * * * 

 (b) * * * 

 (2) For fiscal years beginning with FY 2005, the group of hospitals must 

demonstrate that the county in which the hospitals are located meets the standards for 
 1358 

redesignation to an MSA as an outlying county using the most recent OMB standards for 

delineating statistical areas adopted by CMS and the most recent Census Bureau data. 

* * * * * 

 35. Section 412.234 is amended by revising paragraph (a)(3)(iv) to read as 

follows: 

§ 412.234 Criteria for all hospitals in an urban county seeking redesignation to 

another urban area. 

 (a) * * * 

 (3) * * * 

 (iv) For Federal fiscal year 2008 and thereafter, hospitals located in counties that 

are in the same Combined Statistical Area (CSA) or Core-Based Statistical Area (CBSA) 

(under the most recent OMB standards for delineating statistical areas adopted by CMS 

and the most recent Census Bureau data) as the urban area to which they seek 

redesignation qualify as meeting the proximity requirement for reclassification to the 

urban area to which they seek redesignation. 

* * * * * 

 36. Section 412.500 is amended by adding paragraphs (a)(4), (a)(5), and (a)(6) to 

read as follows: 

§ 412.500 Basis and scope of subpart. 

 (a) * * * 

 (4) Section 4302(a) of Public Law 111-5, which amended sections 114(c) and (d) 

of Public Law 110-173 relating to several moratoria on the establishment of new 
 1359 

long-term care hospitals and satellite facilities and on the increase in the number of beds 

in existing long-term care hospitals and satellite facilities under the long-term care 

hospital prospective payment system. 

 (5) Sections 3106(a) and 10312(a) of Public Law 111-148, which extended 

certain payment rules and moratoria under the long-term care hospital prospective 

payment system by further amending sections 114(c) and (d) of Public Law 110-173. 

 (6) Section 1206 of Public Law 113-67, which further extended certain payment 

rules and moratoria under the long-term care hospital prospective payment system by 

amending sections 114(c) and (d) of Public Law 110-173, and which: 

 (i) Added a new section 1886(m)(6) to the Act to establish a site neutral payment 

amount for long-term care hospital discharges that fail to meet the applicable criteria in 

cost reporting periods beginning on or after October 1, 2015; and 

 (ii) Requires the Secretary’s review of the payment rates and regulations 

governing long-term care hospitals established under section 1886(d)(1)(B)(iv)(II) of the 

Act and application of payment adjustments based on that review. 

* * * * * 

 37. Section 412.521 is amended by revising paragraph (a)(2) to read as follows: 

§ 412.521 Basis for payment. 

 (a) * * * 

 (2) Except as provided for in § 412.526, the amount of payment under the 

prospective payment system is based on the Federal payment rate established in 

accordance with § 412.523, including adjustments described in § 412.525, and, if 
 1360 

applicable during a transition period, on a blend of the Federal payment rate and the 

cost-based reimbursement rate described in § 412.533. 

* * * * * 

 38. Section 412.523 is amended by adding a new paragraph (c)(3)(xi) to read as 

follows: 

§ 412.523 Methodology for calculating the Federal prospective payment rates. 

* * * * * 

 (c) * * * 

 (3) * * * 

 (xi) For long-term care hospital prospective payment system fiscal year 

beginning October 1, 2014, and ending September 30, 2015. The standard Federal rate 

for the long-term care hospital prospective payment system beginning October 1, 2014, 

and ending September 30, 2015, is the standard Federal rate for the previous long-term 

care hospital prospective payment system fiscal year updated by 2.1 percent, and further 

adjusted, as appropriate, as described in paragraph (d) of this section. 

* * * * * 

§ 412.525 [Amended] 

 39. Section 412.525 is amended by removing and reserving paragraph (d)(3). 

 40. A new § 412.526 is added to read as follows: 

§ 412.526 Payment provisions for a “subclause (II)” long-term care hospital. 

 (a) Definition. A “subclause (II)” long-term care hospital is a hospital that 

qualifies as an LTCH under section 1886(d)(1)(B)(iv)(II) of the Act. 
 1361 

 (b) Method of payment.--(1) For cost reporting periods beginning on or after 

October 1, 2003 and before September 30, 2014, payment to a “subclause (II)” long-term 

care hospital is made under the prospective payment system specified in § 412.1(a)(4) 

and Subpart O of this part. 

 (2) For cost reporting periods beginning on or after October 1, 2014, payment to 

a “subclause (II)” long-term care hospital is made under the prospective payment system 

specified in § 412.1(a)(4) and under Subpart O of this part, as adjusted. The adjusted 

payment amount is determined based on reasonable cost, as described at § 412.526(c). 

 (c) Determining the adjusted payment for Medicare inpatient operating and 

capital-related costs under the reasonable cost-based reimbursement rules. Medicare 

inpatient operating costs are paid based on reasonable cost, subject to a ceiling. The 

ceiling is the aggregate upper limit on the amount of a hospital’s net Medicare inpatient 

operating costs that the program will recognize for payment purposes, as determined 

under paragraph (c)(1) of this section. 

 (1) Ceiling. For each cost reporting period, the ceiling is determined by 

multiplying the updated target amount, as defined in paragraph (c)(2) of this section, for 

that period by the number of Medicare discharges paid under this subpart during that 

period. 

 (2) Target amounts.--(i) For cost reporting periods beginning during Federal 

fiscal year 2015, the target amount equals the hospital’s target amount determined under 

§ 413.40(c)(4) for its cost reporting period beginning during Federal fiscal year 2000, 
 1362 

updated by the applicable annual rate-of-increase percentages specified in § 413.40(c)(3) 

to the subject period. 

 (ii) For subsequent cost reporting periods, the target amount equals the hospital's 

target amount for the previous cost reporting period updated by the applicable annual 

rate-of-increase percentage specified in § 413.40(c)(3) for the subject cost reporting 

period. 

 (3) Payment for inpatient operating costs. For cost reporting periods subject to 

this section, the hospital's Medicare allowable net inpatient operating costs for that period 

(as defined at § 413.40(a)(3)) are paid on a reasonable cost basis, subject to that hospital's 

ceiling (as determined under paragraph (c)(1) of this section) for that period. 

 (4) Payment for inpatient capital-related costs. Medicare allowable net inpatient 

capital costs are paid on a reasonable cost basis, in accordance with the regulations under 

Part 413 of this chapter. 

 41. Section 412.531 is amended by— 

 a. Revising paragraph (a)(2) introductory text. 

 b. Adding a new paragraph (a)(3). 

 c. Revising paragraph (b)(4) introductory text. 

 d. Adding a new paragraph (b)(5). 

 The revisions and additions read as follows: 

§ 412.531 Special payment provisions when an interruption of a stay occurs in a 

long-term care hospital. 

 (a) * * * 
 1363 

 (2) A greater than 3-day interruption of stay defined. For long-term care hospital 

discharges occurring on or before September 30, 2014, “a greater than 3-day or less 

interruption of stay” means a stay in a long-term care hospital during which a Medicare 

inpatient is discharged from the long-term care hospital to an acute care hospital, an IRF, 

or a SNF for a period of greater than 3 days but within the applicable fixed-day period 

specified in paragraphs (a)(2)(i) through (a)(2)(iii) of this section before being readmitted 

to the same long-term care hospital. 

* * * * * 

 (3) For long-term care hospital discharges occurring on or after October 1, 2014, 

“a greater than 3-day or less interruption of stay” means a stay in a long-term care 

hospital during which a Medicare inpatient is discharged from the long-term care hospital 

to an acute care hospital, an IRF, or a SNF for a fixed day period of between 4 days and 

30 consecutive days before being readmitted to the same long-term care hospital. 

 (b) * * * 

 (4) Except as provided in paragraph (b)(5) of this section, if a patient who has 

been discharged from a long-term care hospital to another facility and is readmitted to the 

long-term care hospital for additional treatment or services in the long-term care hospital 

directly following the stay at the other facility, the subsequent admission to the long-term 

care hospital is considered a new stay, even if the case is determined to fall into the same 

MS-LTC-DRG, and the long-term care hospital will receive two separate Federal 

prospective payments if one of the following conditions are met: 

* * * * * 
 1364 

 (5) For long-term care hospital discharges occurring on or after October 1, 2014, 

if a patient who has been discharged from a long-term care hospital to another facility is 

readmitted to the long-term care hospital for additional treatment or services directly 

following the stay at the other facility, the subsequent admission to the long-term care 

hospital is considered a new stay, even if the case is determined to fall into the same 

MS-LTC-DRG, and the long-term care hospital will receive two separate Federal 

prospective payments only if the patient has a length of stay at the other facility that 

exceeded 30 days from the initial date of discharge from the long-term care hospital. 

* * * * * 

§ 412.532 [Removed] 

 42. Section 412.532 is removed. 

 43. Section 412.534 is amended by— 

 a. Revising and paragraph (c)(1) 

 b. Removing the year “2013” and adding in its place the year “2016” in 

paragraph (c)(1)(i) and (ii) and (c)(2) paragraph heading. 

 c. Revising paragraph (c)(3). 

 d. Removing the year “2013” and adding in its place the year “2016” in 

paragraphs (d)(1) heading, (d)(1)(i), and (d)(2) heading. 

 e. Revising paragraph (d)(3). 

 f. Removing the year “2013” and adding in its place the year “2016” in 

paragraphs (e)(1) heading, (e)(1)(i), and (e)(2) heading. 

 g. Revising paragraph (e)(3). 
 1365 

 h. Revising paragraphs (h) introductory text, (h)(4), and (h)(5). 

 i. Removing paragraph (h)(6). 

 The revisions read as follows: 

§ 412.534 Special payment provisions for long-term care hospitals within hospitals 

and satellites of long-term care hospitals. 

* * * * * 

 (c) * * * 

 (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, 2016. 

(i) Except as provided in paragraphs (c)(3), (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, 2016 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. 

* * * * * 

 (3) For a long-term care hospital satellite facility described in § 412.22(h)(3)(i), 

for cost reporting periods beginning on or after July 1, 2007 and before July 1, 2016, 

payments will be determined using the methodology specified in paragraph (c)(1) of this 

section, except that the applicable percentage threshold for Medicare discharges is 50 

percent. 
 1366 

 (d) * * * 

 (3) For cost reporting periods beginning on or after July 1, 2007 and before 

July 1, 2016, payment for a long-term care hospital satellite facility described in 

§ 412.22(h)(3)(i) will be determined using the methodology specified in paragraph (c)(1) 

of this section, except that the applicable percentage threshold for Medicare discharges is 

75 percent. 

 (e) * * * 

 (3) For cost reporting periods beginning on or after July 1, 2007 and before 

July 1, 2016, payments for a long-term care hospital satellite facility described in 

§ 412.22(h)(3)(i) will be determined using the methodology specified in paragraph (c)(1) 

of this section, except that the applicable percentage threshold for Medicare discharges is 

75 percent. 

* * * * * 

 (h) Effective date of policies in this section for certain co-located long-term care 

hospitals and satellite facilities of long-term care hospitals. Except as specified in 

paragraph (h)(4) of this section, the policies set forth in this paragraph (h) 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 longterm care hospital as described under § 412.22(h)(3)(i) for discharges occurring in cost 

reporting periods beginning on or after July 1, 2007. 

* * * * * 
 1367 

 (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 (h) and in § 412.536 do not 

apply for discharges occurring in cost reporting periods beginning on or after 

July 1, 2007. 

 (5) For a long-term care hospital or a satellite facility that, as of 

December 29, 2007, was co-located with an entity that is a provider-based, off-campus 

location of a subsection (d) hospital which did not provide services payable under section 

1886(d) of the Act at the off-campus location, the policies set forth in this paragraph (h) 

and in § 412.536 do not apply for discharges occurring in cost reporting periods 

beginning on or after July 1, 2007 and before July 1, 2016. 

 44. Section 412.536 is amended by— 

 a. Removing and reserving paragraph (a)(1)(iii). 

 b. Revising paragraph (a)(2) introductory text. 

 c. Removing and reserving paragraph (a)(2)(ii). 

 d. Removing paragraph (a)(3). 

 The revisions 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) * * * 

 (1) * * * 
 1368 

 (iii) [Reserved]. 

* * * * * 

 (2) For cost reporting periods beginning on or after July 1, 2007 and before 

July 1, 2016, the policies set forth in this section are not applicable to discharges from: 

* * * * * 

 (ii) [Reserved]. 

* * * * * 

PART 413—PRINCIPLES OF REASONABLE COST REIMBURSEMENT; 

PAYMENT FOR END-STAGE RENAL DISEASE SERVICES; OPTIONAL 

PROSPECTIVELY DETERMINED PAYMENT RATES FOR SKILLED 

NURSING FACILITIES 

 45. The authority for Part 413 continues to read as follows: 

 Authority: Secs. 1102, 1861(v)(1)(A), and 1871 of the Social Security Act 

(42 U.S.C. 1302, 1395x(v)(1)(A), and 1395hh). 

Nomenclature Changes 

Part 413 [Amended] 

 46. Throughout Part 413, according to the list below, remove the term or phrase 

in the first column and replace it with the term or phrase in the second column: 

 Remove Add 

 an intermediary’s “a contractor’s” 

 fiscal intermediary “contractor” 

 fiscal intermediary’s “contractor’s” 
 1369 

 intermediary “contractor” 

 intermediaries “contractors” 

 intermediary’s “contractor’s” 

 47. Section 413.24 is amended by reserving paragraph (i) and adding a new 

paragraph (j) to read as follows: 

§413.24 Adequate cost data and cost finding. 

* * * * * 

 (i) [Reserved]

 (j) Substantive reimbursement requirement of an appropriate cost report claim. 

(1) General requirement. In order for a provider to receive or potentially qualify for 

reimbursement for a specific item for its cost reporting period, the provider’s cost report, 

whether determined on an as submitted, as amended, or as adjusted basis (as prescribed in 

paragraph (j)(3) of this section), must include an appropriate claim for the specific item, 

by either— 

 (i) Claiming full reimbursement in the provider’s cost report for the specific item 

in accordance with Medicare policy, if the provider seeks payment for the item that it 

believes comports with program policy; or 

 (ii) Self-disallowing the specific item in the provider’s cost report, if the provider 

seeks payment that it believes may not be allowable or may not comport with Medicare 

policy (for example, if the provider believes the contractor lacks the authority or 

discretion to award the reimbursement the provider seeks for the item), by following the 
 1370 

procedures (set forth in paragraph (j)(2) of this section) for properly self-disallowing the 

specific item in the provider’s cost report as a protested amount. 

 (2) Self-disallowance procedures. In order to properly self-disallow a specific 

item, the provider must— 

 (i) Include an estimated reimbursement amount for each specific self-disallowed 

item in the protested amount line (or lines) of the provider’s cost report; and 

 (ii) Attach a separate work sheet to the provider’s cost report for each specific 

self-disallowed item, explaining why the provider self-disallowed each specific item 

(instead of claiming full reimbursement in its cost report for the specific item) and 

describing how the provider calculated the estimated reimbursement amount for each 

specific self-disallowed item. 

 (3) Procedures for determining whether there is an appropriate cost report claim. 

Whether the provider’s cost report for its cost reporting period includes an appropriate 

claim for a specific item (as prescribed in paragraph (j)(1) of this section) must be 

determined by reference to the cost report that the provider submits originally to, and was 

accepted by, the contractor for such period, provided that none of the following exceptions 

applies: 

 (i) If the provider submits an amended cost report for its cost reporting period 

and such amended cost report is accepted by the contractor, whether there is an 

appropriate cost report claim for the specific item must be determined by reference to 

such amended cost report, provided that neither of the exceptions set forth in paragraphs 

(j)(3)(ii) and (j)(3)(iii) of this section applies; 
 1371 

 (ii) If the contractor adjusts the provider’s cost report, as submitted originally by 

the provider and accepted by the contractor or as amended by the provider and accepted 

by the contractor, whichever is applicable, with respect to the specific item, whether there 

is an appropriate cost report claim for the specific item must be determined by reference 

to the provider’s cost report, as such cost report claim is adjusted for the specific item in 

the initial contractor determination (as defined in § 405.1801(a) of this chapter) for the 

provider’s cost reporting period, provided that the exception set forth in paragraph 

(j)(3)(iii) of this section does not apply; 

 (iii) If the contractor reopens either the initial contractor determination for the 

provider’s cost reporting period (pursuant to § 405.1885 of this chapter) or a revised 

contractor determination for such period (issued pursuant to § 405.1889 of this chapter) 

and the contractor adjusts the provider’s cost report with respect to the specific item, 

whether there is an appropriate cost report claim for the specific item must be determined 

by reference to the provider’s cost report, as such cost report claim is adjusted for the 

specific item in the most recent revised contractor determination for such period. 

 (4) Reimbursement effects of contractor’s determination of whether there is an 

appropriate cost report claim. If the contractor determines that the provider’s cost report 

included an appropriate claim for a specific item (as specified in paragraphs (j)(1), (j)(2), 

and (j)(3) of this section) and that all the other substantive reimbursement requirements 

for the specific item are also satisfied, the final contractor determination (as defined in 

§ 405.1801(a) of this chapter) must include reimbursement for the specific item to the 

extent permitted by Medicare policy. If the contractor determines that the provider made 
 1372 

an appropriate cost report claim for a specific item but the contractor disagrees with 

material aspects of the provider’s claim for the specific item, the contractor must make 

appropriate adjustments to the provider’s cost report and include reimbursement for the 

specific item in the final contractor determination in accordance with such cost report 

adjustments and to the extent permitted by program policy. If the contractor determines 

that the provider did not make an appropriate cost report claim for a specific item, the 

final contractor determination must not include any reimbursement for the specific item, 

regardless of whether the other substantive reimbursement requirements for the specific 

item are or are not satisfied. 

 (5) Administrative review of whether there is an appropriate cost report claim. If 

the provider files an administrative appeal (pursuant to Part 405, Subpart R of this 

chapter) seeking reimbursement for a specific item and any party to such appeal 

questions whether the provider’s cost report included an appropriate claim for the specific 

item under appeal (as specified in paragraphs (j)(1), (j)(2), (j)(3), and (j)(4) of this 

section), the reviewing entity (as defined in § 405.1801(a) of this chapter) must follow 

the procedures prescribed in § 405.1873 of this chapter (if the appeal was filed originally 

with the Board), or the procedures set forth in § 405.1832 of this chapter (if the appeal 

was filed initially with the contractor), for review of whether the substantive 

reimbursement requirement of an appropriate cost report claim for the specific item under 

appeal is satisfied. The reviewing entity must follow the procedures set forth in 

paragraph (j)(3) of this section in determining whether the provider’s cost report included 

an appropriate claim for the specific item under appeal. The reviewing entity may permit 
 1373 

reimbursement for the specific item under appeal solely to the extent authorized by 

§ 405.1873(f) of this chapter (if the appeal was filed originally with the Board) or by 

§ 405.1832(f) of this chapter (if the appeal was filed initially with the contractor). 

 48. Section 413.75 is amended by revising the definition of “Rural track FTE 

limitation” under paragraph (b) to read as follows: 

§ 413.75 Direct GME payments: General requirements. 

* * * * * 

 (b) * * * 

Rural track FTE limitation means the maximum number of residents (as specified 

in §413.79(k)) training in a rural track residency program that an urban hospital may 

include in its FTE count and that is in addition to the number of FTE residents already 

included in the hospital’s FTE cap. 

* * * * * 

 49. Section 413.78 is amended by revising paragraph (g)(6) to read as follows: 

§413.78 Direct GME payment: Determination of the total number of FTE residents. 

* * * * * 

 (g) * * * 

 (6) The provisions of paragraphs (g)(1)(ii), (g)(2), (g)(3), and (g)(5) of this 

section shall not be applied in a manner that requires reopening of any settled cost reports 

as to which there is not a jurisdictionally proper appeal pending as of March 23, 2010, on 

direct GME or IME payments. Cost reporting periods beginning before July 1, 2010 are 

not governed by paragraph (g) of this section. 
 1374 

* * * * * 

 50. Section 413.79 is amended by revising paragraphs (c)(6), (d)(5), and (k)(7), 

to read as follows: 

§413.79 Direct GME payments: Determination of the weighted number of FTE 

residents. 

* * * * * 

 (c) * * * 

 (6) FTE resident caps for rural hospitals that are redesignated as urban. A rural 

hospital redesignated as urban after September 30, 2004, as a result of the most recent 

census data and implementation of the new MSA definitions announced by OMB on 

June 6, 2003, may retain the increases to its FTE resident cap that it received under 

paragraphs (c)(2)(i), (e)(1)(iii), and (e)(3) of this section while it was located in a rural 

area. Effective for cost reporting periods beginning on or after October 1, 2014, if a rural 

hospital is redesignated as urban due to the most recent OMB standards for delineating 

statistical areas adopted by CMS, and was training residents in a new program prior to the 

redesignation becoming effective, the redesignated urban hospital may retain any existing 

increases to its FTE resident cap, and receive an increase to its FTE resident cap for the 

new program in which it was training residents when the redesignation became effective, 

in accordance with paragraph (e) of this section.

 (d) * * * 

 (5) (i) For new programs started prior to October 1, 2012, if a hospital qualifies 

for an adjustment to the limit established under paragraph (c)(2) of this section for new 
 1375 

medical residency programs created under paragraph (e) of this section, the count of the 

residents participating in new medical residency training programs above the number 

included in the hospital’s FTE count for the cost reporting period ending during calendar 

year 1996 is added after applying the averaging rules in this paragraph (d), for a period of 

years. Residents participating in new medical residency training programs are included 

in the hospital’s FTE count before applying the averaging rules after the period of years 

has expired. For purposes of this paragraph (d), for each new program started, the period 

of years equals the minimum accredited length for each new program. The period of 

years begins when the first resident begins training in each new program. 

 (ii) For new programs started on or after October 1, 2012, for hospitals for which 

the FTE cap may be adjusted in accordance with § 413.79(e) of this chapter, FTE 

residents participating in new medical residency training programs are excluded from the 

hospital’s FTE count before applying the averaging rules during the cost reporting 

periods prior to the beginning of the applicable hospital’s cost reporting period that 

precedes the start of the sixth program year of the first new program started, for hospitals 

for which the FTE may be adjusted in accordance with § 413.79(e)(1) of this chapter, and 

prior to the beginning of the applicable hospital’s cost reporting period that precedes the 

start of the sixth program year of the each individual new program started, for hospitals 

for which the FTE cap may be adjusted in accordance with § 413.79(e)(3) of this chapter. 

After the applicable hospital’s cost reporting period that precedes the start of the sixth 

program year of the first new program started for hospitals for which the FTE cap may be 

adjusted in accordance with § 413.79(e)(1) of this chapter, and after the applicable 
 1376 

hospital’s cost reporting period that precedes the start of the sixth program year of the 

each individual new program started for hospitals for which the FTE cap may be adjusted 

in accordance with § 413.79(e)(3) of this chapter, FTE residents participating in new 

medical residency training programs are included in the hospital’s FTE count before 

applying the averaging rules. 

* * * * * 

 (k) * * * 

 (7) (i) Effective for cost reporting periods beginning prior to October 1, 2014, if 

an urban hospital had established a rural track training program under the provisions of 

this paragraph (k) with a hospital located in a rural area and that rural area subsequently 

becomes an urban area due to the most recent census data and implementation of the new 

labor market area definitions announced by OMB on June 6, 2003, the urban hospital 

may continue to adjust its FTE resident limit in accordance with this paragraph (k) for the 

rural track programs established prior to the adoption of such new labor market area 

definitions. In order to receive an adjustment to its FTE resident cap for a new rural track 

residency program, the urban hospital must establish a rural track program with hospitals 

that are designated rural based on the most recent geographical location delineations 

adopted by CMS. 

 (ii) Effective for cost reporting periods beginning on or after October 1, 2014, if 

an urban hospital had started a rural track training program under the provisions of this 

paragraph (k) with a hospital located in a rural area and, during the 3-year period that is 

used to calculate the urban hospital’s rural track FTE limit, that rural area subsequently 
 1377 

becomes an urban area due to the most recent OMB standards for delineating statistical 

areas adopted by CMS and the most recent Census Bureau data, the urban hospital may 

continue to adjust its FTE resident limit in accordance with this paragraph (k) and subject 

to paragraph (k)(7)(iii) for the rural track programs established prior to the adoption of 

such new OMB standards for delineating statistical areas. 

 (iii) Effective for cost reporting periods beginning on or after October 1, 2014, if 

an urban hospital had established a rural track training program under the provisions of 

this paragraph (k) with a hospital located in a rural area and that rural area subsequently 

becomes an urban area due to the most recent OMB standards for delineating statistical 

areas adopted by CMS and the most recent Census Bureau data, regardless of whether the 

redesignation of the rural hospital occurs during the 3-year period that is used to calculate 

the urban hospital’s rural track FTE limit, or after the 3-year period used to calculate the 

urban hospital’s rural track FTE limit, the urban hospital may continue to adjust its FTE 

resident limit in accordance with this paragraph (k) based on the rural track programs 

established prior to the change in the hospital’s geographic designation. In order for the 

urban hospital to receive or use the adjustment to its FTE resident cap for training FTE 

residents in the rural track residency program that was established prior to the most recent 

OMB standards for delineating statistical areas adopted by CMS, one of the following 

two conditions must be met by the end of a 2-year period that begins when the most 

recent OMB standards for delineating statistical areas are adopted by CMS: the hospital 

that has been redesignated from rural to urban must reclassify as rural under § 412.103 of 

this chapter, for purposes of IME only; or the urban hospital must find a new site that is 
 1378 

geographically rural consistent with the most recent geographical location delineations 

adopted by CMS. In order to receive an adjustment to its FTE resident cap for an 

additional new rural track residency program, the urban hospital must establish a rural 

track program with sites that are geographically rural based on the most recent 

geographical location delineations adopted by CMS. 

* * * * * 

PART 415— SERVICES FURNISHED BY PHYSICIANS IN PROVIDERS, 

SUPERVISING PHYSICIANS IN TEACHING SETTINGS, AND RESIDENTS IN 

CERTAIN SETTINGS 

 51. 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), and sec. 124 of Pub. L. 106-113 (113 Stat. 1501A-332). 

 52. Section 415.70 is amended by revising paragraph (b) to read as follows: 

§ 415.70 Limits on compensation for physician services in providers. 

* * * * * 

 (b) Methodology for establishing limits. (1) For cost reporting periods 

beginning before January 1, 2015. CMS establishes a methodology for determining 

annual reasonable compensation equivalency limits and, to the extent possible, considers 

average physician incomes by specialty and type of location using the best available data. 

 (2) For cost reporting periods beginning on or after January 1, 2015. CMS 

establishes a methodology for determining annual reasonable compensation equivalency 
 1379 

limits and, to the extent possible, considers average physician incomes by specialty using 

the best available data. 

* * * * *

PART 422—MEDICARE ADVANTAGE PROGRAM 

 53. The authority citation for Part 422 continues to read as follows: 

 Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 

1395hh). 

 54. Section 422.300 is revised to read as follows: 

§ 422.300 Basis and scope.

 This subpart is based on sections 1106, 1853, 1854, and 1858 of the Act. It sets 

forth the rules for making payments to Medicare Advantage (MA) organizations offering 

local and regional MA plans, including calculation of MA capitation rates and 

benchmarks, conditions under which payment is based on plan bids, adjustments to 

capitation rates (including risk adjustment), collection of risk adjustment data, conditions 

for use and disclosure of risk adjustment data, and other payment rules. See § 422.458 in 

subpart J for rules on risk sharing payments to MA regional organizations. 

 55. Section 422.310 is amended by revising paragraph (f) to read as follows: 

§ 422.310 Risk adjustment data.

* * * * * 

 (f) Use and release of data. 

 (1) CMS use of data. CMS may use the data described in paragraphs (a) through 

(d) of this section for the following purposes: 
 1380 

 (i) To determine the risk adjustment factors used to adjust payments, as required 

under §§ 422.304(a) and (c); 

 (ii) To update risk adjustment models; 

 (iii) To calculate Medicare DSH percentages; 

 (iv) To conduct quality review and improvement activities; 

 (v) For Medicare coverage purposes; 

 (vi) To conduct evaluations and other analysis to support the Medicare program 

(including demonstrations) and to support public health initiatives and other health 

care-related research; 

 (vii) For activities to support the administration of the Medicare program; 

 (viii) For activities conducted to support program integrity; and 

 (ix) For purposes permitted by other laws. 

 (2) CMS release of data. Regarding data described in paragraphs (a) through (d) 

of this section, CMS may release the minimum data it determines is necessary for one or 

more of the purposes listed in paragraph (f)(1) of this section to other HHS agencies, 

other Federal executive branch agencies, States, and external entities in accordance with 

the following: 

 (i) Applicable Federal laws; 

 (ii) CMS data sharing procedures; 

 (iii) Subject to the protection of beneficiary identifier elements and beneficiary 

confidentiality, including— 
 1381 

 (A) A prohibition against public disclosure of beneficiary identifying 

information; 

 (B) Release of beneficiary identifying information to other HHS agencies, other 

Federal executive branch agencies, Congressional support agencies, and States only when 

such information is needed; and 

 (C) Release of beneficiary identifying information to external entities only to the 

extent needed to link datasets. 

 (iv) Subject to the aggregation of payment data to protect commercially sensitive 

data. 

* * * * * 

PART 424—CONDITIONS FOR MEDICARE PAYMENT 

 56. The authority citation for Part 424 continues to read as follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 

1395(hh)). 

 57. Section 424.11 is amended by revising paragraph (d)(5) to read as follows: 

§ 424.11 General procedures. 

* * * * * 

 (d) * * * 

 (5) For all inpatient hospital services, including inpatient psychiatric facility 

services, a delayed certification may not extend past discharge. 

* * * * * 

 58. Section 424.15 is amended by revising paragraph (b) to read as follows: 
 1382 

§ 424.15 Requirements for inpatient CAH services.

* * * * * 

 (b) Certification begins with the order for inpatient admission. The certification 

must be completed, signed, and documented in the medical record no later than 1 day 

before the date on which the claim for payment for the inpatient CAH service is 

submitted. 

* * * * * 

PART 485—CONDITIONS OF PARTICIPATION: SPECIALIZED PROVIDERS 

 59. 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)). 

 60. Section 485.610 is amended by revising paragraph (b) introductory text and 

adding a new paragraph (b)(5) to read as follows: 

§ 485.610 Conditions of participation: Status and location. 

* * * * * 

 (b) Standard: Location in a rural area or treatment as rural. The CAH meets the 

requirements of either paragraph (b)(1) or (b)(2) of this section or the requirements of 

paragraph (b)(3), (b)(4), or (b)(5) of this section. 

* * * * * 

 (5) Effective on or after October 1, 2014, for a period of 2 years beginning with 

the effective date of the most recent Office of Management and Budget (OMB) standards 

for delineating statistical areas adopted by CMS, the CAH no longer meets the location 
 1383 

requirements in either paragraph (b)(1) or (b)(2) of this section and is located in a county 

that, prior to the most recent OMB standards for delineating statistical areas adopted by 

CMS and the most recent Census Bureau data, was located in a rural area as defined by 

OMB, but under the most recent OMB standards for delineating statistical areas adopted 

by CMS and the most recent Census Bureau data, is located in an urban area. 

* * * * * 

PART 488—SURVEY, CERTIFICATION, AND ENFORCEMENT 

PROCEDURES 

 61. The authority citation for Part 488 continues to read as follows: 

 Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 

1395(hh)). 

 62. Section 488.61 is amended by— 

 a. Revising paragraphs (a)(4) and (c)(4). 

 b. Adding new paragraphs (f), (g), and (h). 

 The revisions and additions read as follows: 

§ 488.61 Special procedures for approval and re-approval of organ transplant 

centers. 

* * * * * 

 (a) * * * 

 (4) CMS will consider mitigating factors in accordance with paragraphs (f), (g), 

and (h) of this section. 

* * * * * 
 1384 

 (c) * * * 

 (4) CMS will consider mitigating factors in accordance with paragraphs (f), (g), 

and (h) of this section. 

* * * * * 

 (f) Consideration of mitigating factors in initial approval and re-approval survey, 

certification, and enforcement actions for transplant centers.

 (1) Factors. Except for situations of immediate jeopardy, CMS will consider 

mitigating factors, including (but not limited to) the following, in making a decision of 

initial and re-approval of a transplant center that does not meet the data submission, 

clinical experience, or outcome requirements, or other conditions of participation: 

 (i) The extent to which outcome measures are not met or exceeded; 

 (ii) Availability of Medicare-approved transplant centers in the area; 

 (iii) Extenuating circumstances (for example, natural disaster) that have a 

temporary effect on meeting the conditions of participation; 

 (iv) Program improvements that substantially address root causes of graft failures 

or patient deaths and that have been implemented and institutionalized on a sustainable 

basis; 

 (v) Recent patient and graft survival data to determine if there is sufficient 

clinical experience and survival for CMS to conclude that the program is in compliance 

with CMS requirements, except for the data lag inherent in the reports from the Scientific 

Registry of Transplant Recipients (SRTR); 
 1385 

 (vi) Whether the program has made extensive use of innovative transplantation 

practices relative to other transplant programs, such as a high rate of transplantation of 

individuals who are highly sensitized or children who have undergone a Fontan 

procedure compared to most other transplant programs, where CMS finds that the 

innovative practices are supported by evidence-based published research literature or 

nationally recognized standards or Institution Review Board (IRB) approvals, and the 

SRTR risk-adjustment methodology does not take the relevant key factors into 

consideration; and 

 (vii) Whether the program’s performance, based on the OPTN method of 

calculating patient and graft survival, is within the OPTN’s thresholds for acceptable 

performance and does not flag OPTN performance review under the applicable OPTN 

policy. 

 (2) Content. A request for consideration of mitigating factors must include 

sufficient information to permit an adequate review and understanding of the transplant 

program, the factors that have contributed to outcomes, program improvements or 

innovations that have been implemented or planned, and in the case of natural disasters, 

the recovery actions planned. Examples of information to be submitted with each request 

include (but are not limited to) the following: 

 (i) The name and contact information for the transplant hospital and the names 

and roles of key personnel of the transplant program; 

 (ii) The type of organ transplant program(s) for which approval is requested; 
 1386 

 (iii) The conditions of participation that the program does not meet for which the 

transplant center is requesting CMS’ review for mitigating factors; 

 (iv) The rationale and supporting evidence for CMS’ review may include (but is 

not limited to)— 

 (A) Root Cause Analysis for patient deaths and graft failures, including factors 

the program has identified as likely causal or contributing factors for patient deaths and 

graft failures; 

 (B) Program improvements or innovations (where applicable) that have been 

implemented and improvements that are planned; 

 (C) Patient and donor/organ selection criteria and evaluation protocols, including 

methods for pre-transplant patient evaluation by cardiologists, hematologists, 

nephrologists, and psychiatrists or psychologists to the extent applicable; 

 (D) Organizational chart with full-time equivalent levels, roles, and structure for 

reporting to hospital leadership; 

 (E) Waitlist management protocols and practices relevant to outcomes; 

 (F) Pre-operative management protocols and practices; 

 (G) Immunosuppression/infection prophylaxis protocols; 

 (H) Post-transplant monitoring and management protocols and practices; 

 (I) Quality Assessment and Performance Improvement (QAPI) Program meeting 

minutes from the most recent four meetings and attendance rosters from the most recent 

12 months; 

 (J) Quality dashboard and other performance indicators; 
 1387 

 (K) Recent outcomes data for both patient survival and graft survival; and 

 (L) Whether the program has engaged with the OPTN to review program 

outcomes, the status of any such review, and any steps taken to address program 

outcomes pursuant to the OPTN review. 

 (3) Timing. Within 10 days after CMS has issued formal written notice of a 

condition-level deficiency to the program, CMS must receive notification of the 

program’s intent to seek mitigating factors approval or re-approval, and receive all 

information for consideration of mitigating factors within 30 days of the CMS written 

notification for any deficiency that is not for insufficient clinical experience or outcomes, 

and 120 days of the CMS written notification for a deficiency due to clinical experience 

or outcomes. Failure to meet these timeframes may be the basis for denial of mitigating 

factors. 

 (g) Results of mitigating factors review.

 (1) Actions. Upon review of the request to consider mitigating factors, CMS may 

take the following actions: 

 (i) Approve initial approval or re-approval of a program’s Medicare participation 

based upon approval of mitigating factors; 

 (ii) Deny the program’s request for Medicare approval or re-approval based on 

mitigating factors. 

 (iii) Offer a time-limited Systems Improvement Agreement, in accordance with 

paragraph (h) of this section, when a transplant program has waived its appeal rights, has 

implemented substantial program improvements that address root causes and are 
 1388 

institutionally supported by the hospital’s governing body on a sustainable basis, and has 

requested more time to design or implement additional improvements or demonstrate 

compliance with CMS outcome requirements. Upon completion of the Systems 

Improvement Agreement or a CMS finding that the hospital has failed to meet the terms 

of the Agreement, CMS makes a final determination of whether to approve or deny a 

program’s request for Medicare approval or re-approval based on mitigating factors. A 

Systems Improvement Agreement follows the process specified in paragraph (h) of this 

section. 

 (2) Limitation. CMS will not approve any program with a condition-level 

deficiency. However, CMS may approve a program with a standard-level deficiency 

upon receipt of an acceptable plan of correction. 

 (h) Transplant Systems Improvement Agreement. A Systems Improvement 

Agreement is a binding agreement, entered into voluntarily by the hospital and CMS, 

through which CMS extends a prospective Medicare termination date and offers the 

program additional time to achieve compliance with the conditions of participation, 

contingent on the hospital’s agreement to participate in a structured regimen of quality 

improvement activities, demonstrate improved outcomes, and waive the right to appeal 

termination based on the identified deficiency or deficiencies that led to the Agreement in 

consideration for more time to demonstrate compliance. In some cases, transplant 

programs may enter a period of inactivity—voluntarily, or imposed as a condition of the 

Systems Improvement Agreement. 
 1389 

 (1) Content. In exchange for the additional time to initiate or continue activities 

to achieve compliance with the conditions of participation, the hospital must agree to a 

regimen of specified activities, including (but not limited to) all of the following: 

 (i) Patient notification about the degree and type of noncompliance by the 

program, an explanation of what the program improvement efforts mean for patients, and 

financial assistance to defray the out-of-pocket costs of copayments and testing expenses 

for any wait-listed individual who wishes to be listed with another program; 

 (ii) An external independent peer review team that conducts: an onsite 

assessment of program policies, staffing, operations, relationship to hospital services, and 

factors that contribute to program outcomes; that suggests quality improvements the 

hospital should consider; that provides both verbal and written feedback to the hospital; 

and that provides a verbal debriefing to CMS. Neither the hospital nor the peer review 

team is required to provide a written report to CMS. The peer review team must include 

a transplant surgeon with expertise in the relevant organ type(s), a transplant 

administrator, an individual with expertise in transplant QAPI systems, a social worker or 

psychologist or psychiatrist, and a specialty physician with expertise in conditions 

particularly relevant to the applicable organ types(s) such as a cardiologist, nephrologist, 

or hepatologist. Except for the transplant surgeon, CMS may permit substitution of one 

type of expertise for another individual who has expertise particularly needed for the type 

of challenges experienced by the program, such as substitution of an infection control 

specialist in lieu of, or in addition to, a social worker; 
 1390 

 (iii) An action plan that addresses systemic quality improvements and is updated 

after the onsite peer review; 

 (iv) An onsite consultant whose qualifications are approved by CMS, and who 

provides services for 8 days per month on average for the duration of the agreement, 

except that CMS may permit a portion of the time to be spent offsite and may agree to 

fewer consultant days each month after the first 3 months of the Systems Improvement 

Agreement; 

 (v) A comparative effectiveness analysis that compares policies, procedures, and 

protocols of the transplant program with those of other programs in areas of endeavor that 

are relevant to the center’s current quality improvement needs; 

 (vi) Development of increased proficiency, or demonstration of current 

proficiency, with patient-level data from the Scientific Registry of Transplant Recipients 

and the use of registry data to analyze outcomes and inform quality improvement efforts; 

 (vii) A staffing analysis that examines the level, type, training, and skill of staff 

in order to inform transplant center efforts to ensure the engagement and appropriate 

training and credentialing of staff. 

 (viii) Activities to strengthen performance of the Quality Assessment and 

Performance Improvement Program to ensure full compliance with the requirements of 

§ 482.96 of this chapter; 

 (ix) Monthly (unless otherwise specified) reporting and conference calls with 

CMS regarding the status of programmatic improvements, results of the deliverables in 
 1391 

the Systems Improvement Agreement, and the number of transplants, deaths, and graft 

failures that occur within 1 year post-transplant; and 

 (x) Additional or alternative requirements specified by CMS, tailored to the 

transplant program type and circumstances. 

 (2) Timeframe. A Systems Improvement Agreement will be established for up to 

a 12-month period, subject to CMS’ discretion to determine if a shorter timeframe may 

suffice. At the hospital’s request, CMS may extend the agreement for up to an additional 

6-month period. 
CMS-1607-P 

(Catalog of Federal Domestic Assistance Program No. 93.773, Medicare--Hospital 

Insurance; Program No. 93.774, Medicare--Supplementary Medical Insurance Program; 

and Program No. 93.778, Medical Assistance) 

Dated: April 18, 2014 

 ______________________________ 

 Marilyn Tavenner, 

 Administrator, Centers for 

 Medicare & Medicaid Services 

Dated: April 22, 2014 

 ___________________________ 

 Kathleen Sebelius, 

 Secretary, Department of Health and Human 

 Services 

BILLING CODE 4120-01-P
 1393 

Note: The following Addendum and Appendixes will not appear in the Code of 

Federal Regulations. 

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

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

after October 1, 2014 and Payment Rates for LTCHs Effective for Discharges 

Occurring on or after October 1, 2014 

I. Summary and Background 

 In this Addendum, we are setting forth a description of the methods and data we 

used to determine the proposed prospective payment rates for Medicare hospital inpatient 

operating costs and Medicare hospital inpatient capital-related costs for FY 2015 for 

acute care hospitals. We also are setting forth the proposed rate-of-increase percentages 

for updating the target amounts for certain hospitals excluded from the IPPS for FY 2015. 

We note that, because certain hospitals excluded from the IPPS are paid on a reasonable 

cost basis subject to a rate-of-increase ceiling (and not by the IPPS), these hospitals are 

not affected by the figures for the standardized amounts, offsets, and budget neutrality 

factors. Therefore, in this proposed rule, we are proposing the rate-of-increase 

percentages for updating the target amounts for certain hospitals excluded from the IPPS 

that are effective for cost reporting periods beginning on or after October 1, 2014. 

 In addition, we are setting forth a description of the methods and data we used to 

determine the proposed standard Federal rate that will be applicable to Medicare LTCHs 

for FY 2015. 
 1394 

 In general, except for SCHs, MDHs and hospitals located in Puerto Rico, for 

FY 2015, 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. 

 SCHs are paid based on whichever of the following rates yields the greatest 

aggregate payment: the Federal national rate (including, as discussed in section IV.F. of 

the preamble to this proposed rule, uncompensated care payments under section 

1886(r)(2) of the Act); the updated hospital-specific rate based on FY 1982 costs per 

discharge; the updated hospital-specific rate based on FY 1987 costs per discharge; the 

updated hospital-specific rate based on FY 1996 costs per discharge; or the updated 

hospital-specific rate based on FY 2006 costs per discharge. 

We note that, as discussed in section IV.G. of the preamble of this proposed rule, section 

1106 of the Pathway to SGR Reform Act of 2013 (Pub. L. 113-67), enacted on December 

26, 2013, extended the MDH program from the end of FY 2013 (that is, for discharges 

occurring after September 30, 2013) through the first half of FY 2014 (that is, for 

discharges occurring before April 1, 2014). Subsequently, section 106 of the Protecting 

Access to Medicare Act of 2014 (Pub. L. 113-93), enacted on April 1, 2014, further 

extended the MDH program through the first half of FY 2015 (that is, for discharges 

occurring before April 1, 2015). Prior to the enactment of Pub. L. 113-67, the MDH 

program was only to be in effect through the end of FY 2013. Under current law, the 

MDH program will expire for discharges on or after April 1, 2015. 
 1395 

 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, FY 1987, or FY 2002 costs per discharge, whichever was higher. Section 

5003(c) of Pub. L. 109-171 further required that MDHs be paid based on the Federal 

national rate or, if higher, the Federal national rate plus 75 percent of the difference 

between the Federal national rate and the updated hospital-specific rate. Further, based 

on the provisions of section 5003(d) of 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 Rico-specific rate based on average costs per case 

of Puerto Rico hospitals for the base year and 75 percent of the Federal national rate. 

(We refer readers to section II.D.2. of this Addendum for a complete description.) 

 As discussed below in section II. of this Addendum, we are proposing to make 

changes in the determination of the prospective payment rates for Medicare inpatient 

operating costs for acute care hospitals for FY 2015. In section III. of this Addendum, 

we discuss our proposed policy changes for determining the prospective payment rates 

for Medicare inpatient capital-related costs for FY 2015. In section IV. of this 

Addendum, we are setting forth our proposed changes for determining the 

rate-of-increase limits for certain hospitals excluded from the IPPS for FY 2015. In 

section V. of this Addendum, we discuss proposed policy changes for determining the 

standard Federal rate for LTCHs paid under the LTCH PPS for FY 2015. The tables to 
 1396 

which we refer in the preamble of this proposed rule are listed in section VI. of this 

Addendum and are available via the Internet. 

II. Proposed Changes to Prospective Payment Rates for Hospital Inpatient 

Operating Costs for Acute Care Hospitals for FY 2015 

 The basic methodology for determining prospective payment rates for hospital 

inpatient operating costs for acute care hospitals for FY 2005 and subsequent fiscal years 

is set forth under § 412.64. The basic methodology for determining the prospective 

payment rates for hospital inpatient operating costs for hospitals located in Puerto Rico 

for FY 2005 and subsequent fiscal years is set forth under §§ 412.211 and 412.212. 

Below we discuss the factors we are using for determining the proposed prospective 

payment rates for FY 2015. 

 In summary, the standardized amounts set forth in Tables 1A, 1B, and 1C that are 

listed and published in section VI. of this Addendum (and available via the Internet) 

reflect— 

● Equalization of the standardized amounts for urban and other areas at the level 

computed for large urban hospitals during FY 2004 and onward, as provided for under 

section 1886(d)(3)(A)(iv)(II) of the Act. 

● The labor-related share that is applied to the standardized amounts and Puerto 

Rico-specific standardized amounts to give the hospital the highest payment, as provided 

for under sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act. 

For FY 2015, depending on whether a hospital submits quality data under the rules 

established in accordance with section 1886(b)(3)(B)(viii) of the Act (hereafter referred 
 1397 

to as a hospital that submits quality data) and is a meaningful EHR user under section 

1886(b)(3)(B)(ix) of the Act (hereafter referred to as a hospital that is a meaningful EHR 

user), there are four possible applicable percentage increases that can be applied to the 

national standardized amount. We refer the reader to section IV.B. of the preamble of 

this proposed rule for a complete discussion on the FY 2015 proposed inpatient hospital 

update. Below is a table with these four options: 

FY 2015 

Hospital 

Submitted 

Quality 

Data and is 

a 

Meaningful 

EHR User 

Hospital 

Submitted 

Quality Data 

and is NOT a 

Meaningful 

EHR User 

Hospital Did 

NOT Submit 

Quality Data 

and is a 

Meaningful 

EHR User 

Hospital Did 

NOT Submit 

Quality Data 

and is NOT a 

Meaningful 

EHR User 

Market Basket 

Rate-of-Increase 2.7 2.7 2.7 2.7 

Adjustment for Failure to 

Submit Quality Data under 

Section 1886(b)(3)(B)(viii) 

of the Act 0.0 0.0 -0.675 -0.675 

Adjustment for Failure to 

be a Meaningful EHR User 

under Section 

1886(b)(3)(B)(ix) of the 

Act 0.0 -0.675 0.0 -0.675 

MFP Adjustment under 

Section 1886(b)(3)(B)(xi) 

of the Act -0.4 -0.4 -0.4 -0.4 

Statutory Adjustment 

under Section 

1886(b)(3)(B)(xii) of the 

Act -0.2 -0.2 -0.2 -0.2 

Proposed Applicable 

Percentage Increase 

Applied to Standardized 

Amount 2.1 1.425 1.425 0.75 
 1398 

● A proposed update of 2.1 percent to the Puerto Rico-specific standardized amount 

(that is, the FY 2015 estimate of the market basket rate-of-increase of 2.7 percent less a 

proposed adjustment of 0.4 percentage point for MFP and less 0.2 percentage point), in 

accordance with section 1886(d)(9)(C)(i) of the Act, as amended by section 401(c) of 

Pub. L. 108-173, which sets the update to the Puerto Rico-specific standardized amount 

equal to the applicable percentage increase set forth under section 1886(b)(3)(B)(i) of the 

Act. 

● An adjustment to the standardized amount to ensure budget neutrality for DRG 

recalibration and reclassification, as provided for under section 1886(d)(4)(C)(iii) of the 

Act. 

● An adjustment to ensure the wage index changes are budget neutral, as 

provided for under section 1886(d)(3)(E)(i) of the Act. We note that 

section 1886(d)(3)(E)(i) of the Act requires that when we compute such budget 

neutrality, we assume that the provisions of section 1886(d)(3)(E)(ii) of the Act 

(requiring a 62 percent labor-related share in certain circumstances) had not been 

enacted. 

● An adjustment to ensure the effects of geographic reclassification are budget 

neutral, as provided for under section 1886(d)(8)(D) of the Act, by removing the FY 2014 

budget neutrality factor and applying a revised factor. 

● As discussed below and in section III. of the preamble of this proposed rule, an 

adjustment to offset the cost of the transitional wage index provisions provided by CMS 

as a result of the proposed adoption of the new OMB labor market area delineations. 
 1399 

● An adjustment to ensure the effects of the rural community hospital 

demonstration program required under section 410A of Pub. L. 108-173, as amended by 

sections 3123 and 10313 of Pub. L. 111-148, which extended the demonstration program 

for an additional 5 years, are budget neutral as required under section 410A(c)(2) of 

Pub. L. 108-173. 

● An adjustment to remove the FY 2014 outlier offset and apply an offset for 

FY 2015, as provided for under section 1886(d)(3)(B) of the Act. 

● As discussed below and in section II.D. of the preamble of this proposed rule, a 

proposed recoupment to meet the requirements of section 631 of ATRA to adjust the 

standardized amount to offset the estimated amount of the increase in aggregate payments 

as a result of not completing the prospective adjustment authorized under 

section 7(b)(1)(A) of Pub. L. 110-90 until FY 2013. 

 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 2014, for FY 2015, consistent with current law, we are proposing to continue to apply 

the rural floor budget neutrality adjustment to hospital wage indexes rather than the 

standardized amount. Also, consistent with section 3141 of the Affordable Care Act, 

instead of applying a State level rural floor budget neutrality adjustment to the wage 

index, we are proposing to apply a uniform, national budget neutrality adjustment to the 

proposed FY 2015 wage index for the rural floor. We note that, in section III.G.2.b. of 

the preamble to this proposed rule, we are proposing to extend the imputed floor policy 
 1400 

(both the original methodology and alternative methodology) for another year, through 

September 30, 2015. 

 Therefore, for this proposed rule, we are proposing to continue to include the 

imputed floor (calculated under the original and alternative methodologies) in calculating 

the uniform, national rural floor budget neutrality adjustment, which will be reflected in 

the proposed FY 2015 wage index. 

A. Calculation of the Proposed Adjusted Standardized Amount 

1. Standardization of Base-Year Costs or Target Amounts 

 In general, the national standardized amount is based on per discharge averages of 

adjusted hospital costs from a base period (section 1886(d)(2)(A) of the Act), updated 

and otherwise adjusted in accordance with the provisions of section 1886(d) of the Act. 

For Puerto Rico hospitals, the Puerto Rico-specific standardized amount is based on per 

discharge averages of adjusted target amounts from a base period 

(section 1886(d)(9)(B)(i) of the Act), updated and otherwise adjusted in accordance with 

the provisions of section 1886(d)(9) of the Act. The September 1, 1983 interim final rule 

(48 FR 39763) contained a detailed explanation of how base-year cost data (from cost 

reporting periods ending during FY 1981) were established for urban and rural hospitals 

in the initial development of standardized amounts for the IPPS. The September 1, 1987 

final rule (52 FR 33043 and 33066) contains a detailed explanation of how the target 

amounts were determined and how they are used in computing the Puerto Rico rates. 

 Sections 1886(d)(2)(B) and 1886(d)(2)(C) of the Act require us to update 

base-year per discharge costs for FY 1984 and then standardize the cost data in order to 
 1401 

remove the effects of certain sources of cost variations among hospitals. These effects 

include case-mix, differences in area wage levels, cost-of-living adjustments for Alaska 

and Hawaii, IME costs, and costs to hospitals serving a disproportionate share of 

low-income patients. 

 In accordance with section 1886(d)(3)(E) of the Act, the Secretary estimates, from 

time-to-time, the proportion of hospitals’ costs that are attributable to wages and 

wage-related costs. In general, the standardized amount is divided into labor-related and 

nonlabor-related amounts; only the proportion considered to be the labor-related amount 

is adjusted by the wage index. Section 1886(d)(3)(E) of the Act requires that 62 percent 

of the standardized amount be adjusted by the wage index, unless doing so would result 

in lower payments to a hospital than would otherwise be made. 

(Section 1886(d)(9)(C)(iv)(II) of the Act extends this provision to the labor-related share 

for hospitals located in Puerto Rico.) 

 For FY 2015, we are proposing to use the national and Puerto Rico-specific 

labor-related and nonlabor-related shares established for FY 2014, using the FY 2010-

based hospital market basket. 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: 

“[T]he 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 

2015, as discussed in section III. of the preamble of this proposed rule, we are proposing 
 1402 

to establish a labor-related share of 69.6 percent for the national standardized amounts, 

and 63.2 percent for the Puerto Rico-specific standardized amount, if the hospital has a 

wage index value that is greater than 1.0000. Consistent with section 1886(d)(3)(E) of 

the Act, we are proposing to apply the wage index to a labor-related share of 62 percent 

of the national standardized amount for all IPPS hospitals whose wage index values are 

less than or equal to 1.0000. For all IPPS hospitals whose wage indices are greater than 

1.0000, we are proposing to apply the wage index to a labor-related share of 69.6 percent 

of the national standardized amount. For FY 2015, all Puerto Rico hospitals have a 

proposed wage index value that is less than 1.0000 because the proposed average hourly 

rate of every hospital in Puerto Rico divided by the proposed national average hourly rate 

(the sum of all salaries and hours for all hospitals in the 50 United States and Puerto 

Rico) results in a proposed wage index that is below 1.0000. However, when we divide 

the proposed average hourly rate of every hospital located in Puerto Rico by the proposed 

Puerto Rico-specific national average hourly rate (the sum of all salaries and hours for all 

hospitals located only in Puerto Rico), we determine a proposed Puerto Rico-specific 

wage index value for some hospitals that is either above, or below 1.0000, depending on 

the hospital’s location within Puerto Rico. 

 Therefore, for hospitals located in Puerto Rico, we are proposing to apply a laborrelated share of 63.2 percent if its Puerto Rico-specific wage index is greater than 1.0000. 

For hospitals located in Puerto Rico whose Puerto Rico-specific wage index values are 

less than or equal to 1.0000, we are proposing to apply a labor share of 62 percent. 
 1403 

 The proposed standardized amounts for operating costs appear in Tables 1A, 1B, 

and 1C that are listed and published in section VI. of the Addendum to this proposed rule 

and are available via the Internet. 

2. Computing the National Average Standardized Amount and Puerto Rico-Specific 

Standardized Amount 

 Section 1886(d)(3)(A)(iv)(II) of the Act requires that, beginning with FY 2004 

and thereafter, an equal standardized amount be computed for all hospitals at the level 

computed for large urban hospitals during FY 2003, updated by the applicable percentage 

update. Section 1886(d)(9)(A)(ii)(II) of the Act equalizes the Puerto Rico-specific urban 

and rural area rates. Accordingly, we are proposing to calculate the FY 2015 national 

average standardized amount and Puerto Rico-specific standardized amount irrespective 

of whether a hospital is located in an urban or rural location. 

3. Updating the National Average Standardized Amount and Puerto Rico-Specific 

Standardized Amount 

 Section 1886(b)(3)(B) of the Act specifies the applicable percentage increase used 

to update the standardized amount for payment for inpatient hospital operating costs. We 

note that, in compliance with section 404 of the MMA, in this proposed rule, we are 

using the revised and rebased FY 2010-based IPPS operating and capital market baskets 

for FY 2015 (which replaced the FY 2006-based IPPS operating and capital market 

baskets in FY 2014). As discussed in section IV.B. of the preamble of this proposed rule, 

in accordance with section 1886(b)(3)(B) of the Act, as amended by section 3401(a) of 

the Affordable Care Act, we are proposing to reduce the proposed FY 2015 applicable 
 1404 

percentage increase (which is based on IHS Global Insight, Inc.’s (IGI’s) first quarter 

2014 forecast of the FY 2010-based IPPS market basket) by the proposed MFP 

adjustment (the 10-year moving average of MFP for the period ending FY 2015) of 0.4 

percentage point, which is calculated based on IGI’s first quarter 2014 forecast. 

 In addition, in accordance with section 1886(b)(3)(B)(i) of the Act, as amended 

by sections 3401(a) and 10319(a) of the Affordable Care Act, we are proposing to further 

update the standardized amount for FY 2015 by the estimated market basket percentage 

increase less 0.2 percentage point for hospitals in all areas. Sections 1886(b)(3)(B)(xi) 

and (xii) of Act, as added and amended by sections 3401(a) and 10319(a) of the 

Affordable Care Act, further state that these adjustments may result in the applicable 

percentage increase being less than zero. The percentage increase in the market basket 

reflects the average change in the price of goods and services comprising routine, 

ancillary, and special care unit hospital inpatient services. 

 Based on IGI’s 2014 first quarter forecast of the hospital market basket increase 

(as discussed in Appendix B of this proposed rule), the most recent forecast of the 

hospital market basket increase for FY 2015 is 2.7 percent. As discussed above, for 

FY 2015, depending on whether a hospital submits quality data under the rules 

established in accordance with section 1886(b)(3)(B)(viii) of the Act and is a meaningful 

EHR user under section 1886(b)(3)(B)(ix) of the Act, there are four possible applicable 

percentage increases that could be applied to the standardized amount. We refer readers 

to section IV. of the preamble of this proposed rule for a complete discussion on the 

FY 2015 proposed inpatient hospital update to the standardized amount. We also refer 
 1405 

readers to the table above for the four possible proposed applicable percentage increases 

that would be applied to update the national standardized amount. The proposed 

standardized amounts shown in Tables 1A through 1C that are published in section VI. of 

this Addendum and that are available via the Internet reflect these differential amounts. 

 Section 401(c) of Pub. L. 108-173 amended section 1886(d)(9)(C)(i) of the Act 

and states that, for discharges occurring in a fiscal year (beginning with FY 2004), the 

Secretary shall compute an average standardized amount for hospitals located in any area 

of Puerto Rico that is equal to the average standardized amount computed under 

subclause (I) for FY 2003 for hospitals in a large urban area (or, beginning with FY 2005, 

for all hospitals in the previous fiscal year) increased by the applicable percentage 

increase under subsection (b)(3)(B) for the fiscal year involved. Therefore, the update to 

the Puerto Rico-specific operating standardized amount is subject to the applicable 

percentage increase set forth under section 1886(b)(3)(B)(i) of the Act, as amended by 

sections 3401(a) and 10319(a) of the Affordable Care Act (that is, the same update factor 

as for all other hospitals subject to the IPPS). Accordingly, we are proposing to establish 

an applicable percentage increase to the Puerto Rico-specific standardized amount of 

2.1 percent for FY 2015. 

 Although the update factors for FY 2015 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 2015 for both IPPS hospitals and 

hospitals and hospital units excluded from the IPPS. Section 1886(e)(5)(A) of the Act 

requires that we publish our proposed recommendations in the Federal Register for 
 1406 

public comment. Our recommendation on the update factors is set forth in Appendix B 

of this proposed rule. 

4. Other Adjustments to the Average Standardized Amount 

 As in the past, we are proposing to adjust the FY 2015 standardized amount to 

remove the effects of the FY 2014 geographic reclassifications and outlier payments 

before applying the proposed FY 2015 updates. We then apply budget neutrality offsets 

for outliers and geographic reclassifications to the proposed standardized amount based 

on proposed FY 2015 payment policies. 

 We do not remove the prior year’s budget neutrality adjustments for 

reclassification and recalibration of the DRG relative weights and for updated wage data 

because, in accordance with sections 1886(d)(4)(C)(iii) and 1886(d)(3)(E) of the Act, 

estimated aggregate payments after updates in the DRG relative weights and wage index 

should equal estimated aggregate payments prior to the changes. If we removed the prior 

year’s adjustment, we would not satisfy these conditions. 

 Budget neutrality is determined by comparing aggregate IPPS payments before 

and after making changes that are required to be budget neutral (for example, changes to 

MS-DRG classifications, recalibration of the MS-DRG relative weights, updates to the 

wage index, and different geographic reclassifications). We include outlier payments in 

the simulations because they may be affected by changes in these parameters. 

 In order to appropriately estimate aggregate payments in our modeling, we make 

several inclusions and exclusions so that the appropriate universe of claims and charges 
 1407 

are included. We discuss IME Medicare Advantage payment amounts, fee-for-service 

only claims, and charges for anti-hemophilic blood factor and organ acquisition below. 

 First, consistent with our methodology established in the FY 2011 IPPS/LTCH 

PPS final rule (75 FR 50422 through 50433), because IME Medicare Advantage 

payments are made to IPPS hospitals under section 1886(d) of the Act, we believe these 

payments must be part of these budget neutrality calculations. However, we note that it 

is not necessary to include Medicare Advantage IME payments in the outlier threshold 

calculation or the outlier offset to the standardized amount because the statute requires 

that outlier payments be not less than 5 percent nor more than 6 percent of total 

“operating DRG payments,” which does not include IME and DSH payments. We refer 

readers to the FY 2011 IPPS/LTCH PPS final rule for a complete discussion on our 

methodology of identifying and adding the total Medicare Advantage IME payment 

amount to the budget neutrality adjustments. 

 Second, consistent with the methodology in the FY 2012 IPPS/LTCH PPS final 

rule, in order to ensure that we capture only fee-for-service claims, we are only including 

claims with a “Claim Type” of 60 (which is a field on the MedPAR file that indicates a 

claim is a fee-for-service claim). 

 Third, consistent with our methodology established in the FY 2011 IPPS/LTCH 

PPS final rule (75 FR 50422 through 50423), we examined the MedPAR file and 

removed pharmacy charges for anti-hemophilic blood factor (which are paid separately 

under the IPPS) with an indicator of “3” for blood clotting with a revenue code of “0636” 

from the covered charge field for the budget neutrality adjustments. We also removed 
 1408 

organ acquisition charges from the covered charge field for the budget neutrality 

adjustments because organ acquisition is a pass-through payment not paid under the 

IPPS. 

 The Bundled Payments for Care Improvement (BPCI) initiative, developed under 

the authority of section 3021 of the Affordable Care Act (codified at section 1115A of the 

Act), is comprised of four broadly defined models of care, which link payments for 

multiple services beneficiaries receive during an episode of care. Under the BPCI 

initiative, organizations enter into payment arrangements that include financial and 

performance accountability for episodes of care. On January 31, 2013, CMS announced 

the health care organizations selected to participate in the BPCI initiative. For additional 

information on the BPCI initiative, we refer readers to the CMS Center for Medicare and 

Medicaid Innovation’s Web site at: http://innovation.cms.gov/initiatives/BundledPayments/index.html. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53341 through 53343), for 

FY 2013 and subsequent fiscal years, we finalized a methodology to treat hospitals that 

participate in the BPCI initiative the same as prior fiscal years for the IPPS payment 

modeling and ratesetting process (which includes recalibration of the MS-DRG relative 

weights, ratesetting, calculation of the budget neutrality factors, and the impact analysis) 

without regard to a hospital’s participation within these bundled payment models (that is, 

as if they are not participating in those models under the BPCI initiative). Therefore, for 

FY 2015, as discussed in section II.H.4.of the preamble to this proposed rule, we are 

proposing to continue to include all applicable data from subsection (d) hospitals 
 1409 

participating in BPCI Models 1, 2, and 4 in our IPPS payment modeling and ratesetting 

calculations. We refer the reader to the FY 2013 IPPS/LTCH PPS final rule for a 

complete discussion on our final policy for the treatment of hospitals in the BPCI 

initiative in our rate setting process. 

 The Affordable Care Act established the Hospital Readmissions Reduction 

Program and the Hospital VBP Program which adjust payments to certain IPPS hospitals 

beginning with discharges on or after October 1, 2012. Because the adjustments made 

under these programs affect the estimation of aggregate IPPS payments, in this proposed 

rule, consistent with our methodology established in the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53687 through 53688), we believe that it is appropriate to include 

adjustments for these programs within our budget neutrality calculations. We discuss the 

treatment of these two programs in the context of budget neutrality adjustments below. 

 Section 1886(q) of the Act establishes the “Hospital Readmissions Reduction 

Program” effective for discharges from an “applicable hospital” beginning on or after 

October 1, 2012, under which payments to those hospitals under section 1886(d) of the 

Act are reduced to account for certain excess readmissions. Under the Hospital 

Readmissions Reduction Program, for discharges beginning on October 1, 2012 

discharges from an “applicable hospital” are paid at an amount equal to the product of the 

“base operating DRG payment amount” and an “adjustment factor” that accounts for 

excess readmissions for the hospital for the fiscal year plus any applicable add-on 

payments. We refer readers to section IV.H. of the preamble of this proposed rule for full 

details of our implementation of and proposed FY 2015 policy changes to the Hospital 
 1410 

Readmissions Reduction Program. We also note that the Hospital Readmissions 

Reduction Program provided for under section 1886(q) of the Act is not budget neutral. 

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

Program under which, for discharges beginning on October 1, 2012, value-based 

incentive payments are made in a fiscal year to eligible subsection (d) hospitals that meet 

performance standards established for a performance period for that fiscal year. As 

specified under section 1886(o)(7)(B)(i) of the Act, these value-based incentive payments 

are funded by a reduction applied to each eligible hospital’s base-operating DRG 

payment amount, for each discharge occurring in the fiscal year. As required by 

section 1886(o)(7)(A) of the Act, the total amount of allocated funds available for 

value-based incentive payments with respect to a fiscal year is equal to the total amount 

of base-operating DRG payment reductions, as estimated by the Secretary. In a given 

fiscal year, hospitals may earn a value-based incentive payment amount for a fiscal year 

that is greater than, equal to, or less than the reduction amount, based on their 

performance on quality measures under the Hospital VBP Program. Thus, the Hospital 

VBP Program is estimated to have no net effect on overall payments. We refer readers to 

section IV.I. of the preamble of this proposed rule for full details regarding the Hospital 

VBP Program. 

 Both the hospital readmissions payment adjustment (reduction) and the hospital 

VBP payment adjustment (redistribution) are applied on a claim-by-claim basis by 

adjusting, as applicable, the base-operating DRG payment amount for individual 

subsection (d) hospitals, which affects the overall sum of aggregate payments on each 
 1411 

side of the comparison within the budget neutrality calculations. For example, when we 

calculate the budget neutrality factor for MS-DRG reclassification and recalibration of 

the relative weights, we compare aggregate payments estimated using the prior year’s 

GROUPER and relative weights to estimated payments using the new GROUPER and 

relative weights. (We refer readers to section II.A.4.a. of this Addendum for full details.) 

Other factors, such as the DSH and IME payment adjustments, are the same on both sides 

of the comparison because we are only seeking to ensure that aggregate payments do not 

increase or decrease as a result of the changes of MS-DRG reclassification and 

recalibration. 

 In order to properly determine aggregate payments on each side of the 

comparison, as we did for FY 2014, for FY 2015 and subsequent years, we are proposing 

to continue to apply the hospital readmissions payment adjustment and the hospital VBP 

payment adjustment on each side of the comparison, consistent with the methodology 

that we adopted in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53687 through 

53688). That is, we are proposing to apply the readmissions payment adjustment factor 

and the hospital VBP payment adjustment factor on both sides of our comparison of 

aggregate payments when determining all budget neutrality factors described in section 

II.A.4. of this Addendum. 

 For the purpose of calculating the proposed FY 2015 readmissions payment 

adjustment factors, we are proposing to use excess readmission ratios and aggregate 

payments for excess readmissions based on admissions from the prior fiscal year’s 

applicable period because hospitals have had the opportunity to review and correct these 
 1412 

data before the data were made public under the policy we adopted regarding the 

reporting of hospital-specific readmission rates, consistent with section 1886(q)(6) of the 

Act. For this proposed rule, we are proposing to calculate the readmissions payment 

adjustment factors using excess readmission ratios and aggregate payments for excess 

readmissions based on admissions from the finalized applicable period for FY 2015 as 

hospitals have had the opportunity to review and correct these data under our policy 

regarding the reporting of hospital-specific readmission rates consistent with section 

1886(q)(6) of the Act. We discuss our policy regarding the reporting of hospital-specific 

readmission rates for FY 2015 in section IV.H.3.f. of the preamble of this proposed rule. 

(For additional information on our general policy for the reporting of hospital-specific 

readmission rates, consistent with section 1886(q)(6) of the Act, we refer readers to the 

FY 2013 IPPS/LTCH PPS final rule (77 FR 53399 through 53400).) 

 In addition, for this proposed rule, for the purpose of modeling aggregate 

payments when determining all budget neutrality factors, we are proposing to use proxy 

hospital VBP payment adjustment factors for FY 2015 that are based on data from a 

historical period because hospitals have not yet had an opportunity to review and submit 

corrections for their data from the FY 2015 performance period. (For additional 

information on our policy regarding the review and correction of hospital-specific 

measure rates under the Hospital VBP Program, consistent with section 

1886(o)(10)(A)(ii) of the Act, we refer readers to the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53578 through 53581), the CY 2012 OPPS/ASC final rule with comment period 
 1413 

(76 FR 74544 through 74547), and the Hospital Inpatient VBP final rule (76 FR 26534 

through 26536).) 

 The Affordable Care Act also established section 1886(r) of the Act, which 

modifies the methodology for computing the Medicare DSH payment adjustment 

beginning in FY 2014. Beginning in FY 2014, IPPS hospitals receiving Medicare DSH 

payment adjustments will receive an empirically justified Medicare DSH payment equal 

to 25 percent of the amount that would previously have been received under the current 

statutory formula set forth under section 1886(d)(5)(F) of the Act governing the Medicare 

DSH payment adjustment. In accordance with section 1886(r)(2) of the Act, the 

remaining amount, equal to an estimate of 75 percent of what otherwise would have been 

paid as Medicare DSH payments, reduced to reflect changes in the percentage of 

individuals under age 65 who are uninsured, will be available to make additional 

payments to Medicare DSH hospitals based on their share of the total amount of 

uncompensated care reported by Medicare DSH hospitals for a given time period. In 

order to properly determine aggregate payments on each side of the comparison for 

budget neutrality, prior to FY2014, we included estimated Medicare DSH payments on 

both sides of our comparison of aggregate payments when determining all budget 

neutrality factors described in section II.A.4. of this Addendum. 

 To do this for FY 2015 and subsequent years (as we did for FY 2014), we are 

proposing to include estimated empirically justified Medicare DSH payments that will be 

paid in accordance with section 1886(r)(1) of the Act and also to include estimates of the 

additional uncompensated care payments made to hospitals receiving Medicare DSH 
 1414 

payment adjustments as described by section 1886(r)(2) of the Act. That is, we are 

proposing to consider estimated empirically justified Medicare DSH payments at 25 

percent of what would otherwise have been paid, and also the estimated additional 

uncompensated care payments for hospitals receiving Medicare DSH payment 

adjustments on both sides of our comparison of aggregate payments when determining all 

budget neutrality factors described in section II.A.4. of this Addendum. 

 We note that, when calculating total payments for budget neutrality, to determine 

total payments for SCHs we model total hospital-specific rate payments and total federal 

rate payments and then include whichever one of the total payments are greater. As 

discussed in section IV.F. of the preamble to this proposed rule and below, we are 

continuing the FY 2014 finalized methodology under which we will take into 

consideration uncompensated care payments in the comparison of payments under the 

Federal rate and the hospital-specific rate for SCHs. Therefore, we are including 

estimated uncompensated care payments in this comparison. 

 Similarly, for MDHs, as discussed in section IV. of the preamble to this proposed 

rule, when computing the Federal national rate plus 75 percent of the difference between 

the Federal national rate and the updated hospital-specific rate, we are continuing to take 

into consideration uncompensated care payments in the computation of payments under 

the Federal rate and the hospital-specific rate for MDHs. 

 Also, for FY 2015, CMS has yet to finalize a list of hospitals that are not 

meaningful EHR users under section 1886(b)(3)(B)(ix) of the Act. Therefore, we are 

proposing not to include this adjustment to the standardized amount (for those hospitals 
 1415 

that are not meaningful EHR users) in our modeling of aggregate payments for budget 

neutrality for FY 2015. CMS intends to release a final list of hospitals that are not 

meaningful EHR user in September 2014. Hospitals identified on this list will be paid 

based on the applicable proposed standardized amount in Table 1A for discharges 

occurring in FY 2015. 

 We finally note that the wage index value is calculated and assigned to a hospital 

based on the hospital’s labor market area. Under section 1886(d)(3)(E) of the Act, 

beginning with FY 2005, we delineate hospital labor market areas based on the 

Core-Based Statistical Areas (CBSAs) established by the Office of Management and 

Budget (OMB). The current statistical areas used in FY 2014 are based on OMB 

standards published on December 27, 2000 (65 FR 82228) and Census 2000 data and 

Census Bureau population estimates for 2007 and 2008 (OMB Bulletin No. 10-02). For 

purposes of determining all of the FY 2014 budget neutrality factors, we determined 

aggregate payments on each side of the comparison for our budget neutrality calculations 

using wage indexes based on the current CBSAs. 

 As stated in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27552) and final 

rule (78 FR 50586), on February 28, 2013, OMB issued OMB Bulletin No. 13-01, which 

established revised delineations for Metropolitan Statistical Areas, Micropolitan 

Statistical Areas, and Combined Statistical Areas, and provided guidance on the use of 

the delineations of these statistical areas. In order to implement these changes for the 

IPPS, it is necessary to identify the new OMB labor market area delineation for each 

county and hospital in the country. In the FY 2014 IPPS/LTCH PPS final rule 
 1416 

(78 FR 50586), we stated that we intended to propose changes to the wage index policy 

based on the new OMB delineations in this FY 2015 proposed rule. As discussed in 

section III. of the preamble of this proposed rule, we are proposing to adopt the new 

OMB labor market area delineations as described in the February 28, 2013 OMB Bulletin 

No. 13-01, effective for the FY 2015 IPPS wage index. 

 Consistent with our proposal to adopt the new OMB delineations, in order to 

properly determine aggregate payments on each side of the comparison for our budget 

neutrality calculations, we are proposing to use wage indexes based on the new OMB 

delineations in the determination of all of the proposed budget neutrality factors 

discussed below (with the exception of the proposed transitional budget neutrality factor 

and proposed outlier threshold as explained below). We also note that, consistent with 

past practice as finalized in the FY 2005 IPPS final rule (69 FR 49034), we are not 

adopting the new OMB delineations themselves in a budget neutral manner. We continue 

to believe that the revision to the labor market areas in and of itself do not constitute an 

“adjustment or update” to the adjustment for area wage differences, as provided under 

section 1886(d)(3)(E) of the Act. 

a. Proposed Recalibration of MS-DRG Relative Weights and Updated Wage 

Index--Budget Neutrality Adjustment 

 Section 1886(d)(4)(C)(iii) of the Act specifies that, beginning in FY 1991, the 

annual DRG reclassification and recalibration of the relative weights must be made in a 

manner that ensures that aggregate payments to hospitals are not affected. As discussed 

in section II.H. of the preamble of this proposed rule, we normalized the recalibrated 
 1417 

MS-DRG relative weights by an adjustment factor so that the average case relative 

weight after recalibration is equal to the average case relative weight prior to 

recalibration. However, equating the average case relative weight after recalibration to 

the average case relative weight before recalibration does not necessarily achieve budget 

neutrality with respect to aggregate payments to hospitals because payments to hospitals 

are affected by factors other than average case relative weight. Therefore, as we have 

done in past years, we are proposing to make a budget neutrality adjustment to ensure 

that the requirement of section 1886(d)(4)(C)(iii) of the Act is met. 

 Section 1886(d)(3)(E)(i) of the Act requires us to update the hospital wage index 

on an annual basis beginning October 1, 1993. This provision also requires us to make 

any updates or adjustments to the wage index in a manner that ensures that aggregate 

payments to hospitals are not affected by the change in the wage index. Section 

1886(d)(3)(E)(i) of the Act requires that we implement the wage index adjustment in a 

budget neutral manner. However, section 1886(d)(3)(E)(ii) of the Act sets the 

labor-related share at 62 percent for hospitals with a wage index less than or equal to 

1.0000, and section 1886(d)(3)(E)(i) of the Act provides that the Secretary shall calculate 

the budget neutrality adjustment for the adjustments or updates made under that provision 

as if section 1886(d)(3)(E)(ii) of the Act had not been enacted. In other words, this 

section of the statute requires that we implement the updates to the wage index in a 

budget neutral manner, but that our budget neutrality adjustment should not take into 

account the requirement that we set the labor-related share for hospitals with wage 

indices less than or equal to 1.0 at the more advantageous level of 62 percent. Therefore, 
 1418 

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 1.0000 are paid using a labor-related share of 62 percent. Consistent with 

current policy, for FY 2015, we are proposing to adjust 100 percent of the wage index 

factor for occupational mix. We describe the proposed occupational mix adjustment in 

section III.F. of the preamble of this proposed rule. 

 For FY 2015, to comply with the requirement that MS-DRG reclassification and 

recalibration of the relative weights be budget neutral for the Puerto Rico standardized 

amount and the hospital-specific rates, we used FY 2013 discharge data to simulate 

payments and compared the following: 

● Aggregate payments using the new OMB labor market area delineations 

proposed for FY 2015, the FY 2014 relative weights, and the FY 2014 pre-reclassified 

wage data, and applied the proposed FY 2015 hospital readmissions payment adjustments 

and estimated FY 2015 hospital VBP payment adjustments; and 

● Aggregate payments using the new OMB labor market area delineations 

proposed for FY 2015, the proposed FY 2015 relative weights, and the FY 2014 prereclassified wage data, and applied the same hospital readmissions payment adjustments 

and estimated hospital VBP payment adjustments applied above. 

 Based on this comparison, we computed a proposed budget neutrality adjustment 

factor equal to 0.992938. As discussed in section IV. of this Addendum, we also are 

proposing to apply the proposed MS-DRG reclassification and recalibration budget 
 1419 

neutrality factor of 0.992938 to the hospital-specific rates that are effective for cost 

reporting periods beginning on or after October 1, 2014. 

 In order to meet the statutory requirements that we do not take into account the 

labor-related share of 62 percent when computing wage index budget neutrality, it was 

necessary to use a three-step process to comply with the requirements that MS-DRG 

reclassification and recalibration of the relative weights and the updated wage index and 

labor-related share have no effect on aggregate payments for IPPS hospitals. Under the 

first step, we determined a proposed MS- DRG reclassification and recalibration budget 

neutrality factor of 0.992938 (by using the same methodology described above to 

determine the MS-DRG reclassification and recalibration budget neutrality factor for the 

Puerto Rico standardized amount and hospital-specific rates). Under the second step, to 

compute a proposed budget neutrality factor for wage index and labor-related share 

changes we used FY 2013 discharge data to simulate payments and compared the 

following: 

● Aggregate payments using the new OMB labor market area delineations 

proposed for FY 2015, proposed FY 2015 relative weights and the FY 2014 prereclassified wage indices, applied the FY 2014 labor-related share of 69.6 percent to all 

hospitals (regardless of whether the hospital’s wage index was above or below 1.0), and 

applied the proposed FY 2015 hospital readmissions payment adjustment and the 

proposed FY 2015 estimated hospital VBP payment adjustment; and 

● Aggregate payments using the new OMB labor market area delineations 

proposed for FY 2015, proposed FY 2015 relative weights and the proposed FY 2015 
 1420 

pre-reclassified wage indices, applied the proposed labor-related share for FY 2015 of 

69.6 percent to all hospitals (regardless of whether the hospital’s wage index was above 

or below 1.0), and applied the same proposed FY 2015 hospital readmissions payment 

adjustments and estimated proposed FY 2015 hospital VBP payment adjustments applied 

above. 

 In addition, we applied the proposed MS-DRG reclassification and recalibration 

budget neutrality factor (derived in the first step) to the payment rates that were used to 

simulate payments for this comparison of aggregate payments from FY 2014 to FY 2015. 

By applying this methodology, we determined a proposed budget neutrality adjustment 

factor of 1.000578 for changes to the wage index. Finally, we multiplied the proposed 

MS-DRG reclassification and recalibration budget neutrality adjustment factor of 

0.992938 (derived in the first step) by the proposed budget neutrality adjustment factor of 

1.000578 for changes to the wage index (derived in the second step) to determine the 

proposed MS-DRG reclassification and recalibration and updated wage index budget 

neutrality adjustment factor of 0.993512. 

b. Reclassified Hospitals—Budget Neutrality Adjustment 

 Section 1886(d)(8)(B) of the Act provides that certain rural hospitals are deemed 

urban. In addition, section 1886(d)(10) of the Act provides for the reclassification of 

hospitals based on determinations by the MGCRB. Under section 1886(d)(10) of the 

Act, a hospital may be reclassified for purposes of the wage index. 

 Under section 1886(d)(8)(D) of the Act, the Secretary is required to adjust the 

standardized amount to ensure that aggregate payments under the IPPS after 
 1421 

implementation of the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of 

the Act are equal to the aggregate prospective payments that would have been made 

absent these provisions. We note that the wage index adjustments provided for under 

section 1886(d)(13) of the Act are not budget neutral. Section 1886(d)(13)(H) of the Act 

provides that any increase in a wage index under section 1886(d)(13) shall not be taken 

into account in “applying any budget neutrality adjustment with respect to such index” 

under section 1886(d)(8)(D) of the Act. To calculate the proposed budget neutrality 

factor for FY 2015, we used FY 2013 discharge data to simulate payments and compared 

the following: 

● Aggregate payments using the new OMB labor market area delineations 

proposed for FY 2015, proposed FY 2015 relative weights, and proposed FY 2015 wage 

data prior to any reclassifications under sections 1886(d)(8)(B) and (C) and 1886(d)(10) 

of the Act, and applied the proposed FY 2015 hospital readmissions payment adjustments 

and the proposed estimated FY 2015 hospital VBP payment adjustments; and 

● Aggregate payments using the new OMB labor market area delineations 

proposed for FY 2015, proposed FY 2015 relative weights, and proposed FY 2015 wage 

data after such reclassifications, and applied the same proposed hospital readmissions 

payment adjustments and the estimated hospital VBP payment adjustments applied 

above. 

 We note that the reclassifications applied under the second simulation and 

comparison are those listed in Tables 9A2 and 9C2, which are posted on the CMS Web 

site. These tables reflect reclassification crosswalks based on the new OMB labor market 
 1422 

area delineations proposed for FY 2015, and apply the policies explained in section III. of 

the preamble to this proposed rule. Based on these simulations, we calculated a proposed 

budget neutrality adjustment factor of 0.991412 to ensure that the effects of these 

provisions are budget neutral, consistent with the statute. 

 The proposed FY 2015 budget neutrality adjustment factor was applied to the 

proposed standardized amount after removing the effects of the FY 2014 budget 

neutrality adjustment factor. We note that the proposed FY 2015 budget neutrality 

adjustment reflects proposed FY 2015 wage index reclassifications approved by the 

MGCRB or the Administrator. 

c. Proposed Rural Floor Budget Neutrality Adjustment 

 Under § 412.64(e)(4), 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) are equal to the 

aggregate prospective payments that would have been made in the absence of such 

provisions. Consistent with section 3141 of the Affordable Care Act and as discussed in 

section III.G. of the preamble of this proposed rule and codified at § 412.64(e)(4)(ii), the 

budget neutrality adjustment for the rural and imputed floor is a national adjustment to 

the wage index. 

 As noted above and as discussed in section III.G.2.b. of the preamble of this 

proposed rule, in the FY 2012 IPPS/LTCH PPS final rule, we extended the imputed floor 

calculated under the original methodology through FY 2013 (76 FR 51594). In the 

FY 2013 IPPS/LTCH PPS final rule, we established an alternative methodology for 
 1423 

calculating the imputed floor and established a policy that the minimum wage index 

value for an all-urban state would be the higher of the value determined under the 

original methodology or the value computed using the alternative methodology 

(77 FR 53368 through 53369). Consistent with the methodology for treating the imputed 

floor, similar to the methodology we used in the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53368 through 53369), we included this alternative methodology for computing 

the imputed floor index in the calculation of the uniform, national rural floor budget 

neutrality adjustment for FY 2014. For FY 2015, as discussed in section III.G.2.b. of the 

preamble of this proposed rule, we are proposing to extend the imputed floor using the 

higher of the value determined under the original methodology or the alternative 

methodology for FY 2015. Therefore, in order to ensure that aggregate payments to 

hospitals are not affected, similar to prior years, we would follow our policy of including 

the imputed floor in the rural floor budget neutrality adjustment to the wage index. 

 As discussed above, for FY 2015, we are proposing to implement the new OMB 

delineations as described in the February 28, 2013 OMB Bulletin No. 13-01, effective for 

the FY 2015 IPPS wage index. Therefore, the budget neutrality adjustment for the rural 

floor and imputed floor would be calculated using the new OMB delineations. 

 Under the OMB delineations used for FY 2014, the imputed floor (both the 

original methodology and alternative methodology) was applied to New Jersey and 

Rhode Island because these were the only two all-urban States. Under OMB’s 2010 

revised delineations based on Census 2010 data, in addition to New Jersey and Rhode 
 1424 

Island, Delaware would become an all-urban state. Therefore, for FY 2015, the proposed 

imputed floor would be applied to New Jersey, Rhode Island, and Delaware. 

 Similar to our calculation in the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51593 and 51788), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53689), and 

the FY 2014 IPPS/LTCH PPS final rule (78 FR 50975 through 50976), for FY 2015, we 

are calculating a proposed national rural Puerto Rico wage index (used to adjust the 

labor-related share of the national standardized amount for hospitals located in Puerto 

Rico which receive 75 percent of the national standardized amount) and a proposed rural 

Puerto Rico-specific wage index (which is used to adjust the labor-related share of the 

Puerto Rico-specific standardized amount for hospitals located in Puerto Rico that 

receive 25 percent of the Puerto Rico-specific standardized amount). Because there are 

no rural Puerto Rico hospitals with established wage data, our calculation of the FY 2015 

rural Puerto Rico wage index is based on the policy adopted in the FY 2008 IPPS final 

rule with comment period (72 FR 47323). That is, we will use the unweighted average of 

the wage indexes from all CBSAs (urban areas) that are contiguous (share a border with) 

to the rural counties to compute the rural floor (72 FR 47323; 76 FR 51594). Under the 

new OMB labor market area delineations, except for Arecibo, Puerto Rico (CBSA 

11640), all other Puerto Rico urban areas are contiguous to a rural area. Therefore, based 

on our existing policy, the FY 2015 rural Puerto Rico wage index is calculated based on 

the average of the FY 2015 wage indices for the following urban areas: AguadillaIsabela, PR (CBSA 10380); Guayama, PR (CBSA 25020); Mayaguez, PR (CBSA 
 1425 

32420); Ponce, PR (CBSA 38660), San German, PR (CBSA 41900) and San JuanCarolina-Caguas, PR, PR (CBSA 41980). 

 To calculate the proposed national rural floor and imputed floor budget neutrality 

adjustment factor and the proposed Puerto Rico-specific rural floor budget neutrality 

adjustment factor, we used FY 2013 discharge data to simulate payments, the proposed 

FY 2015 new OMB labor market area delineations, and post-reclassified national and 

Puerto Rico-specific wage indices and compared the following: 

● The national and Puerto Rico-specific simulated payments without the national 

rural floor and imputed floor and Puerto Rico-specific rural floor applied; and 

● The national and Puerto Rico-specific simulated payments with the national 

rural floor and imputed floor and Puerto Rico-specific rural floor applied. 

 Based on this comparison, we determined a proposed national rural budget 

neutrality adjustment factor of 0.989455 and the proposed Puerto Rico-specific budget 

neutrality adjustment factor of 0.991359. The proposed national adjustment was applied 

to the proposed national wage indexes to produce a proposed national rural floor budget 

neutral wage index and the proposed Puerto Rico-specific adjustment was applied to the 

proposed Puerto Rico-specific wage indexes to produce a proposed Puerto Rico-specific 

rural floor budget neutral wage index. 

d. Proposed Wage Index Transition Budget Neutrality 

 As discussed in section III. of the preamble to this proposed rule, in the past, we 

have provided for transition periods when adopting changes that have significant 

payment implications, particularly large negative impacts. 
 1426 

 Similar to FY 2005, for FY 2015, we have determined that the proposed transition 

to using the new OMB delineations would have the largest impact on hospitals that are 

currently located in an urban county that would become rural under the new OMB 

delineations. To alleviate the decreased payments associated with having a rural wage 

index, in calculating the area wage index, similar to the transition provided in the 

FY 2005 IPPS final rule, we generally are proposing a policy to assign them the urban 

wage index value of the CBSA to which they are physically located for FY 2014 for 

FYs 2015, 2016, and 2017. 

 In addition to the 3-year transition adjustment for hospitals being transitioned 

from urban to rural status as discussed above, we are proposing a 1-year blended wage 

index for all hospitals that would experience any decrease in their actual payment wage 

index (that is, a hospital’s actual wage index used for payment, which accounts for all 

applicable effects of reclassification and redesignation) exclusively due to the proposed 

implementation of the new OMB delineations. Similar to the policy adopted in the 

FY 2005 IPPS final rule (69 FR 49033), we are proposing that a post-reclassified wage 

index with the rural and imputed floor applied would be computed based on the hospital’s 

FY 2014 CBSA (that is, using all of its FY 2014 constituent county/ies), and another 

post-reclassified wage index with the rural and imputed floor applied would be computed 

based on the hospital’s new FY 2015 CBSA (that is, the FY 2015 constituent county/ies). 

We are proposing to compare these two wage indexes. If the proposed FY 2015 wage 

index with FY 2015 CBSAs would be lower than the proposed FY 2015 wage index with 

FY 2014 CBSAs, we are proposing that a blended wage index would be computed, 
 1427 

consisting of 50 percent of each of the two wage indexes added together. We are 

proposing that this blended wage index would be the hospital’s wage index for FY 2015. 

Hospitals that benefit from the proposed adoption of the new OMB delineations would 

receive their new wage index based on the new OMB delineations. We refer readers to 

section III. of the preamble to this proposed rule for a completer discussion on the 

transitional wage index policy. 

 In the past, CMS has budget neutralized transitional wage indexes. Because we 

are proposing a policy that allows for the application of a transitional wage index only 

when it would benefit the hospital, we believe that it would be appropriate to ensure that 

such a transitional policy does not increase aggregate Medicare payments beyond the 

payments that would be made had we simply adopted the new OMB delineations without 

any transitional provisions. Therefore, for FY 2015, we are proposing to use our 

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

adjustment to the national and Puerto Rico-specific standardized amounts to ensure that 

total payments, including the effect of the transitional wage index provisions, would 

equal what payments would have been if we had proposed to fully adopt the new OMB 

delineations without any transitional provisions. 

 As stated above, the proposed 50/50 blended wage indexes would use 

post-reclassified wage index data with the rural and imputed floor applied computed 

based on FY 2014 CBSAs. Because the proposed 50/50 blend methodology would use 

data based on FY 2014 CBSAs, in order to properly calculate the proposed transitional 

budget neutrality factor, it was first necessary to calculate the following proposed budget 
 1428 

neutrality factors based on the FY 2014 CBSAs: an MS-DRG and a wage index budget 

neutrality, a reclassification budget neutrality, and a rural floor budget neutrality. It was 

necessary to compute the first three budget neutrality factors of MS-DRG, wage index, 

and reclassification budget neutrality (which are applied to the standardized amount) to 

ensure that the calculation of the rural and imputed floor budget neutrality factor applied 

to the wage index based on FY 2014 CBSAs is accurate. We calculated these four 

budget neutrality factors using the same methodology stated above, but used the FY 2014 

CBSAs instead of the proposed FY 2015 CBSAs on both the sides of the comparison. 

 After calculating all of the proposed budget neutrality factors using FY 2014 and 

FY 2015 CBSAs, to calculate the proposed transitional wage index budget neutrality 

factor for FY 2015, we used FY 2013 discharge data to simulate payments and compared 

the following: 

● Aggregate payments using new OMB delineations proposed for FY 2015, the 

proposed FY 2015 relative weights, proposed FY 2015 wage data after such 

reclassifications under sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act (using 

the new OMB delineations), applied the proposed rural floor budget neutrality factor to 

the wage index (using the new OMB delineations), and applied the proposed FY 2015 

hospital readmissions payment adjustments and the proposed estimated FY 2015 hospital 

VBP payment adjustments; and 

● Aggregate payments using proposed FY 2015 relative weights, proposed 

FY 2015 wage data after applying the transitional wage indexes, and applied the same 

proposed hospital readmissions payment adjustments and the estimated hospital VBP 
 1429 

payment adjustments applied above. We note that hospitals that did not receive the 

proposed transitional 50/50 blended wage index were assigned the post-reclassified wage 

index values with the proposed rural floor budget neutrality based on the proposed FY 

2015 new OMB delineations. 

 Based on these simulations, we calculated a proposed budget neutrality 

adjustment factor of 0.998856. Therefore, for FY 2015, we are proposing to apply a 

transitional wage index budget neutrality adjustment factor of 0.998856 to the national 

average and Puerto Rico-specific standardized amounts to ensure that the effects of these 

proposed transitional wage indices are budget neutral. 

 We note that the proposed budget neutrality adjustment factor calculated above is 

based on the increase in payments in FY 2015 that would result from the transitional 

wage indexes. Therefore, we are proposing to apply this budget neutrality adjustment 

factor as a one-time adjustment to the FY 2015 national and Puerto Rico-specific 

standardized amounts in order to offset the increase in payments in FY 2015 as a result of 

these transitional wage indexes. For subsequent fiscal years, we are proposing to not 

take into consideration the adjustment factor applied to the national and Puerto 

Rico-specific standardized amounts in the previous fiscal year’s update when calculating 

the current fiscal year transitional wage index budget neutrality adjustment factor (that is, 

we are proposing that this adjustment would not be applied cumulatively). Because we 

are proposing a 3-year transitional wage index policy for urban hospitals that became 

rural as a result of the proposed adoption of the new OMB delineations, we intend to 

propose transitional wage index budget neutrality adjustment factors to apply to the FY 
 1430 

2016 and FY 2017 national and Puerto Rico-specific standardized amounts during those 

respective rulemaking cycles. Similar to the proposal for FY 2015, we plan on proposing 

that the FYs 2016 and 2017 adjustments would be applied as “one-time” adjustments and 

not cumulative adjustments applied each fiscal year. 

d. Proposed Case-Mix Budget Neutrality Adjustment 

 Below we summarize the proposed recoupment adjustment to the proposed 

FY 2015 payment rates, as required by section 631 of ATRA, to account for the increase 

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

authorized under section 7(b)(1)(A) of Pub. L. 110-90 until FY 2013. We refer readers to 

section II.D. of the preamble of this proposed rule for a complete discussion regarding 

our proposed policies for FY 2015 in this proposed rule and previously finalized policies 

(including our historical adjustments to the payment rates) relating to the effect of 

changes in documentation and coding that do not reflect real changes in case-mix. 

(1) Recoupment or Repayment Adjustment Authorized by Section 631 of the American 

Taxpayer Relief Act of 2012 (ATRA) to the National Standardized Amount 

 Section 631 of the ATRA amended section 7(b)(1)(B) of Pub. L. 110-90 to 

require the Secretary to make a recoupment adjustment totaling $11 billion by FY 2017. 

Our actuaries estimated that if CMS were to fully account for the $11 billion recoupment 

required by section 631 of ATRA in FY 2014, a one-time -9.3 percent adjustment to the 

standardized amount would be necessary. It is often our practice to delay or phase-in 

payment rate adjustments over more than 1 year, in order to moderate the effect on 

payment rates in any 1 year. Therefore, consistent with the policies that we have adopted 
 1431 

in many similar cases, for FY 2014, we applied a -0.8 percent adjustment to the 

standardized amount. In this proposed rule, we are proposing to apply an additional -0.8 

percent adjustment to the standardized amount for FY 2015. We note that, as section 631 

of the ATRA instructs the Secretary to make a recoupment adjustment only to the 

standardized amount, this adjustment would not apply to the Puerto Rico-specific 

standardized amount and hospital-specific payment rates. 

e. Rural Community Hospital Demonstration Program Adjustment 

 As discussed in section IV.L. of the preamble of this proposed rule, section 410A 

of Pub. L. 108-173 originally required the Secretary to establish a demonstration program 

that modifies reimbursement for inpatient services for up to 15 small rural hospitals. 

Section 410A(c)(2) of Pub. L. 108-173 requires that “[i]n conducting the demonstration 

program under this section, the Secretary shall ensure that the aggregate payments made 

by the Secretary do not exceed the amount which the Secretary would have paid if the 

demonstration program under this section was not implemented.” 

 Sections 3123 and 10313 of the Affordable Care Act extended the demonstration 

program for an additional 5-year period, and allowed up to 30 hospitals to participate in 

20 States with low population densities determined by the Secretary. (In determining 

which States to include in the expansion, the Secretary is required to use the same criteria 

and data that the Secretary used to determine the States for purposes of the initial 5-year 

period.) In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53449 through 53453), in 

order to achieve budget neutrality, we adjusted the national IPPS payment rates by an 

amount sufficient to account for the added costs of this demonstration program as 
 1432 

described in section IV.K. of that final rule. In other words, we applied budget neutrality 

across the payment system as a whole rather than merely across the participants of this 

demonstration program, consistent with past practice. We stated that we believe 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. 

 As we did for FY 2014, for FY 2015, we are proposing to adjust the national IPPS 

payment rates according to the same methodology that we used for FY 2013, as set forth 

in section IV.L. of the preamble of this proposed rule, to account for the estimated 

additional costs of the demonstration program for FY 2015. For this proposed rule, the 

estimated amount of this proposed budget neutrality adjustment factor applied to the 

national IPPS payment rates for FY 2015 is $53,673,008. In addition, similar to previous 

years, we are proposing to include in the budget neutrality offset amount the amount by 

which the actual demonstration costs corresponding to an earlier given year (which would 

be determined once we have finalized cost reports for that year) exceeded the budget 

neutrality offset amount finalized in the corresponding year’s IPPS final rule. For this 

FY 2015 IPPS/LTCH PPS proposed rule, we have calculated the amount by which the 

actual costs of the demonstration in FY 2008, (that is, the costs of the demonstration for 

the 10 hospitals that participated in FY 2008, as shown in these hospitals’ finalized cost 

reports for the cost report period beginning in that calendar year), exceeded the amount 
 1433 

that was finalized in the FY 2008 IPPS final rule. We are proposing a budget neutrality 

offset amount of $10,389,771 for this proposed rule, but we note that this amount may 

change based on data used for the FY 2015 IPPS/LTCH PPS final rule subject to 

methodological refinements. We also are currently working with the MACs that service 

the hospitals participating in the demonstration to obtain finalized cost reports for 

FYs 2009, 2010, and 2011). Depending on our progress in obtaining these cost reports, 

we may also include in the FY IPPS final rule the difference between the demonstration 

costs for one or more of these years and the amounts that were finalized in the respective 

fiscal years’ final rules. 

 Therefore, the final total budget neutrality offset amount that we are proposing to 

be applied to the FY 2015 IPPS rates is $ 64,062,779. This amount is the sum of two 

separate components: (1) the difference between the total estimated FY 2014 reasonable 

cost amount to be paid under the demonstration to the 22 participating hospitals 

participating in the demonstration program for covered inpatient services, and the total 

estimated amount that would be otherwise be paid to the participating hospitals in FY 

2014 without the demonstration ($53,673,008); and (2) the amount by which the actual 

costs of demonstration for FY 2008, which are calculated in accordance with the finalized 

cost reports for the hospitals that participated in the demonstration during FY 2008, 

exceed the budget neutrality offset amount that was finalized in the FY 2008 IPPS final 

rule ($10,389,771). 

 Accordingly, using the most recent data available to account for the estimated 

costs of the demonstration program, for FY 2015, we computed a proposed factor of 
 1434 

0.999283 for the rural community hospital demonstration program budget neutrality 

adjustment that will be applied to the IPPS standard Federal payment rate. 

g. Proposed Outlier Payments 

 Section 1886(d)(5)(A) of the Act provides for payments in addition to the basic 

prospective payments for “outlier” cases involving extraordinarily high costs. To qualify 

for outlier payments, a case must have costs greater than the sum of the prospective 

payment rate for the DRG, any IME and DSH payments, any new technology add-on 

payments, and the “outlier threshold” or “fixed-loss” amount (a dollar amount by which 

the costs of a case must exceed payments in order to qualify for an outlier payment). We 

refer to the sum of the prospective payment rate for the DRG, any IME and DSH 

payments, any new technology add-on payments, and the outlier threshold as the outlier 

“fixed-loss cost threshold.” To determine whether the costs of a case exceed the 

fixed-loss cost threshold, a hospital’s CCR is applied to the total covered charges for the 

case to convert the charges to estimated costs. Payments for eligible cases are then made 

based on a marginal cost factor, which is a percentage of the estimated costs above the 

fixed-loss cost threshold. The marginal cost factor for FY 2015 is 80 percent, the same 

marginal cost factor we have used since FY 1995 (59 FR 45367). 

 In accordance with section 1886(d)(5)(A)(iv) of the Act, outlier payments for any 

year are projected to be not less than 5 percent nor more than 6 percent of total operating 

DRG payments (which does not include IME and DSH payments) plus outlier payments. 

When setting the outlier threshold, we compute the 5.1 percent target by dividing the total 

operating outlier payments by the total operating DRG payments plus outlier payments. 
 1435 

We do not include any other payments such as IME and DSH within the outlier target 

amount. Therefore, it is not necessary to include Medicare Advantage IME payments in 

the outlier threshold calculation. Section 1886(d)(3)(B) of the Act requires the Secretary 

to reduce the average standardized amount by a factor to account for the estimated 

proportion of total DRG payments made to outlier cases. Similarly, 

section 1886(d)(9)(B)(iv) of the Act requires the Secretary to reduce the average 

standardized amount applicable to hospitals located in Puerto Rico to account for the 

estimated proportion of total DRG payments made to outlier cases. More information on 

outlier payments may be found on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/outlier.html. 

(1) Proposed FY 2015 Outlier Fixed-Loss Cost Threshold 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50977-50983), in response to 

public comments on the FY 2013 IPPS/LTCH proposed rule, we made changes to our 

methodology for projecting the outlier fixed-loss cost threshold for FY 2014. We refer 

readers to the FY 2014 IPPS/LTCH PPS final rule for detailed discussion of the changes. 

In this proposed rule, for FY 2015, we are proposing to continue to use the outlier 

threshold methodology used in FY 2014. 

 As we have done in the past, to calculate the proposed FY 2015 outlier threshold, 

we simulated payments by applying proposed FY 2015 payment rates and policies using 

cases from the FY 2013 MedPAR file. Therefore, in order to determine the proposed 

FY 2015 outlier threshold, we inflated the charges on the MedPAR claims by 2 years, 
 1436 

from FY 2013 to FY 2015. As discussed in the FY 2014 IPPS/LTCH PPS final rule, we 

believe a methodology that is based on 1-year of charge data will provide a more stable 

measure to project the average charge per case because our prior methodology used a 

6-month measure, which inherently uses fewer claims than a 1-year measure and makes it 

more susceptible to fluctuations in the average charge per case as a result of any 

significant charge increases or decreases by hospitals. Under this new methodology, to 

compute the 1-year average annualized rate-of-change in charges per case for FY 2015, 

we are proposing to compare the second quarter of FY 2012 through the first quarter of 

FY 2013 (January 1, 2012, through December 31, 2012) to the second quarter of FY 2013 

through the first quarter of FY 2014 (January 1, 2013, through December 31, 2013). This 

rate-of-change is 5.6 percent (1.055736) or 11.5 percent (1.114579) over 2 years. 

 As we have done in the past, we are proposing to establish the proposed FY 2015 

outlier threshold using hospital CCRs from the December 2013 update to the 

Provider-Specific File (PSF)--the most recent available data at the time of this proposed 

rule. For FY 2015, we also are proposing to continue to apply an adjustment factor to the 

CCRs to account for cost and charge inflation (as explained below). In the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50979), we adopted a new methodology to adjust the 

CCRs. Specifically, we finalized a policy to compare the national average case-weighted 

operating and capital CCR from the most recent update of the PSF to the national average 

case-weighted operating and capital CCR from the same period of the prior year. 

 Therefore, as we did for FY 2014, for FY 2015, we are proposing to adjust the 

CCRs from the December 2013 update of the PSF by comparing the percentage change in 
 1437 

the national average case-weighted operating CCR and capital CCR from the December 

2012 update of the PSF to the national average case-weighted operating CCR and capital 

CCR from the December 2013 update of the PSF. We note that we used total 

transfer adjusted cases from FY 2013 to determine the national average case-weighted 

CCRs for both sides of the comparison. As stated in the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50979), we believe that it is appropriate to use the same case count on both 

sides of the comparison as this will produce the true percentage change in the average 

case-weighted operating and capital CCR from one year to the next without any effect 

from a change in case count on different sides of the comparison. 

 Using the proposed methodology above, we calculated a December 2012 

operating national average case-weighted CCR of 0.295101 and a December 2013 

operating national average case-weighted CCR of 0.289587. We then calculated the 

percentage change between the two national operating case-weighted CCRs by 

subtracting the December 2012 operating national average case-weighted CCR from the 

December 2013 operating national average case-weighted CCR and then dividing the 

result by the December 2012 national operating average case-weighted CCR. This 

resulted in a proposed national operating CCR adjustment factor of 0.981315. 

 We also used the same methodology proposed above to adjust the capital CCRs. 

Specifically, we calculated a December 2012 proposed capital national average 

case-weighted CCR of 0.025079 and a December 2013 proposed capital national average 

case-weighted CCR of 0.024868. We then calculated the percentage change between the 

two national capital case-weighted CCRs by subtracting the December 2012 capital 
 1438 

national average case-weighted CCR from the December 2013 capital national average 

case-weighted CCR and then dividing the result by the December 2012 capital national 

average case-weighted CCR. This resulted in a proposed national capital CCR 

adjustment factor of 0.991587. 

 Consistent with our methodology in the past and as stated in the FY 2009 IPPS 

final rule (73 FR 48763), we continue to believe that 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 2015 is approximately 1 year. Therefore, as stated above, we believe a 1-year 

adjustment factor to the CCRs is appropriate. 

 As stated above, for FY 2015, we applied the proposed FY 2015 payment rates 

and policies using cases from the FY 2013 MedPAR files in calculating the proposed 

outlier threshold. 

 As discussed above, for FY 2015, we are proposing to apply transitional wage 

indexes because of the proposed adoption of the new OMB labor market area 

delineations. Also, as discussed in section III.B.3. of the preamble to the FY 2011 

IPPS/LTCH PPS final rule (75 FR 50160 and 50161) and in section III.G.3. of the 

preamble of this proposed rule, in accordance with section 10324(a) of the Affordable 

Care Act, beginning in FY 2011, we created a wage index floor of 1.00 for all hospitals 

located in States determined to be frontier States. We note that the frontier State floor 
 1439 

adjustments will be calculated and applied after rural and imputed floor budget neutrality 

adjustments are calculated for all labor market areas, in order to ensure that no hospital in 

a frontier State will receive a wage index lesser than 1.00 due to the rural and imputed 

floor adjustment. In accordance with section 10324(a) of the Affordable Care Act, the 

frontier State adjustment will not be subject to budget neutrality, and will only be 

extended to hospitals geographically located within a frontier State. However, for 

purposes of estimating the proposed outlier threshold for FY 2015, it was necessary to 

apply the proposed transitional wage indexes and adjust the wage index of those eligible 

hospitals in a frontier State when calculating the outlier threshold that results in outlier 

payments being 5.1 percent of total payments for FY 2015. If we did not take the above 

into account, our estimate of total FY 2015 payments would be too low, and, as a result, 

our proposed outlier threshold would be too high, such that estimated outlier payments 

would be less than our projected 5.1 percent of total payments. 

 As we did in establishing the FY 2009 outlier threshold (73 FR 57891), in our 

projection of FY 2015 outlier payments, we are proposing not to make any adjustments 

for the possibility that hospitals’ CCRs and outlier payments may be reconciled upon cost 

report settlement. We continue to believe that, due to the policy implemented in the 

June 9, 2003 Outlier final rule (68 FR 34494), CCRs will no longer fluctuate significantly 

and, therefore, few hospitals will actually have these ratios reconciled upon cost report 

settlement. In addition, it is difficult to predict the specific hospitals that will have CCRs 

and outlier payments reconciled in any given year. We also note that reconciliation 

occurs because hospitals’ actual CCRs for the cost reporting period are different than the 
 1440 

interim CCRs used to calculate outlier payments when a bill is processed. Our 

simulations assume that CCRs accurately measure hospital costs based on information 

available to us at the time we set the outlier threshold. For these reasons, we are 

proposing not to make any assumptions about the effects of reconciliation on the outlier 

threshold calculation. 

 As described in sections IV.H. and IV.I., respectively, of the preamble of this 

proposed rule, sections 1886(q) and 1886(o) of the Act establish the Hospital 

Readmissions Reduction Program and the Hospital VBP Program, respectively. We do 

not believe that it is appropriate to include the hospital VBP payment adjustments and the 

hospital readmissions payment adjustments in the outlier threshold calculation or the 

outlier offset to the standardized amount. Specifically, consistent with our definition of 

the base operating DRG payment amount for the Hospital Readmissions Reduction 

Program under § 412.152 and the Hospital VBP Program under § 412.160, outlier 

payments under section 1886(d)(5)(A) of the Act are not affected by these payment 

adjustments. Therefore, outlier payments would continue to be calculated based on the 

unadjusted base DRG payment amount (as opposed to using the base-operating DRG 

payment amount adjusted by the hospital readmissions payment adjustment and the 

hospital VBP payment adjustment). Consequently, we are proposing to exclude the 

hospital VBP payment adjustments and the hospital readmissions payment adjustments 

from the calculation of the outlier fixed-loss cost threshold. 

 We note, to the extent section 1886(r) of the Act modifies the existing DSH 

payment methodology under section 1886(d)(5)(F), the new uncompensated care 
 1441 

payment under section 1886(r)(2), like the empirically justified Medicare DSH payment 

under section 1886(r)(1), may be considered an amount payable under section 

1886(d)(5)(F) of the Act such that it would be reasonable to include the payment in the 

outlier determination under section 1886(d)(5)(A). As we did for FY 2014, for FY 2015 

we also are proposing to allocate an estimated per-discharge uncompensated care 

payment amount to all cases for the hospitals eligible to receive the uncompensated care 

payment amount in the calculation of the outlier fixed-loss cost threshold methodology. 

We continue to believe that allocating an eligible hospital’s estimated uncompensated 

care payment to all cases equally in the calculation of the outlier fixed-loss cost threshold 

would best approximate the amount we would pay in uncompensated care payments 

during the year because, when we make claim payments to a hospital eligible for such 

payments, we would be making estimated per-discharge uncompensated care payments to 

all cases equally. Furthermore, we continue to believe that using the estimated per-claim 

uncompensated care payment amount to determine outlier estimates provides 

predictability as to the amount of uncompensated care payments included in the 

calculation of outlier payments. Therefore, consistent with the methodology used in 

FY 2014 to calculate the outlier fixed-loss cost threshold, for FY 2015, we are proposing 

to include estimated FY 2015 uncompensated care payments in the computation of the 

proposed outlier fixed-loss cost threshold. Specifically, we are proposing to use the 

estimated per-discharge uncompensated care payments to hospitals eligible for the 

uncompensated care payment for all cases in the calculation of the outlier fixed-loss cost 

threshold methodology. 
 1442 

 Using this methodology, we calculated a proposed outlier fixed-loss cost 

threshold for FY 2015 equal to the proposed prospective payment rate for the MS-DRG, 

plus any IME, empirically justified Medicare DSH payments, estimated uncompensated 

care payment, and any add-on payments for new technology, plus $25,799. 

 We note that, the proposed FY 2015 fixed-loss cost threshold is higher than the 

FY 2014 final outlier fixed-loss cost threshold of $21,748. We believe that the increase 

in the charge inflation factor (compared to the FY 2014 charge inflation factor) 

contributed to a higher proposed outlier fixed-loss threshold for FY 2015. As charges 

increase, so do outlier payments. As a result, it would be necessary for us to raise the 

outlier fixed-loss cost threshold to decrease the amount of outlier payments expended in 

order to reach the 5.1 percent target. 

(2) Other Proposed Changes Concerning Outliers 

 As stated in the FY 1994 IPPS final rule (58 FR 46348), we establish an outlier 

threshold that is applicable to both hospital inpatient operating costs and hospital 

inpatient capital-related costs. When we modeled the combined operating and capital 

outlier payments, we found that using a common threshold resulted in a lower percentage 

of outlier payments for capital-related costs than for operating costs. We project that the 

thresholds for FY 2015 will result in outlier payments that will equal 5.1 percent of 

operating DRG payments and 6.26 percent of capital payments based on the Federal rate. 

 In accordance with section 1886(d)(3)(B) of the Act, we are proposing to reduce 

the proposed FY 2015 standardized amount by the same percentage to account for the 

projected proportion of payments paid as outliers. 
 1443 

 The proposed outlier adjustment factors that would be applied to the standardized 

amount based on the FY 2015 outlier threshold are as follows: 

Operating 

Standardized Amounts Capital Federal Rate 

National 0.949000 0.937425 

Puerto Rico 0.928942 0908313 

 We are proposing to apply the outlier adjustment factors to the proposed FY 2015 

payment rates after removing the effects of the FY 2014 outlier adjustment factors on the 

standardized amount. 

 To determine whether a case qualifies for outlier payments, we apply 

hospital-specific CCRs to the total covered charges for the case. Estimated operating and 

capital costs for the case are calculated separately by applying separate operating and 

capital CCRs. These costs are then combined and compared with the outlier fixed-loss 

cost threshold. 

 Under our current policy at § 412.84, we calculate operating and capital CCR 

ceilings and assign a statewide average CCR for hospitals whose CCRs exceed 3.0 

standard deviations from the mean of the log distribution of CCRs for all hospitals. 

Based on this calculation, for hospitals for which the fiscal intermediary or MAC 

computes operating CCRs greater than 1.22 or capital CCRs greater than 0.173, or 

hospitals for which the fiscal intermediary or MAC is unable to calculate a CCR (as 

described under § 412.84(i)(3) of our regulations), statewide average CCRs are used to 

determine whether a hospital qualifies for outlier payments. Table 8A listed in 
 1444 

section VI. of this Addendum (and available only via the Internet) contains the proposed 

statewide average operating CCRs for urban hospitals and for rural hospitals for which 

the fiscal intermediary or MAC is unable to compute a hospital-specific CCR within the 

above range. Effective for discharges occurring on or after October 1, 2014, these 

statewide average ratios would replace the ratios posted on our Web site at 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/FY-2014-IPPS-Final-Rule-Home-Page-Items/FY-2014-

IPPS-Final-Rule-CMS-1599-F-Tables.html. Table 8B listed in section VI. of this 

Addendum (and available via the Internet) contains the proposed comparable statewide 

average capital CCRs. Again, the CCRs in Tables 8A and 8B would be used during 

FY 2015 when hospital-specific CCRs based on the latest settled cost report are either not 

available, or are outside the range noted above. Table 8C listed in section VI. of this 

Addendum (and available via the Internet) contains the proposed statewide average total 

CCRs used under the LTCH PPS as discussed in section V. of this Addendum. 

 We finally note that we published a manual update (Change Request 3966) to our 

outlier policy on October 12, 2005, which updated Chapter 3, Section 20.1.2 of the 

Medicare Claims Processing Manual. The manual update covered an array of topics, 

including CCRs, reconciliation, and the time value of money. We encourage hospitals 

that are assigned the statewide average operating and/or capital CCRs to work with their 

fiscal intermediary or MAC on a possible alternative operating and/or capital CCR as 

explained in Change Request 3966. Use of an alternative CCR developed by the hospital 

in conjunction with the fiscal intermediary or MAC can avoid possible overpayments or 
 1445 

underpayments at cost report settlement, thereby ensuring better accuracy when making 

outlier payments and negating the need for outlier reconciliation. We also note that a 

hospital may request an alternative operating or capital CCR ratio at any time as long as 

the guidelines of Change Request 3966 are followed. In addition, as mentioned above, 

we published an additional manual update (Change Request 7192) to our outlier policy 

on December 3, 2010, which also updated Chapter 3, Section 20.1.2 of the Medicare 

Claims Processing Manual. The manual update outlines the outlier reconciliation process 

for hospitals and Medicare contractors. To download and view the manual instructions 

on outlier reconciliation, we refer readers to the CMS Web site: 

http://www.cms.hhs.gov/manuals/downloads/clm104c03.pdf. 

(3) FY 2013 and FY 2014 Outlier Payments 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50983 through 50984), we 

stated that, based on available data, we estimated that actual FY 2013 outlier payments 

would be approximately 4.77 percent of actual total MS-DRG payments. This estimate 

was computed based on simulations using the FY 2012 MedPAR file (discharge data for 

FY 2012 claims). That is, the estimate of actual outlier payments did not reflect actual 

FY 2013 claims, but instead reflected the application of FY 2013 payment rates and 

policies to available FY 2012 claims. 

 Our current estimate, using available FY 2013 claims data, is that actual outlier 

payments for FY 2013 were approximately 4.81 percent of actual total MS-DRG 

payments. Therefore, the data indicate that, for FY 2013, the percentage of actual outlier 

payments relative to actual total payments is lower than we projected for FY 2013. 
 1446 

Consistent with the policy and statutory interpretation we have maintained since the 

inception of the IPPS, we do not make retroactive adjustments to outlier payments to 

ensure that total outlier payments for FY 2013 are equal to 5.1 percent of total MS-DRG 

payments. 

 We currently estimate that, using the latest CCRs from the December 2013 update 

of the PSF, actual outlier payments for FY 2014 will be approximately 5.79 percent of 

actual total MS-DRG payments, approximately 0.69 percentage point higher than the 

5.1 percent we projected when setting the outlier policies for FY 2014. This estimate of 

5.79 percent is based on simulations using the FY 2013 MedPAR file (discharge data for 

FY 2013 claims). 

5. Proposed FY 2015 Standardized Amount 

 The adjusted standardized amount is divided into labor-related and 

nonlabor-related portions. Tables 1A and 1B listed and published in section VI. of this 

Addendum (and available via the Internet) contain the proposed national standardized 

amounts that we are proposing to apply to all hospitals, except hospitals located in Puerto 

Rico, for FY 2015. The proposed Puerto Rico-specific amounts are shown in Table 1C 

listed and published in section VI. of this Addendum (and available via the Internet). The 

proposed amounts shown in Tables 1A and 1B differ only in that the labor-related share 

applied to the standardized amounts in Table 1A is 69.6 percent, and the labor-related 

share applied to the standardized amounts in Table 1B is 62 percent. In accordance with 

sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act, we are proposing to apply a 

labor-related share of 62 percent, unless application of that percentage would result in 
 1447 

lower payments to a hospital than would otherwise be made. In effect, the statutory 

provision means that we will apply a labor-related share of 62 percent for all hospitals 

whose wage indices are less than or equal to 1.0000. 

 In addition, Tables 1A and 1B include the proposed standardized amounts 

reflecting the proposed applicable percentage increases for FY 2015. 

 Under section 1886(d)(9)(A)(ii) of the Act, the Federal portion of the Puerto Rico 

payment rate is based on the discharge-weighted average of the national large urban 

standardized amount (this amount is set forth in Table 1A). The proposed labor-related 

and nonlabor-related portions of the national average standardized amounts for Puerto 

Rico hospitals for FY 2015 are set forth in Table 1C listed and published in section VI. of 

this Addendum (and available via the Internet). This table also includes the proposed 

Puerto Rico-specific standardized amounts. The labor-related share applied to the Puerto 

Rico-specific standardized amount is the proposed labor-related share of 63.2 percent, or 

62 percent, depending on which provides higher payments to the hospital. 

(Section 1886(d)(9)(C)(iv) of the Act, as amended by section 403(b) of Pub. L. 108-173, 

provides that the labor-related share for hospitals located in Puerto Rico be 62 percent, 

unless the application of that percentage would result in lower payments to the hospital.) 

 The following table illustrates the proposed changes from the FY 2014 national 

standardized amount. The second through fifth columns display the proposed changes 

from the FY 2014 standardized amounts for each applicable FY 2015 proposed 

standardized amount. The first row of the table shows the updated (through FY 2014) 

average standardized amount after restoring the FY 2014 offsets for outlier payments, 
 1448 

demonstration budget neutrality, the geographic reclassification budget neutrality, and the 

retrospective documentation and coding adjustment under section 7(b)(1)(B) of 

Pub. L. 110-90. The MS-DRG reclassification and recalibration wage index budget 

neutrality adjustment factors are cumulative. Therefore, those FY 2014 adjustment 

factors are not removed from this table. 

COMPARISON OF FY 2014 STANDARDIZED AMOUNTS TO THE FY 2015 

PROPOSED STANDARDIZED AMOUNTS 

Hospital 

Submitted 

Quality Data 

and is a 

Meaningful 

EHR User 

Hospital 

Submitted 

Quality Data 

and is NOT a 

Meaningful 

EHR User 

Hospital Did 

NOT Submit 

Quality Data 

and is a 

Meaningful 

EHR User 

Hospital Did 

NOT Submit 

Quality Data 

and is NOT a 

Meaningful 

EHR User 

FY 2014 Base Rate 

after removing: 

1. FY 2014 

Geographic 

Reclassification 

Budget Neutrality 

(0.990718) 

2. FY 2014 Rural 

Community Hospital 

Demonstration 

Program Budget 

Neutrality (0.999415) 

3. Cumulative 

Factor: FY 2008, FY 

2009, FY 2012, FY 

2013, and FY 2014 

Documentation and 

If Proposed 

Wage Index 

is Greater 

Than 1.0000: 

Labor 

(69.6%): 

$4,230.38 

Nonlabor 

(30.4%): 

$1,847.75 

If Proposed 

Wage Index is 

Greater Than 

1.0000: Labor 

(69.6%): 

$4,230.38 

Nonlabor 

(30.4%): 

$1,847.75 

If Proposed 

Wage Index is 

Greater Than 

1.0000: 

Labor 

(69.6%): 

$4,230.38 

Nonlabor 

(30.4%): 

$1,847.75 

If Proposed 

Wage Index is 

Greater Than 

1.0000: 

Labor (69.6%): 

$4,230.38 

Nonlabor 

(30.4%): 

$1,847.75 
 1449 

Coding Adjustment 

as Required under 

Sections 7(b)(1)(A) 

and 7(b)(1)(B) of 

Pub. L. 110-90 and 

Documentation and 

Coding Recoupment 

Adjustment as 

required under 

Section 631 of the 

American Taxpayer 

Relief Act of 2012 

(0.9403) 

4. FY 2014 

Operating Outlier 

Offset (0.948995) 

If Proposed 

Wage Index 

is less Than 

or Equal to 

1.0000: 

Labor (62%): 

$3,768.45 

Nonlabor 

(38%): 

$2,309.70 

If Proposed 

Wage Index is 

less Than or 

Equal to 

1.0000: Labor 

(62%): 

$3,768.45 

Nonlabor 

(38%): 

$2,309.70 

If Proposed 

Wage Index is 

less Than or 

Equal to 

1.0000: 

Labor (62%): 

$3,768.45 

Nonlabor 

(38%): 

$2,309.70 

If Proposed 

Wage Index is 

less Than or 

Equal to 

1.0000: Labor 

(62%): 

$3,768.45 

Nonlabor 

(38%): 

$2,309.70 

Proposed FY 2015 

Update Factor 1.021 1.01425 1.01425 1.0075 

Proposed FY 2015 

MS-DRG 

Recalibration and 

Wage Index Budget 

Neutrality Factor 0.993512 0.993512 0.993512 0.993512 

Proposed FY 2015 

Reclassification 

Budget Neutrality 

Factor 0.991412 0.991412 0.991412 0.991412 

Proposed FY 2015 

Rural Community 

Demonstration 

Program Budget 

Neutrality Factor 0.999283 0.999283 0.999283 0.999283 

Proposed FY 2015 

Operating Outlier 

Factor 0.949000 0.949000 0.949000 0.949000 
 1450 

Cumulative Factor: 

FY 2008, FY 2009, 

FY 2012, FY 2013, 

FY 2014 and FY 

2015 Documentation 

and Coding 

Adjustment as 

Required under 

Sections 7(b)(1)(A) 

and 7(b)(1)(B) of 

Pub. L. 110-90 and 

Documentation and 

Coding Recoupment 

Adjustment as 

required under 

Section 631 of the 

American Taxpayer 

Relief Act of 2012 0.9329 0.9329 0.9329 0.9329 

Proposed FY 2015 

New Labor Market 

Delineation Wage 

Index Transition 

Budget Neutrality 

Factor 0.998856 0.998856 0.998856 0.998856 

Proposed National 

Standardized 

Amount for FY 2015 

if Wage Index is 

Greater Than 

1.0000; Labor/NonLabor Share 

Percentage 

(69.6/30.4) 

Labor: 

$3,759.46 

Nonlabor: 

$1,642.06 

Labor: 

$3,734.61 

Nonlabor: 

$1,631.20 

Labor: 

$3,734.61 

Nonlabor: 

$1,631.20 

Labor: 

$3,709.75 

Nonlabor: 

$1,620.35 

Proposed National 

Standardized 

Amount for FY 2015 

if Wage Index is less 

Than or Equal to 

1.0000; Labor/NonLabor Share 

Percentage (62/38) 

Labor: 

$3,384.94 

Nonlabor: 

$2,052.58 

Labor: 

$3,326.80 

Nonlabor: 

$2,039.01 

Labor: 

$3,326.80 

Nonlabor: 

$2,039.01 

Labor: 

$3,304.66 

Nonlabor: 

$2,025.44 
 1451 

 The following table illustrates the proposed changes from the FY 2014 Puerto 

Rico-specific payment rate for hospitals located in Puerto Rico. The second column 

shows the proposed changes from the FY 2014 Puerto Rico specific payment rate for 

hospitals with a Puerto Rico-specific wage index greater than 1.0000. The third column 

shows the proposed changes from the FY 2014 Puerto Rico specific payment rate for 

hospitals with a Puerto Rico-specific wage index less than or equal to 1.0000. The first 

row of the table shows the updated (through FY 2014) Puerto Rico-specific payment rate 

after restoring the FY 2014 offsets for Puerto Rico-specific outlier payments, rural 

community hospital demonstration program budget neutrality, and the geographic 

reclassification budget neutrality. The MS-DRG recalibration budget neutrality 

adjustment factor is cumulative and is not removed from this table. 

COMPARISON OF FY 2014 PUERTO RICO-SPECIFIC PAYMENT RATE TO 

THE FY 2015 PROPOSED PUERTO RICO-SPECIFIC PAYMENT RATE 

Update 

(2.1 percent); Proposed 

Wage index is greater 

than 1.0000; 

Labor/Non-Labor 

Share Percentage 

(63.2/36.8) 

Update 

(2.1 percent); 

Proposed Wage index is 

less than or equal to 

1.0000; Labor/NonLabor Share 

Percentage (62/38) 

FY 2014 Puerto Rico Base Rate, 

after removing: 

1. FY 2014 Geographic 

Reclassification Budget 

Neutrality (0.990718) 

2. FY 2014 Rural Community 

Hospital Demonstration Program 

Budget Neutrality (0.999415) 
 1452 

Update 

(2.1 percent); Proposed 

Wage index is greater 

than 1.0000; 

Labor/Non-Labor 

Share Percentage 

(63.2/36.8) 

Update 

(2.1 percent); 

Proposed Wage index is 

less than or equal to 

1.0000; Labor/NonLabor Share 

Percentage (62/38) 

3. FY 2014 Puerto Rico 

Operating Outlier Offset 

(0.943455) 

Labor: $1,722.31 

Nonlabor: $1,002.86 

Labor: $1,689.61 

Nonlabor: $1,035.56 

Proposed FY 2015 Update Factor 1.021 1.021 

Proposed FY 2015 MS-DRG 

Recalibration Budget Neutrality 

Factor 0.992938 0.992938 

Proposed FY 2015 

Reclassification Budget 

Neutrality Factor 0.991412 0.991412 

Proposed FY 2015 Rural 

Community Hospital 

Demonstration Program Budget 

Neutrality Factor 0.999283 0.999283 

Proposed FY 2015 New Labor 

Market Delineation Wage Index 

Transition Budget Neutrality 

Factor 0.998856 0.998856 

Proposed FY 2015 Puerto Rico 

Operating Outlier Factor 0.928942 0.928942 

Proposed Puerto Rico-Specific 

Payment Rate for FY 2015 

Labor: $1,605.07 

Nonlabor: $934.59 

Labor: $1,574.59 

Nonlabor: $965.07 

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

 Tables 1A through 1C, as published in section VI. of this Addendum (and 

available via the Internet), contain the proposed labor-related and nonlabor-related shares 

that we used to calculate the proposed prospective payment rates for hospitals located in 

the 50 States, the District of Columbia, and Puerto Rico for FY 2015. This section 
 1453 

addresses two types of adjustments to the standardized amounts that are made in 

determining the prospective payment rates as described in this Addendum. 

1. Proposed Adjustment for Area Wage Levels 

 Sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act require that we make an 

adjustment to the labor-related portion of the national and Puerto Rico prospective 

payment rates, respectively, to account for area differences in hospital wage levels. This 

adjustment is made by multiplying the labor-related portion of the adjusted standardized 

amounts by the appropriate wage index for the area in which the hospital is located. In 

section III. of the preamble of this proposed rule, we discuss the data and methodology 

for the proposed FY 2015 wage index. 

2. Proposed Adjustment for Cost-of-Living in Alaska and Hawaii 

 Section 1886(d)(5)(H) of the Act provides discretionary authority to the Secretary 

to make “such adjustments . . . as the Secretary deems appropriate to take into account 

the unique circumstances of hospitals located in Alaska and Hawaii.” Higher 

labor-related costs for these two States are taken into account in the adjustment for area 

wages described above. To account for higher nonlabor-related costs for these two 

States, we multiply the nonlabor-related portion of the standardized amount for hospitals 

located in Alaska and Hawaii by an adjustment factor. 

 In the FY 2013 IPPS/LTCH PPS final rule, we established a methodology to 

update the COLA factors for Alaska and Hawaii that were published by the U.S. Office 

of Personnel Management (OPM) every 4 years (at the same time as the update to the 

labor-related share of the IPPS market basket), beginning in FY 2014. We refer readers 
 1454 

to the FY 2013 IPPS/LTCH PPS proposed and final rules for additional background and a 

detailed description of this methodology (77 FR 28145 through 28146 and 77 FR 53700 

through 53701, respectively). 

 For FY 2014, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50985 through 

50987), we updated the COLA factors published by OPM for 2009 (as these are the last 

COLA factors OPM published prior to transitioning from COLAs to locality pay) using 

the methodology that we finalized in the FY 2013 IPPS/LTCH PPS final rule. 

 Based on the policy finalized in the FY 2013 IPPS/LTCH PPS final rule , we are 

proposing to use the same COLAs factors established in FY 2014 for FY 2015 to adjust 

the nonlabor-related portion of the standardized amount for hospitals located in Alaska 

and Hawaii. Below is a table listing the proposed COLA factors for FY 2015. 
 1455 

Proposed FY 2015 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 1.19 

County of Kauai 1.25 

County of Maui and County of Kalawao 1.25 

 Based on the policy finalized in the FY 2013 IPPS/LTCH PPS final rule, the next 

update to the COLA factors for Alaska and Hawaii would occur in FY 2018. 

C. Calculation of the Proposed Prospective Payment Rates 

General Formula for Calculation of the Prospective Payment Rates for FY 2015 

 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 2015 equals the 

Federal rate (which includes uncompensated care payments). 

 We note that, as discussed in section IV.G. of the preamble of this proposed rule, 

section 1106 of the Pathway to SGR Reform Act of 2013 (Pub. L. 113-67), enacted on 

December 26, 2013, extended the MDH program from the end of FY 2013 through the 

first half of FY 2014 (that is, for discharges occurring before April 1, 2014). 

Subsequently, section 106 of the Protecting Access to Medicare Act of 2014 (Pub. L. 

113-93), enacted on April 1, 2014, further extended the MDH program through the first 
 1456 

half of FY 2015 (that is, for discharges occurring before April 1, 2015). Prior to the 

enactment of Pub. L. 113-67, the MDH program was only to be in effect through the end 

of FY 2013. Under current law, the MDH program will expire for discharges beginning 

on April 1, 2015. 

 SCHs are paid based on whichever of the following rates yields the greatest 

aggregate payment: the Federal national rate (which, as discussed in section IV.F. of the 

preamble of this proposed rule, includes uncompensated care payments); the updated 

hospital-specific rate based on FY 1982 costs per discharge; the updated hospital-specific 

rate based on FY 1987 costs per discharge; the updated hospital-specific rate based on 

FY 1996 costs per discharge; or the updated hospital-specific rate based on FY 2006 

costs per discharge to determine the rate that yields the greatest aggregate payment. 

 The prospective payment rate for SCHs for FY 2015 equals the higher of the 

applicable Federal rate, or the hospital-specific rate as described below. 

 The prospective payment rate for MDHs for FY 2015 discharges occurring before 

April 1, 2015 equals the higher of the Federal rate or the Federal rate plus 75 percent of 

the difference between the Federal rate and the hospital-specific rate as described below. 

For MDHs, the updated hospital-specific rate is based on FY 1982, FY 1987 or FY 2002 

costs per discharge, whichever yields the greatest aggregate payment. 

 The prospective payment rate for hospitals located in Puerto Rico for FY 2015 

equals 25 percent of the Puerto Rico-specific payment rate plus 75 percent of the 

applicable national rate. 

1. Federal Rate 
 1457 

 The Federal rate is determined as follows: 

 Step 1--Select the applicable average standardized amount depending on whether 

the hospital submitted qualifying quality data and is a meaningful EHR user, as described 

above. 

 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 located in Alaska and Hawaii, multiply the nonlabor-related 

portion of the standardized amount by the applicable cost-of-living adjustment factor. 

 Step 4--Add the amount from Step 2 and the nonlabor-related portion of the 

standardized amount (adjusted, if applicable, under Step 3). 

 Step 5--Multiply the final amount from Step 4 by the relative weight 

corresponding to the applicable MS-DRG (Table 5 listed in section VI. of this Addendum 

and available via the Internet). 

 The Federal payment rate as determined in Step 5 may then be further adjusted if 

the hospital qualifies for either the IME or DSH adjustment. In addition, for hospitals 

that qualify for a low-volume payment adjustment under section 1886(d)(12) of the Act 

and 42 CFR 412.101(b), the payment in Step 5 would be increased by the formula 

described in section IV.D. of the preamble of this proposed rule. The base-operating 

DRG payment amount may be further adjusted by the hospital readmissions payment 

adjustment and the hospital VBP payment adjustment as described under 

sections 1886(q) and 1886(o) of the Act, respectively. Finally, we add the 
 1458 

uncompensated care payment to the total claim payment amount. We note that, as 

discussed above, we take uncompensated care payments into consideration when 

calculating outlier payments. 

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 SCHs are paid based on whichever 

of the following rates yields the greatest aggregate payment: the Federal rate (which, as 

discussed in section IV.F. of the preamble of this proposed rule, includes uncompensated 

care payments); 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 hospitalspecific rate based on FY 2006 costs per discharge to determine the rate that yields the 

greatest aggregate payment. 

 As discussed previously, currently MDHs are paid based on the Federal national 

rate or, if higher, the Federal national rate plus 75 percent of the difference between the 

Federal national rate and the greater of the updated hospital-specific rates based on either 

FY 1982, FY 1987, or FY 2002 costs per discharge. 

 For a more detailed discussion of the calculation of the hospital-specific rates, we 

refer readers to the FY 1984 IPPS interim final rule (48 FR 39772); the April 20, 1990 

final rule with comment period (55 FR 15150); the FY 1991 IPPS final rule 

(55 FR 35994); and the FY 2001 IPPS final rule (65 FR 47082). We also refer readers to 
 1459 

section IV.F. of the preamble of this proposed rule for a complete discussion on 

empirically justified Medicare DSH and uncompensated care payments. 

b. Updating the FY 1982, FY 1987, FY 1996 and FY 2006 Hospital-Specific Rate for 

FY 2015 

 Section 1886(b)(3)(B)(iv) of the Act provides that the applicable percentage 

increase applicable to the hospital-specific rates for SCHs and MDHs equals the 

applicable percentage increase set forth in section 1886(b)(3)(B)(i) of the Act (that is, the 

same update factor as for all other hospitals subject to the IPPS). Because the Act sets 

the update factor for SCHs and MDHs equal to the update factor for all other IPPS 

hospitals, the update to the hospital-specific rates for SCHs and MDHs is subject to the 

amendments to section 1886(b)(3)(B) of the Act made by sections 3401(a) and 10319(a) 

of the Affordable Care Act. Accordingly, the proposed applicable percentage increases 

to the hospital-specific rates applicable to SCHs and MDHs are the following: 

 
 1460 

FY 2015 

Hospital 

Submitted 

Quality 

Data and is 

a 

Meaningful 

EHR User 

Hospital 

Submitted 

Quality Data 

and is NOT a 

Meaningful 

EHR User 

Hospital Did 

NOT Submit 

Quality Data 

and is a 

Meaningful 

EHR User 

Hospital Did 

NOT Submit 

Quality Data 

and is NOT a 

Meaningful 

EHR User 

Market Basket 

Rate-of-Increase 2.7 2.7 2.7 2.7 

Adjustment for Failure to 

Submit Quality Data under 

Section 1886(b)(3)(B)(viii) 

of the Act 0.0 0.0 -0.675 -0.675 

Adjustment for Failure to 

be a Meaningful EHR User 

under Section 

1886(b)(3)(B)(ix) of the 

Act 0.0 -0.675 0.0 -0.675 

MFP Adjustment under 

Section 1886(b)(3)(B)(xi) 

of the Act -0.4 -0.4 -0.4 -0.4 

Statutory Adjustment 

under Section 

1886(b)(3)(B)(xii) of the 

Act -0.2 -0.2 -0.2 -0.2 

Proposed Applicable 

Percentage Increase 

Applied to HospitalSpecific Rate 2.1 1.425 1.425 0.75 

 For a complete discussion of the applicable percentage increase applied to the 

hospital-specific rates for SCHs and MDHs, we refer readers to section IV.B. of the 

preamble of this proposed rule. 

 In addition, because SCHs and MDHs use the same MS-DRGs as other hospitals 

when they are paid based in whole or in part on the hospital-specific rate, the 

hospital-specific rate is adjusted by a budget neutrality factor to ensure that changes to 

the MS-DRG classifications and the recalibration of the MS-DRG relative weights are 
 1461 

made in a manner so that aggregate IPPS payments are unaffected. Therefore, a SCH’s 

and MDH’s hospital-specific rate is adjusted by the proposed MS-DRG reclassification 

and recalibration budget neutrality factor of 0.992938, as discussed in section III. of this 

Addendum. The resulting rate is used in determining the payment rate that an SCH 

would receive for its discharges beginning on or after October 1, 2014, and the payment 

rate that an MDH would receive for its discharges beginning on or after October 1, 2014, 

and before April 1, 2015. We note that, in this proposed rule, for FY 2015, we are not 

proposing to make a documentation and coding adjustment to the hospital-specific rate. 

We refer readers to section II.D. of the preamble of this proposed rule for a complete 

discussion regarding our proposed policies and previously finalized policies (including 

our historical adjustments to the payment rates) relating to the effect of changes in 

documentation and coding that do not reflect real changes in case-mix. 

3. General Formula for Calculation of Prospective Payment Rates for Hospitals Located 

in Puerto Rico Beginning on or after October 1, 2014, and before October 1, 2015 

 Section 1886(d)(9)(E)(iv) of the Act provides that, effective for discharges 

occurring on or after October 1, 2004, hospitals located in Puerto Rico are paid based on 

a blend of 75 percent of the national prospective payment rate and 25 percent of the 

Puerto Rico-specific rate. 

a. Puerto Rico-Specific Rate 

 The Puerto Rico-specific prospective payment rate is determined as follows: 
 1462 

 Step 1 - Select the applicable average standardized amount considering the 

applicable wage index (obtained from Table 1C published in section VI. of this 

Addendum and available via the Internet). 

 Step 2 - Multiply the labor-related portion of the standardized amount by the 

applicable Puerto Rico-specific wage index. 

 Step 3 - Add the amount from Step 2 and the nonlabor-related portion of the 

standardized amount. 

 Step 4 - Multiply the amount from Step 3 by the applicable MS-DRG relative 

weight (obtained from Table 5 listed in section VI. of this Addendum and available via 

the Internet). 

 Step 5 - Multiply the result in Step 4 by 25 percent. 

b. National Prospective Payment Rate 

 The national prospective payment rate is determined as follows: 

 Step 1--Select the applicable national average standardized amount. 

 Step 2--Multiply the labor-related portion of the national average standardized 

amount by the applicable wage index for the geographic area in which the hospital is 

located or the area to which the hospital is reclassified. 

 Step 3--Add the amount from Step 2 and the nonlabor-related portion of the 

national average standardized amount. 

 Step 4--Multiply the amount from Step 3 by the applicable MS-DRG relative 

weight (obtained from Table 5 listed in section VI. of this Addendum and available via 

the Internet). 
 1463 

 Step 5--Multiply the result in Step 4 by 75 percent. 

 The sum of the Puerto Rico-specific rate and the national prospective payment 

rate computed above equals the prospective payment rate for a given discharge for a 

hospital located in Puerto Rico. This payment rate is then further adjusted if the hospital 

qualifies for either the IME or DSH adjustment. 

 Finally, we add the uncompensated care payment to the total claim payment 

amount. We note that, as discussed above, we take uncompensated care payments into 

consideration when calculating outlier payments.
 1464 

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

Capital-Related Costs for FY 2015 

 The PPS for acute care hospital inpatient capital-related costs was implemented 

for cost reporting periods beginning on or after October 1, 1991. Effective with that cost 

reporting period, over a 10-year transition period (which extended through FY 2001) the 

payment methodology for Medicare acute care hospital inpatient capital-related costs 

changed from a reasonable cost-based methodology to a prospective methodology (based 

fully on the Federal rate). 

 The basic methodology for determining Federal capital prospective rates is set 

forth in the regulations at 42 CFR 412.308 through 412.352. Below we discuss the 

factors that we used to determine the proposed capital Federal rate for FY 2015, which 

would be effective for discharges occurring on or after October 1, 2014. 

 The 10-year transition period ended with hospital cost reporting periods beginning 

on or after October 1, 2001 (FY 2002). Therefore, for cost reporting periods beginning in 

FY 2002, all hospitals (except “new” hospitals under § 412.304(c)(2)) are paid based on 

the capital Federal rate. For FY 1992, we computed the standard Federal payment rate 

for capital-related costs under the IPPS by updating the FY 1989 Medicare inpatient 

capital cost per case by an actuarial estimate of the increase in Medicare inpatient capital 

costs per case. Each year after FY 1992, we update the capital standard Federal rate, as 

provided at § 412.308(c)(1), to account for capital input price increases and other factors. 

The regulations at § 412.308(c)(2) also provide that the capital Federal rate be adjusted 

annually by a factor equal to the estimated proportion of outlier payments under the 
 1465 

capital Federal rate to total capital payments under the capital Federal rate. In addition, 

§ 412.308(c)(3) requires that the capital Federal rate be reduced by an adjustment factor 

equal to the estimated proportion of payments for exceptions under § 412.348. (We note 

that, as discussed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53705), there is 

generally no longer a need for an exceptions payment adjustment factor.) However, in 

limited circumstances, an additional payment exception for extraordinary circumstances 

is provided for under § 412.348(f) for qualifying hospitals. Therefore, in accordance with 

§ 412.308(c)(3), an exceptions payment adjustment factor may need to be applied if such 

payments are made. Section 412.308(c)(4)(ii) requires that the capital standard Federal 

rate be adjusted so that the effects of the annual DRG reclassification and the 

recalibration of DRG weights and changes in the geographic adjustment factor (GAF) are 

budget neutral. 

 Section 412.374 provides for blended payments to hospitals located in Puerto 

Rico under the IPPS for acute care hospital inpatient capital-related costs. Accordingly, 

under the capital PPS, we compute a separate payment rate specific to hospitals located in 

Puerto Rico using the same methodology used to compute the national Federal rate for 

capital-related costs. In accordance with section 1886(d)(9)(A) of the Act, under the 

IPPS for acute care hospital operating costs, hospitals located in Puerto Rico are paid for 

operating costs under a special payment formula. Effective October 1, 2004, in 

accordance with section 504 of Pub. L. 108-173, the methodology for operating payments 

made to hospitals located in Puerto Rico under the IPPS was revised to make payments 

based on a blend of 25 percent of the applicable standardized amount specific to Puerto 
 1466 

Rico hospitals and 75 percent of the applicable national average standardized amount. In 

conjunction with this change to the operating blend percentage, effective with discharges 

occurring on or after October 1, 2004, we also revised the methodology for computing 

capital payments made to hospitals located in Puerto Rico to be based on a blend of 

25 percent of the Puerto Rico capital rate and 75 percent of the national capital Federal 

rate (69 FR 49185). 

A. Determination of the Proposed Federal Hospital Inpatient Capital-Related Prospective 

Payment Rate Update 

 In the discussion that follows, we explain the factors that we used to determine 

the proposed capital Federal rate for FY 2015. In particular, we explain why the 

proposed FY 2015 capital Federal rate increases approximately 0.9 percent, compared to 

the FY 2014 capital Federal rate. As discussed in the impact analysis in Appendix A to 

this proposed rule, we estimate that capital payments per discharge would increase 

1.2 percent during that same period. Because capital payments constitute about 

10 percent of hospital payments, a percent change in the capital Federal rate yields only 

about a 0.1 percent change in actual payments to hospitals. 

1. Projected Capital Standard Federal Rate Update 

a. Description of the Update Framework 

 Under § 412.308(c)(1), the capital standard Federal rate is updated on the basis of 

an analytical framework that takes into account changes in a capital input price index 

(CIPI) and several other policy adjustment factors. Specifically, we adjust the projected 

CIPI rate-of-increase as appropriate each year for case-mix index-related changes, for 
 1467 

intensity, and for errors in previous CIPI forecasts. The proposed update factor for 

FY 2015 under that framework is 1.5 percent based on the best data available at this time. 

The proposed update factor under that framework is based on a projected 1.5 percent 

increase in the FY 2010-based CIPI, a 0.0 percentage point adjustment for intensity, a 0.0 

percentage point adjustment for case-mix, a 0.0 percentage point adjustment for the 

FY 2013 DRG reclassification and recalibration, and a forecast error correction of 

0.0 percentage point. As discussed below in section III.C. of this Addendum, we 

continue to believe that the CIPI is the most appropriate input price index for capital costs 

to measure capital price changes in a given year. We also explain the basis for the 

FY 2015 CIPI projection in that same section of this Addendum. Below we describe the 

policy adjustments that we are proposing to apply in the update framework for FY 2015. 

 The case-mix index is the measure of the average DRG weight for cases paid 

under the IPPS. Because the DRG weight determines the prospective payment for each 

case, any percentage increase in the case-mix index corresponds to an equal percentage 

increase in hospital payments. 

 The case-mix index can change for any of several reasons: 

● The average resource use of Medicare patients changes (“real” case-mix 

change); 

● Changes in hospital documentation and coding of patient records result in 

higher-weighted DRG assignments (“coding effects”); and 

● The annual DRG reclassification and recalibration changes may not be budget 

neutral (“reclassification effect”). 
 1468 

 We define real case-mix change as actual changes in the mix (and resource 

requirements) of Medicare patients as opposed to changes in documentation and coding 

behavior that result in assignment of cases to higher-weighted DRGs, but do not reflect 

higher resource requirements. The capital update framework includes the same case-mix 

index adjustment used in the former operating IPPS update framework (as discussed in 

the May 18, 2004 IPPS proposed rule for FY 2005 (69 FR 28816)). (We no longer use an 

update framework to make a recommendation for updating the operating IPPS 

standardized amounts as discussed in section II. of Appendix B to the FY 2006 IPPS final 

rule (70 FR 47707).) 

 For FY 2015, we are projecting a 0.5 percent total increase in the case-mix index. 

We estimated that the real case-mix increase will also equal 0.5 percent for FY 2015. 

The proposed net adjustment for change in case-mix is the difference between the 

projected real increase in case-mix and the projected total increase in case-mix. 

Therefore, the proposed net adjustment for case-mix change in FY 2015 is 0.0 percentage 

point. 

 The capital update framework also contains an adjustment for the effects of DRG 

reclassification and recalibration. This adjustment is intended to remove the effect on 

total payments of prior year’s changes to the DRG classifications and relative weights, in 

order to retain budget neutrality for all case-mix index-related changes other than those 

due to patient severity of illness. Due to the lag time in the availability of data, there is a 

2-year lag in data used to determine the adjustment for the effects of DRG reclassification 

and recalibration. For example, we have data available to evaluate the effects of the 
 1469 

FY 2013 DRG reclassification and recalibration as part of our update for FY 2015. We 

estimate that FY 2013 DRG reclassification and recalibration resulted in no change in the 

case-mix when compared with the case-mix index that would have resulted if we had not 

made the reclassification and recalibration changes to the DRGs. Therefore, we are 

proposing to make a 0.0 percentage point adjustment for reclassification and recalibration 

in the update framework for FY 2015. 

 The capital update framework also contains an adjustment for forecast error. The 

input price index forecast is based on historical trends and relationships ascertainable at 

the time the update factor is established for the upcoming year. In any given year, there 

may be unanticipated price fluctuations that may result in differences between the actual 

increase in prices and the forecast used in calculating the update factors. In setting a 

prospective payment rate under the framework, we make an adjustment for forecast error 

only if our estimate of the change in the capital input price index for any year is off by 

0.25 percentage point or more. There is a 2-year lag between the forecast and the 

availability of data to develop a measurement of the forecast error. A forecast error of 

0.0 percentage point was calculated for the proposed FY 2015 update. Historically, when 

forecast error of the CIPI is greater than 0.25 percentage point in absolute terms, it is 

reflected in the update recommended under this framework. Current historical data 

indicate that the forecasted FY 2013 rate-of-increase of the FY 2006-based CIPI 

(1.2 percent) used in calculating the FY 2013 update factor slightly understated the actual 

realized FY 2013 price increases of the FY 2006-based CIPI (1.3 percent) by 

0.1 percentage point because the prices associated with both the depreciation and other 
 1470 

capital-related cost categories grew more quickly than anticipated. Because this forecast 

error does not exceed the 0.25 percentage point threshold, we are proposing to make a 

0.0 percentage point adjustment for forecast error in the update for FY 2015. 

 Under the capital IPPS update framework, we also make an adjustment for 

changes in intensity. Historically, we calculated this adjustment using the same 

methodology and data that were used in the past under the framework for operating IPPS. 

The intensity factor for the operating update framework reflected how hospital services 

are utilized to produce the final product, that is, the discharge. This component accounts 

for changes in the use of quality-enhancing services, for changes within DRG severity, 

and for expected modification of practice patterns to remove noncost-effective services. 

Our intensity measure is based on a 5-year average. 

 We calculate case-mix constant intensity as the change in total cost per discharge, 

adjusted for price level changes (the CIPI for hospital and related services) and changes 

in real case-mix. Without reliable estimates of the proportions of the overall annual 

intensity increases that are due, respectively, to ineffective practice patterns and the 

combination of quality-enhancing new technologies and complexity within the DRG 

system, we assume that one-half of the annual increase is due to each of these factors. 

The capital update framework thus provides an add-on to the input price index rate of 

increase of one-half of the estimated annual increase in intensity, to allow for increases 

within DRG severity and the adoption of quality-enhancing technology. 

 In this proposed rule, we are proposing to continue to use a Medicare-specific 

intensity measure that is based on a 5-year adjusted average of cost per discharge for 
 1471 

FY 2015 (we refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50436) for 

a full description of our Medicare-specific intensity measure). Specifically, for FY 2015, 

we are proposing to use an intensity measure that is based on an average of cost per 

discharge data from the 5-year period beginning with FY 2007 and extending through 

FY 2012. Based on these data, we estimated that case-mix constant intensity declined 

during FYs 2007 through 2012. In the past, when we found intensity to be declining, we 

believed a zero (rather than a negative) intensity adjustment was appropriate. Consistent 

with this approach, because we estimate that intensity declined during that 5-year period, 

we believe it is appropriate to propose to continue to apply a zero intensity adjustment for 

FY 2015. Therefore, we are proposing to make a 0.0 percentage point adjustment for 

intensity in the update for FY 2015. 

 Above, we described the basis of the components used to develop the proposed 

1.5 percent capital update factor under the capital update framework for FY 2015 as 

shown in the table below. 

PROPOSED CMS FY 2015 UPDATE FACTOR TO THE CAPITAL FEDERAL 

RATE 

Capital Input Price Index* 1.5 

Intensity: 0.0 

Case-Mix Adjustment Factors: 

 Real Across DRG Change -0.5 

 Projected Case-Mix Change 0.5 

Subtotal 1.5 

Effect of FY 2013 Reclassification and Recalibration 0.0 

Forecast Error Correction 0.0 

Total Update 1.5 
 1472 

*The capital input price index is based on the FY 2010-based CIPI. 

b. Comparison of CMS and MedPAC Update Recommendation 

 In its March 2014 Report to Congress, MedPAC did not make a specific update 

recommendation for capital IPPS payments for FY 2015. (We refer readers to 

MedPAC’s Report to the Congress: Medicare Payment Policy, March 2014, Chapter 3.) 

2. Outlier Payment Adjustment Factor 

 Section 412.312(c) establishes a unified outlier payment methodology for 

inpatient operating and inpatient capital-related costs. A single set of thresholds is used 

to identify outlier cases for both inpatient operating and inpatient capital-related 

payments. Section 412.308(c)(2) provides that the standard Federal rate for inpatient 

capital-related costs be reduced by an adjustment factor equal to the estimated proportion 

of capital-related outlier payments to total inpatient capital-related PPS payments. The 

outlier thresholds are set so that operating outlier payments are projected to be 

5.1 percent of total operating IPPS DRG payments. 

 For FY 2014, we estimated that outlier payments for capital will equal 

6.07 percent of inpatient capital-related payments based on the capital Federal rate in 

FY 2014. Based on the proposed thresholds as set forth in section II.A. of this 

Addendum, we estimate that outlier payments for capital-related costs would equal 6.26 

percent for inpatient capital-related payments based on the proposed capital Federal rate 

in FY 2015. Therefore, we are proposing to apply an outlier adjustment factor of 0.9374 

in determining the proposed capital Federal rate for FY 2015. Thus, we estimate that the 
 1473 

percentage of capital outlier payments to total capital Federal rate payments for FY 2015 

will be slightly higher than the percentage for FY 2014. 

 The outlier reduction factors are not built permanently into the capital rates; that 

is, they are not applied cumulatively in determining the capital Federal rate. The 

proposed FY 2015 outlier adjustment of 0.9374 is a -0.82 percent change from the 

FY 2014 outlier adjustment of 0.9393. Therefore, the proposed net change in the outlier 

adjustment to the capital Federal rate for FY 2015 is 0.9980 (0.9374/0.9393). Thus, the 

outlier adjustment would decrease the proposed FY 2015 capital Federal rate by 

0.82 percent compared to the FY 2014 outlier adjustment. 

3. Proposed Budget Neutrality Adjustment Factor for Changes in DRG Classifications 

and Weights and the GAF 

 Section 412.308(c)(4)(ii) requires that the capital Federal rate be adjusted so that 

aggregate payments for the fiscal year based on the capital Federal rate after any changes 

resulting from the annual DRG reclassification and recalibration and changes in the GAF 

are projected to equal aggregate payments that would have been made on the basis of the 

capital Federal rate without such changes. Because we implemented a separate GAF for 

Puerto Rico, we apply separate budget neutrality adjustments for the national GAF and 

the Puerto Rico GAF. We apply the same budget neutrality factor for DRG 

reclassifications and recalibration nationally and for Puerto Rico. Separate adjustments 

were unnecessary for FY 1998 and earlier because the GAF for Puerto Rico was 

implemented in FY 1998. 
 1474 

 To determine the proposed factors for FY 2015, we compared (separately for the 

national capital rate and the Puerto Rico capital rate) estimated aggregate capital Federal 

rate payments based on the FY 2014 MS-DRG classifications and relative weights and 

the FY 2014 GAF to estimated aggregate capital Federal rate payments based on the 

FY 2014 MS-DRG classifications and relative weights and the proposed FY 2015 GAFs. 

To achieve budget neutrality for the changes in the national GAFs, based on calculations 

using updated data, we are proposing to apply an incremental budget neutrality 

adjustment factor of 1.0000 for FY 2015 to the previous cumulative FY 2014 adjustment 

factor of 0.9891, yielding a proposed adjustment factor of 0.9891 through FY 2015. For 

the Puerto Rico GAFs, we are proposing to apply an incremental budget neutrality 

adjustment factor of 1.0011 for FY 2015 to the previous cumulative FY 2014 adjustment 

factor of 1.0076, yielding a proposed cumulative adjustment factor of 1.0087 through 

FY 2015. 

 We then compared estimated aggregate capital Federal rate payments based on 

the FY 2014 MS-DRG relative weights and the proposed FY 2015 GAFs to estimated 

aggregate capital Federal rate payments based on the cumulative effects of the proposed 

FY 2015 MS-DRG classifications and relative weights and the proposed FY 2015 GAFs. 

The proposed incremental adjustment factor for DRG classifications and changes in 

relative weights is 0.9957 both nationally and for Puerto Rico. The proposed cumulative 

adjustment factors for MS-DRG classifications and changes in relative weights and for 

changes in the GAFs through FY 2015 are 0.9848 nationally and 1.0043 for Puerto Rico. 

(We note that all the values are calculated with unrounded numbers.) The GAF/DRG 
 1475 

budget neutrality adjustment factors are built permanently into the capital rates; that is, 

they are applied cumulatively in determining the capital Federal rate. This follows the 

requirement under § 412.308(c)(4)(ii) that estimated aggregate payments each year be no 

more or less than they would have been in the absence of the annual DRG reclassification 

and recalibration and changes in the GAFs. 

 The methodology used to determine the recalibration and geographic adjustment 

factor (GAF/DRG) budget neutrality adjustment is similar to the methodology used in 

establishing budget neutrality adjustments under the IPPS for operating costs. One 

difference is that, under the operating IPPS, the budget neutrality adjustments for the 

effect of geographic reclassifications are determined separately from the effects of other 

changes in the hospital wage index and the MS-DRG relative weights. Under the capital 

IPPS, there is a single GAF/DRG budget neutrality adjustment factor (the national capital 

rate and the Puerto Rico capital rate are determined separately) for changes in the GAF 

(including geographic reclassification) and the MS-DRG relative weights. In addition, 

there is no adjustment for the effects that geographic reclassification has on the other 

payment parameters, such as the payments for DSH or IME. 

 The proposed cumulative adjustment factor accounts for the proposed MS-DRG 

reclassifications and recalibration and for proposed changes in the GAFs. It also 

incorporates the effects on the proposed GAFs of FY 2015 geographic reclassification 

decisions made by the MGCRB compared to FY 2014 decisions. However, it does not 

account for proposed changes in payments due to changes in the DSH and IME 

adjustment factors. 
 1476 

4. Proposed Capital Federal Rate for FY 2015 

 For FY 2014, we established a capital Federal rate of $429.31 (78 FR 50990). 

We are proposing to establish an update of 1.5 percent in determining the FY 2015 

capital Federal rate for all hospitals. As a result of this proposed update and the proposed 

budget neutrality factors discussed above, we are proposing to establish a national capital 

Federal rate of $433.01 for FY 2015. The proposed national capital Federal rate for 

FY 2015 was calculated as follows: 

● The proposed FY 2015 update factor is 1.015, that is, the proposed update is 

1.5 percent. 

● The proposed FY 2015 budget neutrality adjustment factor that is applied to the 

proposed capital Federal rate for proposed changes in the MS-DRG classifications and 

relative weights and changes in the GAFs is 0.9957. 

● The proposed FY 2015 outlier adjustment factor is 0.9374. 

 (We note that, as discussed in section VI.C. of the preamble of this proposed rule, 

we are not proposing to make an additional MS-DRG documentation and coding 

adjustment to the capital IPPS Federal rates for FY 2015.) 

 Because the proposed FY 2015 capital Federal rate has already been adjusted for 

differences in case-mix, wages, cost-of-living, indirect medical education costs, and 

payments to hospitals serving a disproportionate share of low-income patients, we are not 

proposing to make additional adjustments in the capital Federal rate for these factors, 

other than the proposed budget neutrality factor for proposed changes in the MS-DRG 

classifications and relative weights and for proposed changes in the GAFs. 
 1477 

 We are providing the following chart that shows how each of the proposed factors 

and adjustments for FY 2015 affects the computation of the proposed FY 2015 national 

capital Federal rate in comparison to the FY 2014 national capital Federal rate. The 

proposed FY 2015 update factor has the effect of increasing the capital Federal rate by 

1.5 percent compared to the FY 2014 capital Federal rate. The proposed GAF/DRG 

budget neutrality adjustment factor has the effect of decreasing the capital Federal rate by 

0.43 percent. The proposed FY 2015 outlier adjustment factor has the effect of 

decreasing the capital Federal rate by 0.20 percent compared to the FY 2014 capital 

Federal rate. The combined effect of all the proposed changes would increase the 

proposed national capital Federal rate by 0.86 percent compared to the FY 2014 national 

capital Federal rate. 

COMPARISON OF FACTORS AND ADJUSTMENTS: FY 2014 CAPITAL 

FEDERAL RATE AND PROPOSED FY 2015 CAPITAL FEDERAL RATE 

1

 The proposed update factor and the proposed GAF/DRG budget neutrality adjustment factors are built permanently into the capital 

Federal rates. Thus, for example, the proposed incremental change from FY 2014 to FY 2015 resulting from the application of the 

proposed 0.9957 GAF/DRG budget neutrality adjustment factor for FY 2015 is a proposed net change of 0.9957 (or –0.43 percent). 2

 The proposed outlier reduction factor is not built permanently into the capital Federal rate; that is, the factor is not applied 

cumulatively in determining the proposed capital Federal rate. Thus, for example, the proposed net change resulting from the 

application of the proposed FY 2015 outlier adjustment factor is 0.9374/0.9393, or 0.9918 (or -0.82 percent). 

5. Proposed Special Capital Rate for Puerto Rico Hospitals 

 Section 412.374 provides for the use of a blended payment system for payments 

made to hospitals located in Puerto Rico under the PPS for acute care hospital inpatient 

FY 2014 

Proposed 

FY 2015

Change Percent 

Change 

Update Factor1 1.0090 1.0150 1.0150 1.50

GAF/DRG Adjustment 

Factor1

0.9987 0.9957 0.9957 -0.43

Outlier Adjustment Factor2 0.9393 0.9374 0.9980 -0.20

Capital Federal Rate 429.31 433.01 1.0086 0.86
 1478 

capital-related costs. Accordingly, under the capital PPS, we compute a separate 

payment rate specific to hospitals located in Puerto Rico using the same methodology 

used to compute the national Federal rate for capital-related costs. Under the broad 

authority of section 1886(g) of the Act, beginning with discharges occurring on or after 

October 1, 2004, capital payments made to hospitals located in Puerto Rico are based on 

a blend of 25 percent of the Puerto Rico capital rate and 75 percent of the capital Federal 

rate. The Puerto Rico capital rate is derived from the costs of Puerto Rico hospitals only, 

while the capital Federal rate is derived from the costs of all acute care hospitals 

participating in the IPPS (including Puerto Rico). 

 To adjust hospitals' capital payments for geographic variations in capital costs, we 

apply a GAF to both portions of the blended capital rate. The GAF is calculated using 

the operating IPPS wage index, and varies depending on the labor market area or rural 

area in which the hospital is located. We use the Puerto Rico wage index to determine 

the GAF for the Puerto Rico part of the capital-blended rate and the national wage index 

to determine the GAF for the national part of the blended capital rate. 

 Because we implemented a separate GAF for Puerto Rico in FY 1998, we also 

apply separate budget neutrality adjustment factors for the national GAF and for the 

Puerto Rico GAF. However, we apply the same budget neutrality adjustment factor for 

MS-DRG reclassifications and recalibration nationally and for Puerto Rico. The 

proposed budget neutrality adjustment factors for the national GAF and for the Puerto 

Rico GAF and the proposed budget neutrality factor for MS-DRG reclassifications and 
 1479 

recalibration (which is the same nationally and for Puerto Rico) are discussed in section 

III.A.3. of this Addendum. 

 In computing the payment for a particular Puerto Rico hospital, the Puerto Rico 

portion of the capital rate (25 percent) is multiplied by the Puerto Rico-specific GAF for 

the labor market area in which the hospital is located, and the national portion of the 

capital rate (75 percent) is multiplied by the national GAF for the labor market area in 

which the hospital is located (which is computed from national data for all hospitals in 

the United States and Puerto Rico). 

 For FY 2014, the special capital rate for hospitals located in Puerto Rico was 

$209.82 (78 FR 50991). With the changes we are proposing to make to the other factors 

used to determine the proposed capital Federal rate, the proposed FY 2015 special capital 

rate for hospitals in Puerto Rico is $206.82. 

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

FY 2015 

 For purposes of calculating payments for each discharge during FY 2015, the 

capital Federal rate is adjusted as follows: (Standard Federal Rate) x (DRG weight) x 

(GAF) x (COLA for hospitals located in Alaska and Hawaii) x (1 + DSH Adjustment 

Factor + IME Adjustment Factor, if applicable). The result is the adjusted capital Federal 

rate. 

 Hospitals also may receive outlier payments for those cases that qualify under the 

thresholds established for each fiscal year. Section 412.312(c) provides for a single set of 

thresholds to identify outlier cases for both inpatient operating and inpatient 
 1480 

capital-related payments. The proposed outlier thresholds for FY 2015 are in 

section II.A. of this Addendum. For FY 2015, a case would qualify as a cost outlier if the 

cost for the case plus the (operating) IME and DSH payments (including both the 

empirically justified Medicare DSH payment and the estimated uncompensated care 

payment, as discussed in section II.A.4.g.(1) of this Addendum) is greater than the 

prospective payment rate for the MS-DRG plus the proposed fixed-loss amount of 

$25,799. 

 Currently, as provided under § 412.304(c)(2), we pay a new hospital 85 percent of 

its reasonable costs during the first 2 years of operation unless it elects to receive 

payment based on 100 percent of the capital Federal rate. Effective with the third year of 

operation, we pay the hospital based on 100 percent of the capital Federal rate (that is, the 

same methodology used to pay all other hospitals subject to the capital PPS). 

C. Capital Input Price Index 

1. Background 

 Like the operating input price index, the capital input price index (CIPI) is a 

fixed-weight price index that measures the price changes associated with capital costs 

during a given year. The CIPI differs from the operating input price index in one 

important aspect--the CIPI reflects the vintage nature of capital, which is the acquisition 

and use of capital over time. Capital expenses in any given year are determined by the 

stock of capital in that year (that is, capital that remains on hand from all current and 

prior capital acquisitions). An index measuring capital price changes needs to reflect this 

vintage nature of capital. Therefore, the CIPI was developed to capture the vintage 
 1481 

nature of capital by using a weighted-average of past capital purchase prices up to and 

including the current year. 

 We periodically update the base year for the operating and capital input price 

indexes to reflect the changing composition of inputs for operating and capital expenses. 

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50603 through 50607), we rebased and 

revised the CIPI to a FY 2010 base year to reflect the more current structure of capital 

costs in hospitals. For a complete discussion of this rebasing, we refer readers to the FY 

2014 IPPS/LTCH PPS final rule. 

2. Forecast of the CIPI for FY 2015 

 Based on the latest forecast by IHS Global Insight, Inc. (first quarter of 2014), we 

are forecasting the FY 2010-based CIPI to increase 1.5 percent in FY 2015. This reflects 

a projected 1.9 percent increase in vintage-weighted depreciation prices (building and 

fixed equipment, and movable equipment), and a projected 2.6 percent increase in other 

capital expense prices in FY 2015, partially offset by a projected 1.0 percent decline in 

vintage-weighted interest expenses in FY 2015. The weighted average of these three 

factors produces the forecasted 1.5 percent increase for the FY 2010-based CIPI as a 

whole in FY 2015.
 1482 

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

Percentages for FY 2015 

 Payments for services furnished in children’s hospitals, 11 cancer hospitals, and 

hospitals located outside the 50 States, the District of Columbia and Puerto Rico (that is, 

short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern 

Mariana Islands, and American Samoa) that are excluded from the IPPS are made on the 

basis of reasonable costs based on the hospital’s own historical cost experience, subject to 

a rate-of-increase ceiling. A per discharge limit (the target amount as defined in 

§413.40(a) of the regulations) is set for each hospital based on the hospital’s own cost 

experience in its base year, and updated annually by a rate-of-increase percentage. (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 this FY 2015 IPPS/LTCH PPS proposed rule, we are proposing that the 

FY 2015 rate-of-increase percentage for updating the target amounts for the 11 cancer 

hospitals, children’s hospitals, and the short-term acute care hospitals located in the U.S. 

Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa, as well as 

RNHCIs would be the estimated percentage increase in the FY 2015 IPPS operating 

market basket, in accordance with applicable regulations at § 413.40. As we did in 

FY 2014, we would use the percentage increase in the FY 2010-based IPPS operating 

market basket to update these target amounts. Based on IHS Global Insight, Inc.’s 2014 

first quarter forecast, we estimate that the FY 2010-based IPPS operating market basket 

update for FY 2015 is 2.7 percent (that is, the estimate of the market basket rate-of-
 1483 

increase). However, we are proposing that if more recent data become available for the 

final rule, we would use them to calculate the IPPS operating market basket update for 

FY 2015. 

 The IRF PPS, the IPF PPS, and the LTCH PPS are updated annually. We refer 

readers to section VII. of the preamble of this proposed rule and section V. of the 

Addendum to this proposed rule for the proposed update changes to the Federal payment 

rates for LTCHs under the LTCH PPS for FY 2015. The annual updates for the IRF PPS 

and the IPF PPS are issued by the agency in separate Federal Register documents.
 1484 

V. Proposed Updates to the Payment Rates for the LTCH PPS for FY 2015 

A. Proposed LTCH PPS Standard Federal Rate for FY 2015 

1. Background 

 In section VII. of the preamble of this proposed rule, we discuss our proposed 

updates to the payment rates, factors, and specific policies under the LTCH PPS for 

FY 2015. 

 Under § 412.523(c)(3)(ii) of the regulations, for LTCH PPS rate years beginning 

RY 2004 through RY 2006, we updated the standard Federal rate annually by a factor to 

adjust for the most recent estimate of the increases in prices of an appropriate market 

basket of goods and services for LTCHs. We established this policy of annually updating 

the standard Federal rate because, at that time, we believed that was the most appropriate 

method for updating the LTCH PPS standard Federal rate for years after the initial 

implementation of the LTCH PPS in FY 2003. Therefore, under § 412.523(c)(3)(ii), for 

RYs 2004 through 2006, the annual update to the LTCH PPS standard Federal rate was 

equal to the previous rate year’s Federal rate updated by the most recent estimate of 

increases in the appropriate market basket of goods and services included in covered 

inpatient LTCH services. 

 In determining the annual update to the standard Federal rate for RY 2007, based 

on our ongoing monitoring activity, we believed that, rather than solely using the most 

recent estimate of the LTCH PPS market basket update as the basis of the annual update 

factor, it was appropriate to adjust the standard Federal rate to account for the effect of 

documentation and coding in a prior period that was unrelated to patients’ severity of 
 1485 

illness (71 FR 27818). Accordingly, we established under § 412.523(c)(3)(iii) that the 

annual update to the standard Federal rate for RY 2007 was zero percent based on the 

most recent estimate of the LTCH PPS market basket at that time, offset by an adjustment 

to account for changes in case-mix in prior periods due to the effect of documentation 

and coding that were unrelated to patients’ severity of illness. For RY 2008 through 

FY 2011, we also made an adjustment for the effect of documentation and coding that 

was unrelated to patients’ severity of illness in establishing the annual update to the 

standard Federal rate as set forth in the regulations at §§ 412.523(c)(3)(iv) through 

(c)(3)(vii). For FYs 2012, 2013, and 2014, we updated the standard Federal rate by the 

most recent estimate of the LTCH PPS market basket at that time, including additional 

statutory adjustments required by section 1886(m)(3)(A) of the Act as set forth in the 

regulations at §§ 412.523(c)(3)(viii) through (c)(3)(ix). 

 Section 1886(m)(3)(A) of the Act, as added by section 3401(c) of the Affordable 

Care Act, specifies that, for rate year 2010 and each subsequent rate year, any annual 

update to the standard Federal rate shall be reduced: 

● For rate year 2010 through 2019, by the other adjustment specified in section 

1886(m)(3)(A)(ii) and (m)(4) of the Act; and 

● For rate year 2012 and each subsequent year, by the productivity adjustment 

described in section 1886(b)(3)(B)(xi)(II) of the Act (which we refer to as “the 

multifactor productivity (MFP) adjustment”) as discussed in section VII.C.2. of the 

preamble of this proposed rule. 
 1486 

 Section 1886(m)(3)(B) of the Act provides that the application of paragraph (3) of 

section 1886(m) of the Act may result in the annual update being less than zero for a rate 

year, and may result in payment rates for a rate year being less than such payment rates 

for the preceding rate year. (As noted in section VII.C.2.a. of the preamble of this 

proposed rule, the annual update to the LTCH PPS occurs on October 1 and we have 

adopted the term “fiscal year” (FY) rather than “rate year” (RY) under the LTCH PPS 

beginning October 1, 2010. Therefore, for purposes of clarity, when discussing the 

annual update for the LTCH PPS, including the provisions of the Affordable Care Act, 

we use the term “fiscal year” rather than “rate year” for 2011 and subsequent years.) 

 For FY 2014, consistent with our historical practice, we established an update to 

the LTCH PPS standard Federal rate based on the full estimated LTCH PPS market 

basket increase of 2.5 percent and the 0.8 percentage point reductions required by 

sections 1886(m)(3)(A)(i) and 1886(m)(3)(A)(ii) with 1886(m)(4)(C) of the Act. 

Accordingly, at § 412.523(c)(3)(x) of the regulations, we established an annual update of 

1.7 percent to the standard Federal rate for FY 2014 (78 FR 50761 through 50763 ). 

 For FY 2015, as discussed in greater detail in section VII.C.2. of the preamble of 

this proposed rule, we are proposing to establish an annual update to the LTCH PPS 

standard Federal rate based on the full estimated increase in the LTCH PPS market 

basket, less the proposed MFP adjustment consistent with section 1886(m)(3)(A)(i) of the 

Act, and less the 0.2 percentage point required by sections 1886(m)(3)(A)(ii) and 

(m)(4)(E) of the Act. In addition, as discussed in greater detail in section VII.C.2. of the 

preamble of this proposed rule, beginning in FY 2014, the annual update would be further 
 1487 

reduced by 2.0 percentage points for LTCHs that fail to submit quality reporting data in 

accordance with the requirements of the LTCHQR Program under section 1886(m)(5) of 

the Act. 

 Specifically, in this proposed rule, based on the best available data, we are 

proposing to establish an annual update to the standard Federal rate of 2.1 percent, which 

is based on the full estimated increase in the LTCH PPS market basket of 2.7 percent, 

less the proposed MFP adjustment of 0.4 percentage point consistent with section 

1886(m)(3)(A)(i) of the Act, and less the 0.2 percentage point required by sections 

1886(m)(3)(A)(ii) and (m)(4)(E) of the Act. As discussed in greater detail in section 

VII.C.2.c. of the preamble of this proposed rule, for LTCHs that fail to submit the 

required quality reporting data for FY 2015 in accordance with the LTCHQR Program, 

the proposed annual update would be further reduced by 2.0 percentage points as required 

by section 1886(m)(5) of the Act. Accordingly, we are proposing to establish an annual 

update to the LTCH PPS standard Federal rate of 0.1 percent for LTCHs that fail to 

submit the required quality reporting data for FY 2015. This proposed 0.1 percent update 

is calculated based on the full estimated increase in the LTCH PPS market basket of 2.7 

percent, less a proposed MFP adjustment of 0.4 percentage point, less an additional 

adjustment of 0.2 percentage point required by the statute, and less 2.0 percentage points 

for failure to submit quality reporting data as required by section 1886(m)(5) of the Act. 

2. Development of the Proposed FY 2015 LTCH PPS Standard Federal Rate 

 We continue to believe that the annual update to the LTCH PPS standard Federal 

rate should be based on the most recent estimate of the increase in the LTCH PPS market 
 1488 

basket, including any statutory adjustments. Consistent with our historical practice, for 

FY 2015, we are proposing to apply the proposed annual update to the LTCH PPS 

standard Federal rate from the previous year. Furthermore, in determining the proposed 

standard Federal rate for FY 2015, we also are proposing to make certain regulatory 

adjustments. Specifically, we are proposing to apply an adjustment factor for the final 

year of the 3-year phase-in of the one-time prospective adjustment to the standard Federal 

rate under § 412.523(d)(3), as discussed in greater detail in section VII.C.3. of the 

preamble of this proposed rule. In addition, in determining the proposed FY 2015 

standard Federal rate, we are proposing to apply a budget neutrality adjustment factor for 

the proposed changes related to the area wage adjustment (that is, proposed changes to 

the wage data, including the proposal to adopt the new OMB delineations, and 

labor-related share) in accordance with § 412.523(d)(4). 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50993and 50993), we 

established an annual update to the LTCH PPS standard Federal rate of 1.7 percent for 

FY 2014 based on the full estimated LTCH PPS market basket increase of 2.5 percent, 

less the MFP adjustment of 0.5 percentage point consistent with section 1886(m)(3)(A)(i) 

of the Act and less the 0.3 percentage point required by sections 1886(m)(3)(A)(ii) and 

(m)(4)(C) of the Act. Accordingly, at § 412.523(c)(3)(x), we established an annual 

update to the standard Federal rate for FY 2014 of 1.7 percent. That is, we applied an 

update factor of 1.017 to the FY 2013 Federal rate of $40,607.31 to determine the 

FY 2014 standard Federal rate. We also adjusted the standard Federal rate for FY 2014 

by the one-time prospective adjustment factor for FY 2014 of 0.98734 under 
 1489 

§ 412.523(d)(3)(ii). Furthermore, for FY 2014, we applied an area wage level budget 

neutrality factor of 1.0010531 to the standard Federal rate to ensure that any changes to 

the area wage level adjustment (that is, the annual update of the wage index values and 

labor-related share) would not result in any change (increase or decrease) in estimated 

aggregate LTCH PPS payments. Consequently, we established a standard Federal rate 

for FY 2014 of $40,607.31 (calculated as $40,397.96 × 1.017 × 0.98734 × 1.0010531). 

 In this proposed rule, we are proposing to establish an annual update to the LTCH 

PPS standard Federal rate of 2.1 percent (that is, an update factor of 1.021) for FY 2015, 

based on the full estimated increase in the LTCH PPS market basket of 2.7 percent, less 

the proposed MFP adjustment of 0.4 percentage point, consistent with section 

1886(m)(3)(A)(i) of the Act, and less the 0.2 percentage point required by sections 

1886(m)(3)(A)(ii) and(m)(4)(E) of the Act. Therefore, under proposed 

§ 412.523(c)(3)(xi), we are proposing to apply a factor of 1.021 to the FY 2014 standard 

Federal rate of $40,607.31 to determine the proposed FY 2015 standard Federal rate. 

These proposed factors are based on IGI’s first quarter 2014 forecast, which are the best 

available data at this time. Consistent with our historical practice of using the best 

available data, we also are proposing that if more recent data become available to 

determine the market basket estimate or the MFP adjustment, we would use such data for 

the final rule, if appropriate. For LTCHs that fail to submit quality reporting data for 

FY 2015 under the LTCHQR Program, under proposed § 412.523(c)(3)(xi) in 

conjunction with § 412.523(c)(4), we are proposing to reduce the proposed annual update 

to the LTCH PPS standard Federal rate by an additional 2 percentage points consistent 
 1490 

with section 1886(m)(5) of the Act. Therefore, we are proposing to establish an annual 

update to the LTCH PPS standard Federal rate of 0.1 percent (that is, 2.1 percent minus 

2.0 percentage points = 0.1 percent or an update factor of 1.001) for FY 2015 for LTCHs 

that fail to submit the required quality reporting data for FY 2015 under the LTCHQR 

Program. We also are proposing that the standard Federal rate for FY 2015 would be 

further adjusted by a proposed adjustment factor of 0.98734 for FY 2015 under the final 

year of the 3-year phase-in of the one-time prospective adjustment at § 412.523(d)(3)(ii). 

In addition, for FY 2015, we are proposing to apply an area wage level budget neutrality 

factor of 1.0002034 to the standard Federal rate to ensure that any proposed changes to 

the area wage level adjustment (that is, the proposed annual update of the wage index 

values and labor-related share) would not result in any change (increase or decrease) in 

estimated aggregate LTCH PPS payments. Accordingly, we are proposing to establish a 

standard Federal rate of $40,943.51 (calculated as $40,607.31 × 1.021 × 0.98734 × 

1.002034) for FY 2015. The proposed standard Federal rate of $40,943.51 would apply 

in determining the payments for FY 2015 discharges from LTCHs that submit quality 

reporting data for FY 2015 in accordance with the requirements of the LTCHQR 

Program under section 1886(m)(5) of the Act. For LTCHs that fail to submit quality 

reporting data for FY 2015 in accordance with the requirements of the LTCHQR 

Program under section 1886(m)(5) of the Act, we are proposing to establish a standard 

Federal of $40,141.47 (calculated as $40,607.31 × 1.001 × 0.98734 × 1.002034) for 

FY 2015. 
 1491 

B. Proposed Adjustment for Area Wage Levels under the LTCH PPS for FY 2015 

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 under § 412.525(c). The labor-related 

share of the LTCH PPS standard Federal rate is adjusted to account for geographic 

differences in area wage levels by applying the applicable LTCH PPS wage index. The 

applicable LTCH PPS wage index is computed using wage data from inpatient acute care 

hospitals without regard to reclassification under section 1886(d)(8) or section 

1886(d)(10) of the Act. 

 When we implemented the LTCH PPS, we established a 5-year transition to the 

full area wage level adjustment. The area wage level adjustment was completely 

phased-in for cost reporting periods beginning in FY 2007. Therefore, for cost reporting 

periods beginning on or after October 1, 2006, the applicable LTCH area wage index 

values are the full LTCH PPS area wage index values calculated based on acute care 

hospital inpatient wage index data without taking into account geographic reclassification 

under section 1886(d)(8) and section 1886(d)(10) of the Act. For additional information 

on the phase-in of the area wage level adjustment under the LTCH PPS, we refer readers 

to the August 30, 2002 LTCH PPS final rule (67 FR 56015 through 56019) and the 

RY 2008 LTCH PPS final rule (72 FR 26891). 
 1492 

2. Proposed Geographic Classifications (Labor Market Areas) Based on the New OMB 

Delineations 

 In adjusting for the differences in area wage levels under the LTCH PPS, the 

labor-related portion of an LTCH's Federal prospective payment is adjusted by using an 

appropriate area wage index based on the geographic classification (labor market area) in 

which the LTCH is located. Specifically, the application of the LTCH PPS area wage 

level adjustment under existing § 412.525(c) is made based on the location of the 

LTCH--either in an “urban area,” or a “rural area,” as defined in § 412.503. Under 

§ 412.503, an “urban area” is defined as a Metropolitan Statistical Area (MSAs) (which 

includes a Metropolitan division, where applicable), as defined by the Executive OMB 

and a “rural area” is defined as any area outside of an urban area. 

 The CBSA-based geographic classification (labor market area) definitions 

currently used under the LTCH PPS, effective for discharges occurring on or after 

July 1, 2005, are based on the OMB’s CBSA definitions that were developed based on 

2000 U.S. Census data. As discussed in greater detail in section VII.D. of the preamble 

of this proposed rule, OMB announced revisions to the statistical boundaries of its labor 

market areas for MSAs, Micropolitan Statistical Areas, and Combined Statistical Areas, 

and provided guidance on the uses of the delineations of these areas in OMB Bulletin No. 

13-01, issued on February 28, 2013 (referred hereinafter as the “new OMB 

delineations”). As previously stated, at that time, the FY 2014 IPPS/LTCH PPS proposed 

rule was in the advanced stages of development, and the proposed FY 2014 LTCH PPS 

area wage indexes had already been developed based on the previous OMB CBSA-based 
 1493 

labor market area definitions that are currently used to define CBSA-based labor market 

areas (referred hereinafter as “CBSA designations”) under the LTCH PPS. Therefore, we 

did not implement changes to the CBSA designations under the LTCH PPS for FY 2014 

based on the new OMB labor market areas delineations that were developed based on 

2010 Decennial Census data. Rather, to allow for sufficient time to assess the new 

changes and their ramifications, we stated that we intended to propose to adopt the new 

OMB delineations, and the corresponding changes to the area wage index values based 

on those delineations, under the LTCH PPS for FY 2015 through notice and comment 

rulemaking. This approach was consistent with the approach used under the IPPS. (We 

refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50994 through 50995).) 

 As discussed in sections III.B. and VII.D. of the preamble of this proposed rule, 

under the authority of section 123 of the BBRA, as amended by section 307(b) of the 

BIPA, we are proposing to adopt the new OMB delineations beginning in FY 2015. We 

believe that these new OMB delineations are based on the best available data that reflect 

the local economies and area wage levels of the hospitals that are currently located in 

these geographic areas. We also believe that the new OMB delineations would ensure 

that the LTCH PPS area wage level 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 this proposal is 

consistent with the IPPS proposal discussed in section III.B. of the preamble of this 

proposed rule. For additional details on our proposal to adopt the new OMB delineations, 

we refer readers to section VII.D. of the preamble of this proposed rule. 
 1494 

3. Proposed LTCH PPS Labor-Related Share 

 Under the payment adjustment for the differences in area wage levels under 

§ 412.525(c), the labor-related share of an LTCH’s PPS Federal prospective payment is 

adjusted by the applicable wage index for the labor market area in which the LTCH is 

located. The LTCH PPS labor-related share currently represents the sum of the 

labor-related portion of operating costs (Wages and Salaries; Employee Benefits; 

Professional Fees Labor-Related, Administrative and Business Support Services; and 

All-Other: Labor-Related Services) and a labor-related portion of capital costs using the 

applicable LTCH PPS market basket. Additional background information on the 

historical development of the labor-related share under the LTCH PPS and the 

development of the RPL market basket can be found in the RY 2007 LTCH PPS final 

rule (71 FR 27810 through 27817 and 27829 through 27830) and the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51766 through 51769 and 51808). 

 For FY 2013, we revised and rebased the market basket used under the LTCH 

PPS by adopting the newly created FY 2009-based LTCH-specific market basket. In 

addition, we determined the labor-related share for FY 2013 as the sum of the FY 2013 

relative importance of each labor-related cost category of the FY 2009-based 

LTCH-specific market basket. For more details, we refer readers to the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53477 through 53479). 

 Consistent with our historical practice, in the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50995 through 50996), we determined the LTCH PPS labor-related share for 

FY 2014 based on the FY 2014 relative importance of each labor-related cost category, 
 1495 

which reflected the different rates of price change for these cost categories between the 

base year (FY 2009) and FY 2014. Specifically, based on IGI’s second quarter 2013 

forecast of the FY 2009-based LTCH-specific market basket, we established a 

labor-related share under the LTCH PPS for FY 2014 of 62.537 percent. 

 For FY 2015, we are proposing to establish a labor-related share under the LTCH 

PPS based on IGI’s first quarter 2014 forecast of the FY 2009-based LTCH-specific 

market basket. Consistent with our historical practice, if more recent data becomes 

available, we are proposing to use that data to determine the final FY 2015 labor-related 

share under the LTCH PPS. 

 The table below shows the proposed FY 2015 labor-related share relative 

importance using IGI’s first quarter 2014 forecast of the FY 2009-based LTCH-specific 

market basket. The sum of the proposed relative importance for FY 2015 for operating 

costs (Wages and Salaries; Employee Benefits; Professional Fees Labor-Related, 

Administrative and Business Support Services; and All Other: Labor-Related Services) 

is 58.366 percent. We are proposing that the portion of capital-related costs that is 

influenced by the local labor market continue to be estimated to be 46 percent. Because 

the relative importance for capital-related costs would be 9.142 percent of the FY 2009-

based LTCH-specific market basket in FY 2015, we are proposing to take 46 percent of 

9.142 percent to determine the proposed labor-related share of capital-related costs for 

FY 2015, which would result in 4.205 percent (0.46 x 9.142). We are proposing to then 

add that 4.205 percent for the capital-related cost amount to the 58.366 percent for the 

operating cost amount to determine the total proposed labor-related share for FY 2015. 
 1496 

Therefore, under the broad authority of section 123 of the BBRA, as amended by section 

307(b) of BIPA, to determine appropriate payment adjustments under the LTCH PPS, we 

are proposing to establish a labor-related share under the LTCH PPS in FY 2015 of 

62.571 percent. This proposed labor-related share is determined using the same 

methodology as used in calculating all previous fiscal years LTCH labor-related shares. 

PROPOSED FY 2015 LABOR-RELATED SHARE 

RELATIVE IMPORTANCE BASED ON 

THE FY 2009-BASED LTCH-SPECIFIC MARKET BASKET 

Proposed FY 2015 

Labor-Related 

Share Relative 

Importance 

Wages and Salaries 45.034 

Employee Benefits 8.128 

Professional Fees: Labor-Related 2.208 

Administrative and Business 

Support Services 

0.502 

All Other: Labor-Related Services 2.494 

Subtotal 58.366 

Proposed Labor-Related Portion of 

Capital Costs (46%) 

4.205 

Proposed Total Labor-Related 

Share 

62.571 

4. Proposed LTCH PPS Wage Index for FY 2015 

 Historically, we have established LTCH PPS area wage index values calculated 

from acute care IPPS hospital wage data without taking into account geographic 

reclassification under sections 1886(d)(8) and 1886(d)(10) of the Act (67 FR 56019). 

The area wage level adjustment established under the LTCH PPS is based on an LTCH’s 

actual location without regard to the “urban” or “rural” designation of any related or 

affiliated provider. 
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In the FY 2014 LTCH PPS final rule (78 FR 50996 through 50997), we calculated 

the FY 2014 LTCH PPS area wage index values using the same data used for the 

FY 2014 acute care hospital IPPS (that is, data from cost reporting periods beginning 

during FY 2010), without taking into account geographic reclassification under sections 

1886(d)(8) and 1886(d)(10) of the Act, as these were the most recent complete data 

available at that time. In that same final rule, we indicated that we computed the 

FY 2014 LTCH PPS area wage index values consistent with the urban and rural 

geographic classifications (labor market areas) that were in place at that time, and 

consistent with the pre-reclassified IPPS wage index policy (that is, our historical policy 

of not taking into account IPPS geographic reclassifications in determining payments 

under the LTCH PPS). As with the IPPS wage index, wage data for multicampus 

hospitals with campuses located in different labor market areas (CBSAs) are apportioned 

to each CBSA where the campus (or campuses) are located. We also continued to use 

our existing policy for determining area wage index values for areas where there are no 

IPPS wage data. 

 Consistent with our historical methodology, to determine the applicable area wage 

index values under the LTCH PPS for FY 2015, under the broad authority of section 123 

of the BBRA, as amended by section 307(b) of the BIPA, to determine appropriate 

payment adjustments under the LTCH PPS, we are proposing to use wage data collected 

from cost reports submitted by IPPS hospitals for cost reporting periods beginning during 

FY 2011, without taking into account geographic reclassification under sections 

1886(d)(8) and 1886(d)(10) of the Act. We are proposing to use FY 2011 wage data 
 1498 

because these data are the most recent complete data available. These are the same data 

used to compute the proposed FY 2015 acute care hospital inpatient wage index, as 

discussed in section III. of the preamble of this proposed rule. (For our rationale for 

using IPPS hospital wage data as a proxy for determining the area wage index values 

used under the LTCH PPS, we refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 44024 through 44025).) 

 For this proposed rule, the proposed FY 2015 LTCH PPS area wage index values 

were computed consistent with the proposed “urban” and “rural” geographic 

classifications (that is, using the new OMB labor market area delineations), as discussed 

in section VII.D. of the preamble of this proposed rule, and consistent with the 

pre-reclassified IPPS wage index policy (that is, our historical policy of not taking into 

account IPPS geographic reclassifications under sections 1886(d)(8) and 1886(d)(10) of 

the Act in determining payments under the LTCH PPS). As with the IPPS wage index, 

we are proposing to continue to apportion wage data for multicampus hospitals with 

campuses located in different labor market areas to each CBSA where the campus or 

campuses are located, as discussed in section III.G. of the preamble of this proposed rule. 

Furthermore, in determining the proposed FY 2015 LTCH PPS area wage index values, 

we are proposing to continue to use our existing policy for determining area wage index 

values for areas where there are no IPPS wage data. We established this methodology for 

determining LTCH PPS wage index values for areas that have no IPPS wage data in the 

RY 2009 LTCH PPS final rule. For more information about this methodology, we refer 

readers to the RY 2009 LTCH PPS final rule (73 FR 26817 through 26818) for an 
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explanation of and rationale for our policy for determining LTCH PPS wage index values 

for areas that have no IPPS wage data. 

 There are currently no LTCHs located in labor market areas without IPPS hospital 

wage data (or IPPS hospitals). However, should an LTCH open in one of these labor 

market areas, LTCH PPS wage index values for such an area would be calculated using 

our established methodology. Under our existing methodology, the LTCH PPS wage 

index value for urban CBSAs with no IPPS wage data is determined by using an average 

of all of the urban areas within the State, and the LTCH PPS wage index value for rural 

areas with no IPPS wage data is determined by using the unweighted average of the wage 

indices from all of the CBSAs that are contiguous to the rural counties of the State. 

 Based on the FY 2011 IPPS wage data that we are proposing to use to determine 

the proposed FY 2015 LTCH PPS area wage index values in this proposed rule, there are 

no IPPS wage data for the urban area Hinesville, GA (CBSA 25980). Consistent with the 

methodology discussed above, we calculated the proposed FY 2015 wage index value for 

CBSA 25980 as the average of the wage index values for all of the other urban areas 

within the State of Georgia (that is, CBSAs 10500, 12020, 12060, 12260, 15260, 16860, 

17980, 19140, 23580, 31420, 40660, 42340, 46660 and 47580), as shown in Table 12A, 

which is listed in section VI. of the Addendum to this proposed rule and available via the 

Internet on the CMS Web site). We note that, as IPPS wage data are dynamic, it is 

possible that urban areas without IPPS wage data will vary in the future. 

 Based on FY 2011 IPPS wage data that we are proposing to use to determine the 

proposed FY 2015 LTCH PPS area wage index values in this proposed rule, there are no 
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proposed rural areas without IPPS hospital wage data. Therefore, it is not necessary to 

use our established methodology to calculate an LTCH PPS wage index value for 

proposed rural areas with no IPPS wage data for FY 2015. We note that, as IPPS wage 

data are dynamic, it is possible that rural areas without IPPS wage data will vary in the 

future. 

 For FY 2015, we are proposing to use the new OMB delineations under the 

LTCH PPS, as discussed in greater detail in section VII.D. of the preamble of this 

proposed rule. Under this proposal, there would be some changes to the current CBSA 

compositions as a result of the new OMB delineations, which would result in the creation 

of new CBSAs, “urban” counties that are now “rural,” “rural” counties that are now 

“urban,” and existing CBSAs that are divided into separate boundaries. Under existing 

§ 412.503, an “urban area” is defined as a Metropolitan Statistical Area as defined by the 

Executive OMB, and a “rural area” is defined as any area outside of an urban area. We 

are not proposing any changes to the current definitions of “urban area” and “rural area” 

because our proposal to use the new OMB delineations under the LTCH PPS is consistent 

with the definitions in existing § 412.503. 

 As discussed in sections III.B. and VII.D.2.e. of the preamble of this proposed 

rule, overall we believe that using the new OMB delineations would result in LTCH PPS 

area wage index values being more representative of the actual costs of labor in a given 

area. However, we also recognize that, as a result of our proposal to adopt the new OMB 

delineations, some LTCHs would experience decreases in area wage index values, while 

other LTCHs would experience increases in area wage index values. Therefore, to 
 1501 

mitigate any short-term instability in LTCH PPS payments that could result from our 

proposal to use the new OMB delineations, we are proposing a transitional wage index 

policy. Under our proposed transitional wage index policy, any LTCH that would 

experience a decrease in its area wage index solely as a result of the proposal to adopt the 

new OMB delineations under the LTCH PPS would receive a blended area wage index 

for FY 2015. That is, for purposes of determining an LTCH’s area wage index for 

FY 2015, we are proposing to compute LTCH PPS area wage index values using the 

proposed area wage data discussed above and in section V.B.4. of the Addendum to this 

proposed rule under both the current (FY 2014) CBSA designations and the proposed 

new OMB delineations. If the area wage index value under the proposed new OMB 

delineations would be lower than the proposed are wage index value under the FY 2014 

CBSA designations, the LTCH would be paid based on a blended area wage index for 

FY 2015, which would be computed as the sum of 50 percent of each wage index value 

(referred to as the proposed 50/50 blended wage index), as described below. 

 Therefore, to determine the applicable area wage index value for each LTCH 

under this proposed transitional wage index policy that would be effective for discharges 

occurring on or after October 1, 2014, through September 30, 2015, for this proposed 

rule, we computed the following two area wage index values: (1) the wage index values 

calculated using the proposed new OMB delineations; and (2) the wage index values 

calculated using the current (FY 2014) CBSA designations. The proposed FY 2015 

LTCH area wage index values calculated using the new OMB delineations are presented 

in section VI. of the Addendum to this proposed rule in Table 12A (for urban areas) and 
 1502 

Table 12B (for rural areas), which are available via the Internet on the CMS Web site. 

The proposed FY 2015 LTCH area wage index values calculated using the current 

(FY 2014) CBSA designations are presented in section VI. of the Addendum to this 

proposed rule in Table 12C (for urban areas) and Table 12D (for rural areas), which are 

available via the Internet on the CMS Web site. Where applicable, the wage index values 

in Tables 12C and 12D would be used to calculate a LTCH’s proposed 50/50 blended 

wage index value under the proposed transitional wage index policy. As explained 

previously, under our proposed transitional wage index policy, an LTCH would only 

receive the proposed 50/50 blended area wage index value for FY 2015 if the LTCH’s 

proposed area wage index value under the new OMB delineations (shown in Table 12A 

or 12B) would be lower than the proposed area wage index value under the FY 2014 

CBSA designations (shown in Tables 12C or 12D). If an LTCH’s proposed area wage 

index under the new OMB delineations (shown in Tables 12A or 12B) would be higher 

than the proposed wage index under the FY 2014 CBSA designations (shown in Tables 

12C or 12D), we are proposing to pay the LTCH based on 100 percent of the proposed 

area wage index under the new OMB delineations shown in Tables 12A or 12B (as such 

the LTCH would not receive the proposed 50/50 blended area wage index). Furthermore, 

as discussed below and in section VII.D.2.e. of the preamble of this proposed rule, we are 

proposing to apply this transitional wage index policy in a budget neutral manner. Each 

LTCH’s proposed labor market area under the new OMB delineations and the current 

(FY 2014) CBSA-based labor market area designation can be found in the LTCH PPS 
 1503 

impact file for this proposed rule, which is available via the Internet on the CMS Web 

site. 

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

Level Adjustment 

 Historically, the LTCH PPS wage index and labor-related share are updated 

annually based on the latest available data. Under § 412.525(c)(2), any changes to the 

area wage index values or labor-related share are to be made in a budget neutral manner 

such that estimated aggregate LTCH PPS payments are unaffected; that is, will be neither 

greater than nor less than estimated aggregate LTCH PPS payments without such changes 

to the area wage level adjustment. Under this policy, we determine an area wage-level 

adjustment budget neutrality factor that will be applied to the standard Federal rate to 

ensure that any changes to the area wage-level adjustments are budget neutral such that 

any changes to the area wage index values or labor-related share would not result in any 

change (increase or decrease) in estimated aggregate LTCH PPS payments. Accordingly, 

under § 412.523(d)(4), we apply an area wage-level adjustment budget neutrality factor 

in determining the standard Federal rate, and we also established a methodology for 

calculating an area wage-level adjustment budget neutrality factor. (For additional 

information on the establishment of our budget neutrality policy for changes to the area 

wage-level adjustment, we refer readers to the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51771 through 51773 and 51809).) 

 For FY 2015, in accordance with § 412.523(d)(4), we are proposing to apply an 

area wage-level adjustment budget neutrality factor to adjust the standard Federal rate to 
 1504 

account for the estimated effect of the proposed adjustments or updates to the area 

wage-level adjustment under § 412.525(c)(1) on estimated aggregate LTCH PPS 

payments using a methodology that is consistent with the methodology we established in 

the FY 2012 IPPS/LTCH PPS final rule (76 FR 51773). For this proposed rule, in 

addition to the proposed updates for FY 2015 to the area wage index data and 

labor-related share discussed above, we are proposing a transitional wage index policy to 

mitigate the impacts of implementing changes to the LTCH PPS labor market areas 

(CBSAs) based on new OMB delineations, as discussed above and in section VII.D.2.e. 

of the preamble of this proposed rule. Because our proposed transitional wage index 

policy for LTCHs that would experience a decrease in the their area wage index solely as 

a result of the proposed adoption of the new OMB delineations under the LTCH PPS 

would result in an increase in estimated aggregate LTCH PPS payments without such 

changes, we are proposing to include the proposed 50/50 blended area wage index when 

determining the proposed area wage-level adjustment budget neutrality factor that we 

would be applied to the standard Federal rate under § 412.523(d)(4) to ensure that any 

changes to the area wage-level adjustments are budget neutral. 

 For this proposed rule, using the proposed steps in the proposed methodology 

described in section VII.D.2.e. of this preamble, we determined a proposed FY 2015 area 

wage-level adjustment budget neutrality factor of 1.0002034. Accordingly, in section 

V.A.2. of the Addendum to this proposed rule, to determine the FY 2015 LTCH PPS 

standard Federal rate, we are proposing to apply a proposed area wage level adjustment 

budget neutrality factor of 1.0002034, in accordance with § 412.523(d)(4). The proposed 
 1505 

FY 2015 LTCH PPS standard Federal rate shown in Table 1E of the Addendum to this 

proposed rule reflects this adjustment factor. 

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

Alaska and Hawaii 

 Under § 412.525(b), a cost-of-living adjustment (COLA) is provided for LTCHs 

located in Alaska and Hawaii to account for the higher costs incurred in those States. 

Specifically, we apply a COLA to payments to LTCHs located in Alaska and Hawaii by 

multiplying the nonlabor-related portion of the standard Federal payment rate by the 

applicable COLA factors established annually by CMS. Higher labor-related costs for 

LTCHs located in Alaska and Hawaii are taken into account in the adjustment for area 

wage levels described above. 

 Prior to FY 2014, we used the most recent updated COLA factors obtained from 

the U.S. Office of Personnel Management (OPM) Web site at 

http://www.opm.gov/oca/cola/rates.asp to adjust the LTCH PPS payments for LTCHs 

located in Alaska and Hawaii. Statutory changes have transitioned the Alaska and 

Hawaii COLAs to locality pay (phased in over a 3-year period beginning in 

January 2010, with COLA rates being frozen as of October 28, 2009, and then 

proportionately reduced to reflect the phase-in of locality pay). For FY 2013, we 

believed that it was appropriate to use “frozen” COLA factors to adjust payments, while 

we explored alternatives for updating the COLA factors in the future, and we continued 

to use the same “frozen” COLA factors used in FY 2012 to adjust the nonlabor-related 

portion of the standard Federal rate for LTCHs located in Alaska and Hawaii in FY 2013 
 1506 

under § 412.525(b). We also established a methodology to update the COLA factors for 

Alaska and Hawaii, every 4 years (at the same time as the update to the labor-related 

share of the IPPS market basket), beginning in FY 2014 (77 FR 53712 through 53713). 

The methodology we established to update the COLA factors is based on a comparison of 

the growth in the CPIs for Anchorage, Alaska, and Honolulu, Hawaii, relative to the 

growth in the CPI for the average U.S. city as published by the Bureau of Labor Statistics 

(BLS). It also incorporates a 25-percent cap on the CPI-updated COLA factors, which is 

consistent with a statutorily mandated 25-percent cap that was applied to OPM’s 

published COLA factors. We believe that determining updated COLA factors using this 

methodology would appropriately adjust the nonlabor-related portion of the standard 

Federal rate for LTCHs located in Alaska and Hawaii. (For additional details on the 

methodology we established in the FY 2013 IPPS/LTCH PPS final rule to update the 

COLA factors for Alaska and Hawaii beginning in FY 2014, we refer readers to section 

VII.D.3. of the preamble of that final rule (77 FR 53481 through 53482).) 

 For FY 2014, we updated the COLA factors published for Alaska and Hawaii by 

OPM for 2009 (as these are the last COLA factors OPM published prior to transitioning 

from COLAs to locality pay) using the methodology that we finalized in the FY 2013 

IPPS/LTCH PPS final rule. Under our finalized methodology, we used COLA factors for 

FY 2014 for the three specified urban areas of Alaska (Anchorage, Fairbanks and Juneau) 

of 1.23; for the City and County of Honolulu, the County of Kauai, the County of Maui, 

the County of Kalawao, and “All other” areas of Alaska of 1.25; and for the County of 
 1507 

Hawaii of 1.19. For additional details on our policy, we refer readers to the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50997through 50998). 

 Under our finalized policy, we update the COLA factors using the methodology 

described above every 4 years; the first year began in FY 2014 (77 FR 53482). 

Accordingly, in this proposed rule, for FY 2015, under the broad authority conferred 

upon the Secretary by section 123 of the BBRA, as amended by section 307(b) of the 

BIPA, to determine appropriate payment adjustments under the LTCH PPS, we are 

proposing to continue to use the COLA factors established in the FY 2014 IPPS/LTCH 

PPS final rule, which were based on the 2009 OPM COLA factors updated through 2012 

by the comparison of the growth in the CPIs for Anchorage, Alaska, and Honolulu, 

Hawaii, relative to the growth in the CPI for the average U.S. city. (We refer readers to 

the FY 2014 IPPS/LTCH PPS final rule (78 FR 50998) for a discussion of the FY 2014 

COLA factors.) Consistent with our historical practice, we are proposing that the 

proposed COLA factors shown in the table below would adjust the nonlabor-related 

portion of the proposed standard Federal rate for LTCHs located in Alaska and Hawaii 

under § 412.525(b). 
 1508 

Proposed Cost-of-Living Adjustment Factors for Alaska and Hawaii Hospitals 

under the LTCH PPS for FY 2015 

Alaska:

 City of Anchorage and 80-kilometer (50-mile) radius by road 1.23

 City of Fairbanks and 80-kilometer (50-mile) radius by road 1.23

 City of Juneau and 80-kilometer (50-mile) radius by road 1.23

 All other areas of Alaska 1.25

Hawaii:

 City and County of Honolulu 1.25

County of Hawaii 1.19

 County of Kauai 1.25

 County of Maui and County of Kalawao 1.25

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

1. Background 

 Under the broad authority conferred upon the Secretary by section 123 of the 

BBRA as amended by section 307(b) of the BIPA, in the regulations at § 412.525(a), we 

established an adjustment for additional payments for outlier cases that have 

extraordinarily high costs relative to the costs of most discharges. We refer to these cases 

as high cost outliers (HCOs). Providing additional payments for outliers strongly 

improves the accuracy of the LTCH PPS in determining resource costs at the patient and 

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. 
 1509 

 Under § 412.525(a) in the regulations (in conjunction with § 412.503), we make 

outlier payments for any discharges if the estimated cost of a case exceeds the adjusted 

LTCH PPS payment for the MS-LTC-DRG plus a fixed-loss amount. Specifically, in 

accordance with § 412.525(a)(3) (in conjunction with § 412.503), we make an additional 

payment for an HCO case that is equal to 80 percent of the difference between the 

estimated cost of the patient case and the outlier threshold, which is the sum of the 

adjusted Federal prospective payment for the MS-LTC-DRG and the fixed-loss amount. 

The fixed-loss amount is the amount used to limit the loss that a hospital will incur under 

the outlier policy for a case with unusually high costs. This results in Medicare and the 

LTCH sharing financial risk in the treatment of extraordinarily costly cases. Under the 

LTCH PPS HCO policy, the LTCH's loss is limited to the fixed-loss amount and a fixed 

percentage of costs above the outlier threshold (adjusted MS-LTC-DRG payment plus the 

fixed-loss amount). The fixed percentage of costs is called the marginal cost factor. We 

calculate the estimated cost of a case by multiplying the Medicare allowable covered 

charge by the hospital’s overall hospital cost-to-charge ratio (CCR). 

 Under the LTCH PPS HCO policy at § 412.525(a), we determine a fixed-loss 

amount, that is, the maximum loss that an 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 
 1510 

File (PSF) (or from the applicable statewide average CCR if an LTCH's CCR data are 

faulty or unavailable) are used to establish a fixed-loss threshold amount under the 

LTCH PPS. 

2. Determining LTCH CCRs under the LTCH PPS 

a. Background 

 The following is a discussion of CCRs that are used in determining payments for 

HCO and SSO cases under the LTCH PPS, at § 412.525(a) and § 412.529, respectively. 

Although this section is specific to HCO cases, because CCRs and the policies and 

methodologies pertaining to them are used in determining payments for both HCO and 

SSO cases (to determine the estimated cost of the case at § 412.529(d)(2)), we are 

discussing the determination of CCRs under the LTCH PPS for both of these types of 

cases simultaneously. 

 In determining both HCO payments (at § 412.525(a)) and SSO payments (at 

§ 412.529), we calculate the estimated cost of the case by multiplying the LTCH's overall 

CCR by the Medicare allowable charges for the case. In general, we use the LTCH's 

overall CCR, which is computed based on either the most recently settled cost report or 

the most recent tentatively settled cost report, whichever is from the latest cost reporting 

period, in accordance with § 412.525(a)(4)(iv)(B) and § 412.529(f)(4)(ii) for HCOs and 

SSOs, respectively. (We note that, in some instances, we use an alternative CCR, such as 

the statewide average CCR in accordance with the regulations at § 412.525(a)(4)(iv)(C) 

and § 412.529(f)(4)(iii), or a CCR that is specified by CMS or that is requested by the 

hospital under the provisions of the regulations at § 412.525(a)(4)(iv)(A) and 
 1511 

§ 412.529(f)(4)(i).) Under the LTCH PPS, a single prospective payment per discharge is 

made for both inpatient operating and capital-related costs. Therefore, we compute a 

single “overall” or “total” LTCH-specific CCR based on the sum of LTCH operating and 

capital costs (as described in Section 150.24, Chapter 3, of the Medicare Claims 

Processing Manual (Pub. 100-4)) as compared to total charges. Specifically, an LTCH's 

CCR is calculated by dividing an 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, an LTCH is assigned the applicable statewide average CCR if, among 

other things, an 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 CCRs based on erroneous data 

should not be used to identify and make payments for outlier cases. Therefore, under our 

established policy, generally, if an 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 this proposed rule, using our established methodology for determining the 

LTCH total CCR ceiling (described above), based on IPPS total CCR data from the 

December 2013 update of the PSF, we are proposing to establish a total CCR ceiling of 

1.341under the LTCH PPS for FY 2015 in accordance with § 412.525(a)(4)(iv)(C)(2) for 
 1512 

HCOs and § 412.529(f)(4)(iii)(B) for SSOs. Consistent with our historical policy of 

using the best available data, we also are proposing that if more recent data become 

available, we would use such data to establish a total CCR ceiling for FY 2015 in the 

final rule. 

c. LTCH Statewide Average CCRs 

 Our general methodology established for determining the statewide average CCRs 

used under the LTCH PPS is similar to our established methodology for determining the 

LTCH total CCR ceiling (described above) because it is based on “total” IPPS CCR data. 

Under the LTCH PPS HCO policy at § 412.525(a)(4)(iv)(C) and the SSO policy at 

§ 412.529(f)(4)(iii), the MAC 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; 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 MAC 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.) 
 1513 

 Consistent with our historical practice of using the best available data, in this 

proposed rule, using our established methodology for determining the LTCH statewide 

average CCRs, based on the most recent complete IPPS “total CCR” data from the 

December 2013 update of the PSF, we are proposing to establish LTCH PPS statewide 

average total CCRs for urban and rural hospitals that would be effective for discharges 

occurring on or after October 1, 2014 through September 20, 2015, in Table 8C listed in 

section VI. of the Addendum to this proposed rule (and available via the Internet). . 

Consistent with our historical policy of using the best available data, we also are 

proposing that if more recent data become available, we would use such data to establish 

statewide average total CCRs for urban and rural LTCHs for FY 2015 in the final rule. 

 Under the proposed changes to the LTCH PPS labor market areas based on the 

new OMB delineations, all areas in Delaware, the District of Columbia, New Jersey, and 

Rhode Island would be classified as urban. Therefore, there are no proposed rural 

statewide average total CCRs listed for those jurisdictions in Table 8C. This policy is 

consistent with the policy that we established when we revised our methodology for 

determining the applicable LTCH statewide average CCRs in the FY 2007 IPPS final rule 

(71 FR 48119 through 48121) and is the same as the policy applied under the IPPS. In 

addition, although Connecticut and Massachusetts have areas that are designated as rural, 

there are no short-term, acute care IPPS hospitals or LTCHs located in those areas as of 

December 2013. Therefore, consistent with our existing methodology, we are proposing 

to use the national average total CCR for rural IPPS hospitals for rural Connecticut and 
 1514 

Massachusetts in Table 8C listed in section VI. of the Addendum to this proposed rule 

(and available via the Internet). 

 In addition, consistent with our existing methodology, in determining the urban 

and rural statewide average total CCRs for Maryland LTCHs paid under the LTCH PPS, 

we are proposing to continue to use, as a proxy, the national average total CCR for urban 

IPPS hospitals and the national average total CCR for rural IPPS hospitals, respectively. 

We are proposing to use this proxy because we believe that the CCR data in the PSF for 

Maryland hospitals may not be entirely accurate (as discussed in greater detail in the 

FY 2007 IPPS final rule (71 FR 48120)). 

d. Reconciliation of LTCH HCO and SSO Payments 

 We note that under the LTCH PPS HCO policy at § 412.525(a)(4)(iv)(D) and the 

LTCH PPS SSO policy at § 412.529(f)(4)(iv), the payments for HCO and SSO cases, 

respectively, are subject to reconciliation. Specifically, any reconciliation of outlier 

payments is based on the CCR that is calculated based on a ratio of cost-to-charge data 

computed from the relevant cost report determined at the time the cost report coinciding 

with the discharge is settled. For additional information, we refer readers to sections 

150.26 through 150.28 of the Medicare Claims Processing Manual (Pub. 100-4) as added 

by Change Request 7192 (Transmittal 2111; December 3, 2010) and the RY 2009 LTCH 

PPS final rule (73 FR 26820 through 26821). 
 1515 

3. Establishment of the Proposed LTCH PPS Fixed-Loss Amount for FY 2015 

 When we implemented the LTCH PPS, as discussed in the August 30, 2002 

LTCH PPS final rule (67 FR 56022 through 56026), under the broad authority of section 

123 of the BBRA as amended by section 307(b) of BIPA, we established a fixed-loss 

amount so that total estimated outlier payments are projected to equal 8 percent of total 

estimated payments under the LTCH PPS. To determine the fixed-loss amount, we 

estimate outlier payments and total LTCH PPS payments for each case using claims data 

from the MedPAR files. Specifically, to determine the outlier payment for each case, we 

estimate the cost of the case by multiplying the Medicare covered charges from the claim 

by the LTCH’s CCR. Under § 412.525(a)(3) (in conjunction with § 412.503), if the 

estimated cost of the case exceeds the outlier threshold, we make an outlier payment 

equal to 80 percent of the difference between the estimated cost of the case and the 

outlier threshold (that is, the sum of the adjusted Federal prospective payment for the 

MS-LTC-DRG and the fixed-loss amount). 

 In the FY 2014 IPPS/LTCH PPS final rule (78 FR 53715), we presented our 

policies regarding the methodology and data we used to establish the fixed-loss amount 

of $13,314 for FY 2014, which was calculated using our existing methodology to 

calculate the fixed-loss amount for FY 2014 (based on the data and the rates and policies 

presented in that final rule) in order to maintain estimated HCO payments at the projected 

8 percent of total estimated LTCH PPS payments. Consistent with our historical practice 

of using the best data available, in determining the fixed-loss amount for FY 2014, we 

used the most recent available LTCH claims data and CCR data, that is, LTCH claims 
 1516 

data from the March 2013 update of the FY 2012 MedPAR file and CCRs from the 

March 2013 update of the PSF, as these data were the most recent complete LTCH data 

available at that time. 

 In this proposed rule, for FY 2015, in general, we are proposing to continue to use 

our existing methodology to calculate a fixed-loss amount for FY 2015 using the best 

available data that would maintain estimated HCO payments at the projected 8 percent of 

total estimated LTCH PPS payments (based on the rates and policies presented in this 

proposed rule). Specifically, for this proposed rule, we are proposing to use LTCH 

claims data from the December 2013 update of the FY 2013 MedPAR file and CCRs 

from the December 2013 update of the PSF to determine a fixed-loss amount that would 

result in estimated outlier payments projected to be equal to 8 percent of total estimated 

payments in FY 2015 because these data are the most recent complete LTCH data 

available at this time. We also are proposing that if more recent data become available, 

we would use such data to determine a fixed-loss amount for FY 2015 in the final rule. 

(For additional detail on the rationale for setting the HCO payment “target” at 8 percent 

of total estimated LTCH PPS payments, we refer readers to the FY 2003 LTCH PPS final 

rule (67 FR 56022 through 56024).) 

 Under the broad authority of section 123(a)(1) of the BBRA and section 307(b)(1) 

of BIPA, we are proposing to establish a fixed-loss amount of $15,730 for FY 2015. 

Therefore, we are proposing to make an additional payment for an HCO case that is equal 

to 80 percent of the difference between the estimated cost of the case and the outlier 

threshold (the sum of the adjusted Federal LTCH payment for the MS-LTC-DRG and the 
 1517 

proposed fixed-loss amount of $ 15,730). We also note that the proposed fixed-loss 

amount of $ 15,730 for FY 2015 is slightly higher than the FY 2014 fixed-loss amount of 

$13,314. Based on our payment simulations using the most recent available data at this 

time, the proposed increase in the fixed-loss amount for FY 2015 is necessary to maintain 

the existing requirement that estimated outlier payments equal 8 percent of estimated 

total LTCH PPS payments. (As noted above, for further information on the existing 

8 percent HCO “target” requirement, we refer readers to the August 30, 2002 LTCH PPS 

final rule (67 FR 56022 through 56024).) Maintaining the fixed-loss amount at the 

current level would result in HCO payments that are more than the current regulatory 

8-percent requirement because a lower fixed-loss amount would result in more cases 

qualifying as outlier cases, as well as higher outlier payments for qualifying HCO cases 

because the maximum loss that an LTCH must incur before receiving an HCO payment 

(that is, the fixed-loss amount) would be smaller. For these reasons, we believe that 

proposing to raise the fixed-loss amount is appropriate and necessary to maintain that 

estimated outlier payments would equal 8 percent of estimated total LTCH PPS payments 

as required under § 412.525(a). 

4. Application of the Outlier Policy to SSO Cases 

 As we discussed in the August 30, 2002 final rule (67 FR 56026), under some rare 

circumstances, an LTCH discharge could qualify as an SSO case (as defined in the 

regulations at § 412.529 in conjunction with § 412.503) and also as an HCO case. In this 

scenario, a patient could be hospitalized for less than five-sixths of the geometric average 

length of stay for the specific MS-LTC-DRG, and yet incur extraordinarily high 
 1518 

treatment costs. If the estimated costs exceeded the HCO threshold (that is, the SSO 

payment plus the fixed-loss amount), the discharge is eligible for payment as an HCO. 

Therefore, for an SSO case in FY 2015, the HCO payment would be 80 percent of the 

difference between the estimated cost of the case and the outlier threshold (the sum of the 

proposed fixed-loss amount of $15,730 and the amount paid under the SSO policy as 

specified in § 412.529). 

E. Proposed Update to the IPPS Comparable/Equivalent Amounts to Reflect the 

Statutory Changes to the IPPS DSH Payment Adjustment Methodology 

 In the FY 2014 IPPS/LTCH PPS final rule, we established a policy for reflecting 

the changes to the Medicare IPPS DSH payment adjustment methodology provided for 

by section 3133 of the Affordable Care Act in the calculation of the “IPPS comparable 

amount” under the SSO policy at § 412.529 and the “IPPS equivalent amount” under the 

25-percent threshold payment adjustment policy at § 412.534 and § 412.536. 

Historically, the determination of both the “IPPS comparable amount” and the “IPPS 

equivalent amount” include an amount for inpatient operating costs “for the costs of 

serving a disproportionate share of low-income patients.” Under the statutory changes to 

the Medicare DSH payment adjustment methodology that began in FY 2014, in general, 

eligible IPPS hospitals receive an empirically justified Medicare DSH payment equal to 

25 percent of the amount they otherwise would have received under the statutory formula 

for Medicare DSH payments prior to the amendments made by the Affordable Care Act. 

The remaining amount, equal to an estimate of 75 percent of the amount that otherwise 

would have been paid as Medicare DSH payments, reduced to reflect changes in the 
 1519 

percentage of individuals under the age of 65 who are uninsured, is made available to 

make additional payments to each hospital that qualifies for Medicare DSH payments and 

that has uncompensated care. The additional uncompensated care payments are based on 

the hospital’s amount of uncompensated care for a given time period relative to the total 

amount of uncompensated care for that same time period reported by all IPPS hospitals 

that receive Medicare DSH payments. 

 To reflect the statutory changes to the Medicare DSH payment adjustment 

methodology in the calculation of the “IPPS comparable amount” and the “IPPS 

equivalent amount” under the LTCH PPS, we stated that we will include a reduced 

Medicare DSH payment amount that reflects the projected percentage of the payment 

amount calculated based on the statutory Medicare DSH payment formula prior to the 

amendments made by the Affordable Care Act that will be paid to eligible IPPS hospitals 

as empirically justified Medicare DSH payments and uncompensated care payments in 

that year (that is, a percentage of the operating DSH payment amount that has historically 

been reflected in the LTCH PPS payments that is based on IPPS rates). We also stated 

that the projected percentage will be updated annually, consistent with the annual 

determination of the amount of uncompensated care payments that will be made to 

eligible IPPS hospitals. As explained in the FY 2014 IPPS/LTCH PPS final rule 

(79 FR 50766 through 50767), we believe that this approach results in appropriate 

payments under the LTCH PPS and is consistent with our intention that the “IPPS 

comparable amount” and the “IPPS equivalent amount” under the LTCH PPS closely 

resemble what an IPPS payment would have been for the same episode of care, while 
 1520 

recognizing that some features of the IPPS cannot be translated directly into the LTCH 

PPS. 

 For FY 2014, aggregate Medicare IPPS operating DSH payments are projected to 

be reduced to 95.7 percent of the amount that would otherwise have been paid under the 

statutory Medicare DSH payment formula prior to the amendments made by the 

Affordable Care Act. Accordingly, for FY 2014, the calculation of the “IPPS comparable 

amount” under § 412.529 and the “IPPS equivalent amount” under § 412.534 and 

§ 412.536 includes an applicable operating Medicare DSH payment amount that is equal 

to 95.7 percent of the operating Medicare DSH payment amount based the current 

statutory Medicare DSH payment formula (that is, the operating Medicare DSH payment 

amount historically included in those calculations) (76 FR 50766). As discussed in 

greater detail in section IV.F.3.d.(2) of the preamble of this proposed rule, our estimate of 

75 percent of the amount that would otherwise have been paid as Medicare DSH 

payments (under the methodology outlined in section 1886(r)(2) of the Act) would be 

adjusted to 80.35 percent of that amount to reflect the change in the percentage of 

individuals that are uninsured. The resulting amount is then used to determine the 

amount of proposed uncompensated care payments that would be made to eligible IPPS 

hospitals in FY 2015. In other words, Medicare DSH payments prior to the amendments 

made by the Affordable Care Act are adjusted to 60.26 percent (the product of 75 percent 

and 80.35 percent) and the resulting amount is used to calculate the proposed 

uncompensated care payments to eligible hospitals. As a result, for FY 2015, we project 

that the reduction in the amount of Medicare DSH payments pursuant to section 
 1521 

1886(r)(1) of the Act, along with the proposed payments for uncompensated care under 

section 1886(r)(2) of the Act, would result in overall Medicare DSH payments of 85.26 

percent of the amount of Medicare DSH payments that would otherwise have been made 

in the absence of amendments made by the Affordable Care Act (that is, 25 percent + 

60.26 percent = 85.26 percent). Therefore, in this proposed rule, for FY 2015, we are 

proposing that the calculation of the “IPPS comparable amount” under § 412.529 and the 

“IPPS equivalent amount” under § 412.534 and § 412.536 would include an applicable 

operating Medicare DSH payment amount that would be equal to 85.26 percent of the 

operating Medicare DSH payment amount based on the statutory Medicare DSH payment 

formula prior to the amendments made by the Affordable Care Act. Consistent with our 

historical practice of using the best available data, if more recent data become available, 

for the final rule, we would use such data to determine the percentage of the operating 

Medicare DSH payment amount based on the statutory Medicare DSH payment formula 

prior to the amendments made by the Affordable Care Act used in the calculation of the 

“IPPS comparable amount” under § 412.529 and the “IPPS equivalent amount” under 

§ 412.534 and § 412.536 for FY 2015. 

F. Computing the Proposed Adjusted LTCH PPS Federal Prospective Payments for 

FY 2015 

 Section 412.525 sets forth the adjustments to the LTCH PPS standard Federal 

rate. Under § 412.525(c), the standard Federal rate is adjusted to account for differences 

in area wages by multiplying the labor-related share of the standard Federal rate by the 

applicable LTCH PPS wage index (proposed FY 2015 values are shown in Tables 12A 
 1522 

through 12D listed in section VI. of the Addendum of this proposed rule and are available 

via the Internet). The proposed standard Federal rate is also adjusted to account for the 

higher costs of LTCHs located in Alaska and Hawaii by the applicable COLA factors (the 

proposed FY 2015 factors are shown in the chart in section V.C. of this Addendum) in 

accordance with § 412.525(b). In this proposed rule, we are proposing to establish a 

standard Federal rate for FY 2015 of $40,943.51 (applicable to discharges from LTCHs 

that submit the required quality reporting data for FY 2015 in accordance with the 

LTCHQR Program under section 1886(m)(5) of the Act), as discussed above in section 

V.A.2. of the Addendum to this proposed rule. We illustrate the methodology to adjust 

the proposed LTCH PPS Federal standard rate for FY 2015 in the following example: 

Example: 

 During FY 2015, a Medicare patient is in an LTCH located in Chicago, Illinois 

(CBSA 16974). The proposed FY 2015 LTCH PPS wage index value for CBSA 16974 is 

1.0369 (obtained from Table 12A listed in section VI. of the Addendum of this proposed 

rule and available via the Internet on the CMS Web site). The Medicare patient is 

classified into MS-LTC-DRG 198 (Pulmonary Edema & Respiratory Failure), which has 

a proposed relative weight for FY 2015 of 0.9122 (obtained from Table 11 listed in 

section VI. of the Addendum of this proposed rule and available via the Internet on the 

CMS Web site). The LTCH submitted quality reporting data for FY 2015 in accordance 

with the LTCHQR Program under section 1886(m)(5) of the Act. 

 To calculate the LTCH's total adjusted proposed Federal prospective payment for 

this Medicare patient in FY 2015, we compute the wage-adjusted proposed Federal 
 1523 

prospective payment amount by multiplying the unadjusted proposed FY 2015 standard 

Federal rate ($40,943.51, for LTCHs that submit quality reporting data for FY 2015 in 

accordance with the LTCHQR Program under section 1886(m)(5) of the Act) by the 

proposed labor-related share (62.571 percent) and the proposed wage index value 

(1.0369). This wage-adjusted amount is then added to the proposed nonlabor-related 

portion of the unadjusted proposed standard Federal rate (37.429 percent; adjusted for 

cost of living, if applicable) to determine the adjusted proposed Federal rate, which is 

then multiplied by the proposed MS-LTC-DRG relative weight (0.9122) to calculate the 

total adjusted proposed Federal LTCH PPS prospective payment for FY 2015 

($38,211.00). The table below illustrates the components of the calculations in this 

example. 

Unadjusted Proposed Standard Federal Prospective 

Payment Rate (applicable to discharges from LTCHs that 

submit the required quality data in accordance with the 

LTCHQR Program under section 1886(m)(5) of the Act) 

$ 40,943.51

Proposed Labor-Related Share x 0.62571 

Proposed Labor-Related Portion of the Federal Rate = $ 25,618.76

Proposed Wage Index (CBSA 16974) x 1.0369

Proposed Wage-Adjusted Labor Share of Federal Rate = $ 26,564.09

Proposed Nonlabor-Related Portion of the Federal Rate 

($40,943.51 x 0.37429) + $ 15,324.75

Adjusted Proposed Federal Rate Amount = $ 41,888.84

Proposed MS-LTC-DRG 198 Relative Weight x 0.9122

Total Adjusted Proposed Federal Prospective Payment = $ 38,211.00
 1524 

VI. Tables Referenced in this Proposed Rule and Available Only through the 

Internet on the CMS Web Site 

This section lists the tables referred to throughout the preamble of this proposed 

rule and in this Addendum. In the past, a majority of these tables were published in the 

Federal Register as part of the annual proposed and final rules. However, similar to 

FYs 2012 through 2014, for the FY 2015 rulemaking cycle, the IPPS and LTCH tables 

will not be published as part of the annual IPPS/LTCH PPS proposed and final 

rulemakings and will be available only through the Internet. Specifically, all IPPS Tables 

listed below with the exception of IPPS Tables 1A, 1B, 1C, and 1D, and LTCH PPS 

Table 1E will be available only through the Internet. IPPS Tables 1A, 1B, 1C, and 1D, 

and LTCH PPS Table 1E are displayed at the end of this section and will continue to be 

published in the Federal Register as part of the annual proposed and final rules. 

 As discussed in section II.G.11. and 13. of the preamble of this proposed rule, 

Tables 6A through 6F will not be issued with this FY 2015 proposed rule because there 

are no proposed new, revised, or deleted diagnosis or procedure codes for FY 2015. As 

discussed in section IV.D. of this proposed rule, section 106 of the Protecting Access to 

Medicare Act of 2014 (Pub. L. 113-93), enacted on April 1, 2014, extended, through the 

first half of FY 2015 (that is, for discharges occurring before April 1, 2015), 

the temporary changes in the low-volume hospital definition and methodology for 

determining the payment adjustment originally made by the Affordable Care Act (and 

extended by subsequent legislation through March 31, 2014). We refer the reader to 

section IV.D. for complete details on the low-volume hospital payment adjustment. 
 1525 

Therefore, Table 14 associated with this proposed rule lists the proposed low-volume 

payment adjustments. In addition, under section 3008 of the Affordable Care Act, a 

hospital’s total payment may be reduced by 1 percent if it is in the lowest HAC 

performance quartile. We refer the reader to section IV.J. for complete details on this 

adjustment. Therefore, Table 17 contains the FY 2015 proposed proxy list of providers 

subject to the HAC Reduction Program. Finally, a hospital’s proposed Factor 3 is the 

proposed proportion of the uncompensated care amount that a DSH will receive under 

section 3133 of the Affordable Care Act. Factor 3 is the hospital’s estimated number of 

Medicaid days and Medicare SSI days relative to the estimate of all DSHs’ Medicaid 

days and Medicare SSI days. Therefore, Table 18 contains the proposed FY 2015 

Medicare DSH uncompensated care payment Factor 3 for all hospitals and identifies 

whether or not a hospital is projected to receive DSH and, therefore, eligible to receive 

the additional payment for uncompensated care for FY 2015. 

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

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

 The following IPPS tables for this FY 2015 proposed rule are available only 

through the Internet on the CMS Web site at: http://www.cms.gov/Medicare/MedicareFee-for-Service-Payment/AcuteInpatientPPS/index.html. Click on the link on the left 

side of the screen titled, “FY 2015 IPPS Proposed Rule Home Page” or “Acute 

Inpatient--Files for Download”. 

 Table 2-1.—Hospital Average Hourly Wages for Federal Fiscal Years 2013 (2009 

Wage Data), 2014 (2010 Wage Data), and 2015 (2011 Wage Data); and Proposed 3-Year 
 1526 

Average of Hospital Average Hourly Wages; Based on CBSA Delineations used in 

FY 2014 

 Table 2-2.—Acute Care Hospitals Case-Mix Indexes for Discharges Occurring in 

Federal Fiscal Year 2012; Proposed Hospital Wage Indexes for Federal Fiscal Year 2015; 

Hospital Average Hourly Wages for Federal Fiscal Years 2013 (2009 Wage Data), 2014 

(2010 Wage Data), and 2015 (2011 Wage Data; Based on Proposed FY 2015 CBSA 

Delineations); and 3-Year Average of Hospital Average Hourly Wages 

 Table 3A-1.—Proposed FY 2015 and 3-Year*

 Average Hourly Wage for Acute 

Care Hospitals in Urban Areas by CBSA; Based on CBSA Delineations Used in FY 2014 

 Table 3A-2.—Proposed FY 2015 and 3-Year*

 Average Hourly Wage for Acute 

Care Hospitals in Urban Areas by CBSA; Based on CBSA Delineations Used in FY 2015 

 Table 3B-1.—Proposed FY 2015 and 3-Year* Average Hourly Wage for Acute 

Care Hospitals in Rural Areas by CBSA; Based on CBSA Delineations Used in FY 2014 

 Table 3B-2.—Proposed FY 2015 and 3-Year* Average Hourly Wage for Acute 

Care Hospitals in Rural Areas by CBSA; Based on CBSA Delineations Used in FY 2015 

 Table 4A-1.—Proposed Wage Index and Capital Geographic Adjustment Factor 

(GAF) for Acute Care Hospitals in Urban Areas by CBSA and by State--FY 2015; Based 

on CBSA Delineations Used in FY 2014. 

 Table 4A-2.—Proposed Wage Index and Capital Geographic Adjustment Factor 

(GAF) for Acute Care Hospitals in Urban Areas by CBSA and by State--FY 2015; Based 

on CBSA Delineations Used in FY 2015. 
 1527 

 Table 4B-1.—Proposed Wage Index and Capital Geographic Adjustment Factor 

(GAF) for Acute Care Hospitals in Rural Areas by CBSA and by State--FY 2015; Based 

on CBSA Delineations Used in FY 2014. 

 Table 4B-2.—Proposed Wage Index and Capital Geographic Adjustment Factor 

(GAF) for Acute Care Hospitals in Rural Areas by CBSA and by State--FY 2015; Based 

on CBSA Delineations Used in FY 2015. 

 Table 4C-1.—Proposed Wage Index and Capital Geographic Adjustment Factor 

(GAF) for Acute Care Hospitals That Are Reclassified by CBSA and by State--FY 2015; 

Based on CBSA Delineations Used in FY 2014. 

 Table 4C-2.—Proposed Wage Index and Capital Geographic Adjustment Factor 

(GAF) for Acute Care Hospitals That Are Reclassified by CBSA and by State--FY 2015; 

Based on CBSA Delineations Used in FY 2015. 

 Table 4D-1.—States Designated as Frontier, with Acute Care Hospitals Receiving 

at a Minimum the Frontier State Floor Wage Index; Urban Areas with Acute Care 

Hospitals Receiving the Proposed Statewide Rural Floor or Imputed Floor Wage Index—

FY 2015; Based on CBSA Delineations Used in FY 2014. 

 Table 4D-2.—States Designated as Frontier, with Acute Care Hospitals Receiving 

at a Minimum the Frontier State Floor Wage Index; Urban Areas with Acute Care 

Hospitals Receiving the Proposed Statewide Rural Floor or Imputed Floor Wage Index—

FY 2015; Based on CBSA Delineations Used in FY 2015. 

 Table 4E-1.—Urban CBSAs and Constituent Counties for Acute Care 

Hospitals--FY 2015; Based on CBSA Delineations Used in FY 2014. 
 1528 

 Table 4E--2.—Urban CBSAs and Constituent Counties for Acute Care 

Hospitals--FY 2015; Based on CBSA Delineations Used in FY 2015. 

 Table 4F-1.—Proposed Puerto Rico Wage Index and Capital Geographic 

Adjustment Factor (GAF) for Acute Care Hospitals by CBSA--FY 2015; Based on CBSA 

Delineations Used in FY 2014. 

 Table 4F-2.—Proposed Puerto Rico Wage Index and Capital Geographic 

Adjustment Factor (GAF) for Acute Care Hospitals by CBSA--FY 2015; Based on CBSA 

Delineations Used in FY 2015. 

 Table 4J.—Proposed Out-Migration Adjustment for Acute Care Hospitals—

FY 2015 

 Table 5.—List of Proposed Medicare Severity Diagnosis-Related Groups 

(MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of 

Stay—FY 2015 

 Table 6I.—Proposed Major CC List—FY 2015 

 Table 6J.—Proposed Complete CC List—FY 2015 

 Table 6K.—Proposed Complete List of CC Exclusions—FY 2015 

 Table 7A.—Medicare Prospective Payment System Selected Percentile Lengths 

of Stay: FY 2013 MedPAR Update—December 2013 GROUPER V31.0 MS-DRGs 

 Table 7B.—Medicare Prospective Payment System Selected Percentile Lengths 

of Stay: FY 2013 MedPAR Update—December 2013 GROUPER V32.0 MS-DRGs 

 Table 8A.—Proposed FY 2015 Statewide Average Operating Cost-to-Charge 

Ratios (CCRs) for Acute Care Hospitals (Urban and Rural) 
 1529 

 Table 8B.—Proposed FY 2015 Statewide Average Capital Cost-to-Charge Ratios 

(CCRs) for Acute Care Hospitals 

 Table 9A-1.—Hospital Reclassifications and Redesignations--FY 2015; Based on 

CBSA Delineations Used in FY 2014. 

Table 9A-2.—Hospital Reclassifications and Redesignations--FY 2015; Based on CBSA 

Delineations Used in FY 2015. 

 Table 9C-1.—Hospitals Redesignated as Rural under Section 1886(d)(8)(E) of the 

Act--FY 2015; Based on CBSA Delineations Used in FY 2014. 

 Table 9C-2.—Hospitals Redesignated as Rural under Section 1886(d)(8)(E) of the 

Act--FY 2015; Based on CBSA Delineations Used in FY 2015. 

 Table 10.—Proposed New Technology Add-On Payment Thresholds 1,2 for 

Applications for FY 2016 

Table 12C.-Proposed LTCH PPS Wage Index for Urban Areas under the Current CBSA 

Designations for Discharges Occurring from October 1, 2014 through September 30, 

2105 

Table 12D.-Proposed LTCH PPS Wage Index for Rural Areas under the Current CBSA 

Designations for Discharges Occurring from October 1, 2014 through September 30, 

2015. 

Table 14.—List of Hospitals with Fewer than 1,600 Medicare Discharges Based on the 

December 2013 update of the FY 2013 MedPAR file and Potentially Eligible Hospitals’ 

FY 2015 Low-Volume Payment Adjustment for Discharges Occurring Before April 1, 
 1530 

2015 (Eligibility for the low-volume payment adjustment is also dependent upon meeting 

the mileage criteria specified at § 412.101(b)(2)(ii) of the regulations.)

 Table 15.—Proposed FY 2015 Readmissions Adjustment Factors 

 Table 16.—Proposed Updated Proxy Hospital Inpatient Value-Based Purchasing 

(VBP) Program Adjustment Factors for FY 2015 

 Table 17.—FY 2015 Preliminary Analysis of the Hospital-Acquired Conditions 

Reduction Program 

 Table 18.—Proposed FY 2015 Medicare DSH Uncompensated Care Payment 

Factor 3 

 The following LTCH PPS tables for this FY 2015 proposed rule are available 

only through the Internet on the CMS Web site at 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/LongTermCareHospitalPPS/index.html under the list item for Regulation 

Number CMS-1607-P. 

 Table 8C.—Proposed FY 2015 Statewide Average Total Cost-to-Charge Ratios 

(CCRs) for LTCHs (Urban and Rural) 

 Table 11.—Proposed MS-LTC-DRGs, Relative Weights, Geometric Average 

Length of Stay, Short-Stay Outlier (SSO) Threshold, and “IPPS Comparable Threshold” 

for Discharges Occurring from October 1, 2014 through September 30, 2015 under the 

LTCH PPS 
 1531 

 Table 12A.—Proposed LTCH PPS Wage Index for Urban Areas under the New 

OMB CBSA Delineations for Discharges Occurring From October 1, 2014 through 

September 30, 2015 

 Table 12B.—Proposed LTCH PPS Wage Index for Rural Areas under the New 

OMB CBSA Delineations for Discharges Occurring from October 1, 2014 through 

September 30, 2015 

 Table 13A.—Proposed Composition of Low-Volume Quintiles for 

MS-LTC-DRGs—FY 2015 

 Table 13B.—Proposed No-Volume MS-LTC-DRG Crosswalk for FY 2015 

TABLE 1A.—PROPOSED NATIONAL ADJUSTED OPERATING 

STANDARDIZED AMOUNTS, LABOR/NONLABOR (69.6 PERCENT LABOR 

SHARE/30.4 PERCENT NONLABOR SHARE IF WAGE INDEX 

IS GREATER THAN 1)--FY 2015 

Hospital Submitted 

Quality Data and is 

a Meaningful EHR 

User (Update = 2.1 

Percent) 

Hospital Did NOT 

Submit Quality Data 

and is a Meaningful 

EHR User (Update = 

1.425 Percent) 

Hospital Submitted 

Quality Data and is 

NOT a Meaningful 

EHR User (Update = 

1.425 Percent) 

Hospital Did NOT 

Submit Quality Data 

and is NOT a 

Meaningful EHR 

User (Update = 0.75 

Percent) 

Labor Nonlabor Labor Nonlabor Labor Nonlabor Labor Nonlabor

$3,759.46 $1,642.06 $3,734.61 $1,631.20 $3,734.61 $1,631.20 $3,709.75 $1,620.35
 1532 

TABLE 1B.—PROPOSED NATIONAL ADJUSTED OPERATING 

STANDARDIZED AMOUNTS, LABOR/NONLABOR (62 PERCENT LABOR 

SHARE/38 PERCENT NONLABOR SHARE IF WAGE INDEX 

IS LESS THAN OR EQUAL TO 1)--FY 2015 

Hospital Submitted 

Quality Data and is 

a Meaningful EHR 

User (Update = 2.1 

Percent) 

Hospital Did NOT 

Submit Quality Data 

and is a Meaningful 

EHR User (Update = 

1.425 Percent) 

Hospital Submitted 

Quality Data and is 

NOT a Meaningful 

EHR User (Update = 

1.425 Percent) 

Hospital Did NOT 

Submit Quality Data 

and is NOT a 

Meaningful EHR 

User (Update = 0.75 

Percent) 

Labor Nonlabor Labor Nonlabor Labor Nonlabor Labor Nonlabor

$3,348.94 $2,052.58 $3,326.80 $2,039.01 $3,326.80 $2,039.01 $3,304.66 $2,025.44

TABLE 1C.—PROPOSED ADJUSTED OPERATING STANDARDIZED 

AMOUNTS FOR PUERTO RICO, LABOR/NONLABOR (NATIONAL: 62 

PERCENT LABOR SHARE/38 PERCENT NONLABOR SHARE BECAUSE 

WAGE INDEX IS LESS THAN OR EQUAL TO 1; PUERTO RICO: 63.2 

PERCENT LABOR SHARE/36.8 PERCENT NONLABOR SHARE IF WAGE 

INDEX IS GREATER THAN 1 OR 62 PERCENT LABOR SHARE/38 PERCENT 

NONLABOR SHARE IF WAGE INDEX IS LESS THAN OR EQUAL TO 1—

FY 2015 

Rates if Wage Index is 

Greater Than 1 

Rates if Wage Index is Less 

Than or Equal to 1 

Standardized 

Amount Labor Nonlabor Labor Nonlabor 

1

National Not 

Applicable 

Not 

Applicable $3,348.94 $2,052.58

Puerto Rico $1,605.07 $934.59 $1,574.59 $965.07

 1 For FY 2015, there are no CBSAs in Puerto Rico with a national wage index greater than 1. 

 
 1533 

TABLE 1D.—PROPOSED CAPITAL STANDARD FEDERAL PAYMENT 

RATE—FY 2015 

Rate 

National $433.01

Puerto Rico $206.82

TABLE 1E.—PROPOSED LTCH STANDARD FEDERAL PROSPECTIVE 

PAYMENT RATE--FY 2015 

Full Update 

(2.1 Percent) 

Reduced 

Update* 

(0.1 Percent) 

Standard Federal Rate $40,943.51 $40,141.47

 * For LTCHs that fail to submit quality reporting data for FY 2015 in accordance with the LTCH Quality 

Reporting (LTCHQR) Program, the annual update is reduced by 2.0 percentage points as required by 

section 1886(m)(5) of the Act. 
 1534 

Appendix A: Economic Analyses 

I. Regulatory Impact Analysis 

A. Introduction 

 We have examined the impacts of this proposed rule as required by Executive 

Order 12866 on Regulatory Planning and Review (September 30, 1993), Executive 

Order 13563 on Improving Regulation and Regulatory Review (February 2, 2011) the 

Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) 

of the Social Security Act, section 202 of the Unfunded Mandates Reform Act of 1995 

(March 22, 1995, Pub. L. 104-4), Executive Order 13132 on Federalism 

(August 4, 1999), and the Congressional Review Act (5 U.S.C. 804(2)). 

 Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits 

of available regulatory alternatives and, if regulation is necessary, to select regulatory 

approaches that maximize net benefits (including potential economic, environmental, 

public health and safety effects, distributive impacts, and equity). Executive Order 13563 

emphasizes the importance of quantifying both costs and benefits, of reducing costs, of 

harmonizing rules, and of promoting flexibility. A regulatory impact analysis (RIA) must 

be prepared for major rules with economically significant effects ($100 million or more 

in any 1 year). 

 We have determined that this proposed rule is a major rule as defined in 

5 U.S.C. 804(2). We estimate that the proposed changes for FY 2015 acute care hospital 

operating and capital payments will redistribute amounts in excess of $100 million to 

acute care hospitals. The applicable percentage increase to the IPPS rates required by the 
 1535 

statute, in conjunction with other proposed payment changes in this proposed rule, would 

result in an estimated $864 million decrease in FY 2015 operating payments 

(or -0.8 percent change) and an estimated $126 million increase in FY 2015 capital 

payments (or 1.2 percent change). These changes are relative to payments made in 

FY 2014. The impact analysis of the capital payments can be found in section I.J. of this 

Appendix. In addition, as described in section I.K. of this Appendix, LTCHs are 

expected to experience an increase in payments by $44 million in FY 2015 relative to 

FY 2014. 

 Our operating impact estimate includes the proposed -0.8 percent documentation 

and coding adjustment applied to the IPPS standardized amount, which represents part of 

the recoupment required under section 631 of the ATRA. In addition, our operating 

payment impact estimate includes the proposed 2.1 percent hospital update to the 

standardized amount (which includes the estimated 2.7 percent market basket update less 

0.4 percentage point for the proposed multifactor productivity adjustment and less 0.2 

percentage point required under the Affordable Care Act). The estimates of proposed 

IPPS operating payments to acute care hospitals do not reflect any changes in hospital 

admissions or real case-mix intensity, which will also affect overall payment changes. 

 The analysis in this Appendix, in conjunction with the remainder of this 

document, demonstrates that this proposed rule is consistent with the regulatory 

philosophy and principles identified in Executive Orders 12866 and 13563, the RFA, and 

section 1102(b) of the Act. This proposed rule would affect payments to a substantial 

number of small rural hospitals, as well as other classes of hospitals, and the effects on 
 1536 

some hospitals may be significant. Finally, in accordance with the provisions of 

Executive Order 12866, the Executive Office of Management and Budget has reviewed 

this proposed rule. 

B. Statement of Need 

 This proposed rule is necessary in order to make payment and policy changes 

under the Medicare IPPS for Medicare acute care hospital inpatient services for operating 

and capital-related costs as well as for certain hospitals and hospital units excluded from 

the IPPS. This proposed rule also is necessary to make payment and policy changes for 

Medicare hospitals under the LTCH PPS payment system. 

C. Objectives of the IPPS 

 The primary objective of the IPPS is to create incentives for hospitals to operate 

efficiently and minimize unnecessary costs while at the same time ensuring that payments 

are sufficient to adequately compensate hospitals for their legitimate costs in delivering 

necessary care to Medicare beneficiaries. In addition, we share national goals of 

preserving the Medicare Hospital Insurance Trust Fund. 

 We believe that the proposed changes in this proposed rule would further each of 

these goals while maintaining the financial viability of the hospital industry and ensuring 

access to high quality health care for Medicare beneficiaries. We expect that these 

proposed changes will ensure that the outcomes of the prospective payment systems are 

reasonable and equitable while avoiding or minimizing unintended adverse 

consequences. 
 1537 

D. Limitations of Our Analysis 

 The following quantitative analysis presents the projected effects of our proposed 

policy changes, as well as statutory changes effective for FY 2014, on various hospital 

groups. We estimate the effects of individual proposed policy changes by estimating 

payments per case while holding all other payment policies constant. We use the best 

data available, but, generally, we do not attempt to make adjustments for future changes 

in such variables as admissions, lengths of stay, or case-mix. 

E. Hospitals Included in and Excluded from the IPPS 

The prospective payment systems for hospital inpatient operating and 

capital-related costs of acute care hospitals encompass most general short-term, acute 

care hospitals that participate in the Medicare program. There were 32 Indian Health 

Service hospitals in our database, which we excluded from the analysis due to the special 

characteristics of the prospective payment methodology for these hospitals. Among other 

short-term, acute care hospitals, hospitals in Maryland are paid in accordance with the 

Maryland All-Payer Model, and hospitals located outside the 50 States, the District of 

Columbia, and Puerto Rico (that is, 5 short-term acute care hospitals located in the U.S. 

Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa) that receive 

payment for inpatient hospital services they furnish on the basis of reasonable costs, 

subject to a rate-of-increase ceiling. 

 As of December 2013, there were 3,468 IPPS acute care hospitals included in our 

analysis. This represents approximately 57 percent of all Medicare-participating 

hospitals. The majority of this impact analysis focuses on this set of hospitals. There 
 1538 

also are approximately 1,332 CAHs. These small, limited service hospitals are paid on 

the basis of reasonable costs rather than under the IPPS. IPPS-excluded hospitals and 

units include IPFs, IRFs, LTCHs, RNHCIs, children's hospitals, 11 cancer hospitals, and 

5 short-term acute care hospitals located in the Virgin Islands, Guam, the Northern 

Mariana Islands, and American Samoa, which are paid under separate payment systems. 

Changes in the prospective payment systems for IPFs and IRFs are made through 

separate rulemaking. Payment impacts for these IPPS-excluded hospitals and units are 

not included in this proposed rule. The impact of the proposed update and proposed 

policy changes to the LTCH PPS for FY 2015 is discussed in section I.L. of this 

Appendix. 

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

 As of March 2014, there were 97 children's hospitals, 11 cancer hospitals, 5 

short-term acute care hospitals located in the Virgin Islands, Guam, the Northern Mariana 

Islands and American Samoa, and 18 RNHCIs being paid on a reasonable cost basis 

subject to the rate-of-increase ceiling under § 413.40. (In accordance with § 403.752(a) 

of the regulation, RNHCIs are paid under § 413.40.) Among the remaining providers, 

244 rehabilitation hospitals and 896 rehabilitation units, and 432 LTCHs, are paid the 

Federal prospective per discharge rate under the IRF PPS and the LTCH PPS, 

respectively, and 487 psychiatric hospitals and 1,139 psychiatric units are paid the 

Federal per diem amount under the IPF PPS. As stated above, IRFs and IPFs are not 

affected by the rate updates discussed in this proposed rule. The impacts of the proposed 

changes on LTCHs are discussed in section I.K. of this Appendix. 
 1539 

 For children’s hospitals, the 11 cancer hospitals, the 5 short-term acute care 

hospitals located in the Virgin Islands, Guam, the Northern Mariana Islands, and 

American Samoa, and RNHCIs, the proposed update of the rate-of-increase limit (or 

target amount) is the estimated FY 2015 percentage increase in the IPPS operating 

market basket, consistent with section 1886(b)(3)(B)(ii) of the Act, and §§ 403.752(a) 

and 413.40 of the regulations. As discussed in section IV. of the preamble of the 

FY 2014 IPPS/LTCH PPS final rule, we rebased the IPPS operating market basket to a 

FY 2010 base year. Therefore, we are proposing to use the percentage increase in the 

FY 2010-based IPPS operating market basket to update the target amounts for FY 2015 

and subsequent fiscal years for children’s hospitals, the 11 cancer hospitals, the 5 

short-term acute care hospitals located in the Virgin Islands, Guam, the Northern Mariana 

Islands, and American Samoa, and RNHCIs that are paid based on reasonable costs 

subject to the rate-of-increase limits. Consistent with current law, based on IHS Global 

Insight, Inc.’s 2014 first quarter forecast of the FY 2010-based market basket increase, 

we are estimating that the proposed FY 2015 update based on the IPPS operating market 

basket is 2.7 percent (that is, the current estimate of the market basket rate-of-increase). 

However, the Affordable Care Act requires an adjustment for multifactor productivity 

(currently estimated to be 0.4 percentage point for FY 2015) and a 0.2 percentage point 

reduction to the market basket update resulting in a proposed 2.1 percent applicable 

percentage increase for IPPS hospitals that submit quality data and are meaningful EHR 

users, as discussed in section IV.B. of the preamble of this proposed rule. Children’s 

hospitals, the 11 cancer hospitals, the 5 short-term acute care hospitals located in the 
 1540 

Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa, and RNCHIs 

that continue to be paid based on reasonable costs subject to rate-of-increase limits under 

§ 413.40 of the regulations are not subject to the reductions in the applicable percentage 

increase required under the Affordable Care Act. Therefore, for those hospitals paid 

under § 413.40 of the regulations, the proposed update would be the percentage increase 

in the FY 2015 IPPS operating market basket, estimated at 2.7 percent, without the 

reductions required under the Affordable Care Act. 

 The impact of the proposed update in the rate-of-increase limit on those excluded 

hospitals depends on the cumulative cost increases experienced by each excluded hospital 

since its applicable base period. For excluded hospitals that have maintained their cost 

increases at a level below the rate-of-increase limits since their base period, the major 

effect is on the level of incentive payments these excluded hospitals receive. Conversely, 

for excluded hospitals with cost increases above the cumulative update in their 

rate-of-increase limits, the major effect is the amount of excess costs that will not be paid. 

 We note that, under § 413.40(d)(3), an excluded hospital that continues to be paid 

under the TEFRA system and whose costs exceed 110 percent of its rate-of-increase limit 

receives its rate-of-increase limit plus the lesser of: (1) 50 percent of its reasonable costs 

in excess of 110 percent of the limit, or (2) 10 percent of its limit. In addition, under the 

various provisions set forth in § 413.40, hospitals can obtain payment adjustments for 

justifiable increases in operating costs that exceed the limit. 
 1541 

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

Costs 

1. Basis and Methodology of Estimates 

 In this proposed rule, we are announcing proposed policy changes and payment 

rate updates for the IPPS for FY 2015 for operating costs of acute care hospitals. The 

proposed FY 2015 updates to the capital payments to acute care hospitals are discussed in 

section I.J. of this Appendix. 

 Based on the overall percentage change in payments per case estimated using our 

payment simulation model, we estimate that total FY 2015 operating payments will 

decrease by 0.8 percent compared to FY 2014. In addition to the applicable percentage 

increase, this amount reflects the proposed FY 2015 recoupment adjustment for 

documentation and coding described in section II.D. of the preamble of this proposed rule 

of -0.8 percent to the IPPS national standardized amounts. The impacts do not reflect 

changes in the number of hospital admissions or real case-mix intensity, which will also 

affect overall payment changes. 

 We have prepared separate impact analyses of the proposed changes to each 

system. This section deals with the proposed changes to the operating inpatient 

prospective payment system for acute care hospitals. Our payment simulation model 

relies on the most recent available data to enable us to estimate the impacts on payments 

per case of certain changes in this proposed rule. However, there are other proposed 

changes for which we do not have data available that will allow us to estimate the 
 1542 

payment impacts using this model. For those proposed changes, we have attempted to 

predict the payment impacts based upon our experience and other more limited data. 

 The data used in developing the quantitative analyses of changes in payments per 

case presented below are taken from the FY 2013 MedPAR file and the most current 

Provider-Specific File (PSF) that is used for payment purposes. Although the analyses of 

the proposed changes to the operating PPS do not incorporate cost data, data from the 

most recently available hospital cost reports were used to categorize hospitals. Our 

analysis has several qualifications. First, in this analysis, we do not make adjustments for 

future changes in such variables as admissions, lengths of stay, or underlying growth in 

real case-mix. Second, due to the interdependent nature of the IPPS payment 

components, it is very difficult to precisely quantify the impact associated with each 

change. Third, we use various data sources to categorize hospitals in the tables. In some 

cases, particularly the number of beds, there is a fair degree of variation in the data from 

the different sources. We have attempted to construct these variables with the best 

available source overall. However, for individual hospitals, some miscategorizations are 

possible. 

 Using cases from the FY 2013 MedPAR file, we simulated proposed payments 

under the operating IPPS given various combinations of payment parameters. As 

described above, Indian Health Service hospitals and hospitals in Maryland were 

excluded from the simulations. The proposed impact of payments under the capital IPPS, 

or the impact of payments for costs other than inpatient operating costs, are not analyzed 
 1543 

in this section. Proposed estimated payment impacts of the capital IPPS for FY 2015 are 

discussed in section I.J. of this Appendix. 

 We discuss the following proposed changes below: 

● The effects of the proposed application of the documentation and coding 

adjustment and the proposed applicable percentage increase (including the market basket 

update, the multifactor productivity adjustment and the applicable percentage reduction 

in accordance with the Affordable Care Act) to the standardized amount and 

hospital-specific rates. 

● The effects of the proposed changes to the relative weights and MS-DRG 

grouper. 

● The effects of the proposed changes in hospitals’ wage index values reflecting 

updated wage data from hospitals’ cost reporting periods beginning during FY 2011, 

compared to the FY 2010 wage data, and the proposed adoption of new OMB labor 

market area delineations to calculate the FY 2015 wage index. 

● The combined effects of the proposed recalibration of the MS-DRG relative 

weights as required by section 1886(d)(4)(C) of the Act and the proposed wage index 

(including the updated wage data and the proposed adoption of new OMB labor market 

area delineations), including the proposed wage and recalibration budget neutrality 

factors. 

● The effects of the geographic reclassifications by the MGCRB (as of 

publication of this proposed rule) and the effects of the proposed adoption of new OMB 
 1544 

labor market area delineations on these reclassifications, that would be effective for 

FY 2015. 

● The effects of the proposed rural floor and imputed floor with the application 

of the national budget neutrality factor applied to the wage index where the rural floor 

and imputed floor wage index are calculated based on the proposed adoption of the new 

OMB labor market area delineations. 

● The effects of the proposed adoption of the new labor market area delineations 

announced by OMB in February 2013 on hospital redesignations. 

● The effects of the proposed 3-year transition for urban hospitals redesignated 

as rural and the transitional blended wage index for hospitals whose FY 2015 wage 

indexes will decrease solely as a result of adopting the new OMB delineations. 

● The effects of the proposed frontier State wage index adjustment under the 

statutory provision that requires that hospitals located in States that qualify as frontier 

States to not have a wage index less than 1.0. This provision is not budget neutral. 

● The effects of the proposed implementation of section 1886(d)(13) of the Act, 

as added by section 505 of Pub. L. 108-173, which provides for an increase in a 

hospital’s wage index if a threshold percentage of residents of the county where the 

hospital is located commute to work at hospitals in counties with higher wage indexes. 

● The effects of the proposed policies for implementation of the Hospital 

Readmissions Reduction Program under section 1886(q) of the Act, as added by 

section 3025 of the Affordable Care Act, that adjusts a hospital’s base operating DRG 

amount by an adjustment factor to account for a hospital’s excess readmissions. 
 1545 

● The effects of the proposed policies for continued implementation of section 

3133 of the Affordable Care Act that reduces Medicare DSH payments to 25 percent of 

what hospitals had been previously paid under section 1886(d)(5)(F) of the Act and 

establishes an additional payment to be made to hospitals that receive DSH payments for 

their relative share of the total amount of uncompensated care. 

● The effects of the proposed FY 2015 implementation of section 1886(o) of the 

Act, as added by section 3008 of the Affordable Care Act, which establishes payment 

reductions under the HAC Reduction Program. Hospitals ranked in the lowest 25 percent 

of performance on HACs are subject to a 1-percent reduction in total IPPS payments. 

● The total estimated change in payments based on the proposed FY 2015 

policies relative to payments based on FY 2014 policies that include the applicable 

percentage increase of 2.1 percent (or 2.7 percent market basket update with a proposed 

reduction of 0.4 percentage point for the multifactor productivity adjustment, and a 0.2 

percentage point reduction, as required under the Affordable Care Act). The total 

estimated change in payments for FY 2015 reflects the extension of MDH payment status 

for the first 6 months of FY 2015, in accordance with the Protecting Access to Medicare 

Act of 2014 (Pub. L. 113-93) enacted on April l, 2014. 

 To illustrate the impact of the proposed FY 2015 changes, our analysis begins 

with a FY 2014 baseline simulation model using: the proposed FY 2015 applicable 

percentage increase of 2.1 percent and the proposed documentation and coding 

recoupment adjustment of 0.8 percent to the Federal standardized amount; the FY 2014 

MS-DRG GROUPER (Version 31.0); the current FY 2014 CBSA designations for 
 1546 

hospitals based on the OMB delineations; the FY 2014 wage index; and no MGCRB 

reclassifications. Outlier payments are set at 5.1 percent of total operating MS-DRG and 

outlier payments for modeling purposes. 

 Section 1886(b)(3)(B)(viii) of the Act, as added by section 5001(a) of 

Pub. L. 109-171, as amended by section 4102(b)(1)(A) of the ARRA (Pub. L. 111-5) and 

by section 3401(a)(2) of the Affordable Care Act (Pub. L. 111-148), provides that, for 

FY 2007 and each subsequent year through FY 2014, the update factor will include a 

reduction of 2.0 percentage points for any subsection (d) hospital that does not submit 

data on measures in a form and manner and at a time specified by the Secretary. 

Beginning in FY 2015, the reduction is one-quarter of such applicable percentage 

increase determined without regard to section 1886(b)(3)(B)(ix), (xi), or (xii) of the Act, 

or one-quarter of the market basket update. Therefore, for FY 2015, we are proposing 

that hospitals that do not submit quality information under rules established by the 

Secretary and that are meaningful EHR users under section 1886(b)(3)(B)(ix) of the Act 

will receive an applicable percentage increase of 1.425 percent. At the time that this 

impact was prepared, 64 hospitals did not receive the full market basket rate-of-increase 

for FY 2014 because they failed the quality data submission process or did not choose to 

participate. For purposes of the simulations shown below, we modeled the payment 

changes for FY 2015 using a reduced update for these 64 hospitals. However, we do not 

have enough information at this time to determine which hospitals will not receive the 

full update factor for FY 2015. 
 1547 

 Beginning in FY 2015, in accordance with section 1886(b)(3)(B)(ix) of the Act, a 

hospital that has been identifies as not an EHR meaningful user will be subject to a 

reduction of one-quarter of such applicable percentage increase determined without 

regard to section 1886(b)(3)(B)(ix), (xi), or (xii) of the Act, or one-quarter of the market 

basket update. Therefore, for FY 2015, we are proposing that hospitals that are identified 

as not EHR meaningful users and do submit quality information under section 

1886(b)(3)(B)(viii) of the Act will receive an applicable percentage increase of 1.425 

percent. Hospitals that are identified as not EHR meaningful users under section 

1886(b)(3)(B)(ix) of the Act and also do not submit quality data under section 

1886(b)(3)(B)(viii) of the Act will receive an applicable percentage increase of 0.75 

percent, which reflects a one-quarter reduction of the market basket update for failure to 

submit quality data and a one-quarter reduction of the market basket update for being 

identified as not an EHR meaningful user. For FY 2015, we have yet to finalize a list of 

hospitals that are not meaningful EHR users under section 1886(b)(3)(B)(ix) of the Act. 

Therefore, we are proposing not to include this adjustment to the standardized amount 

(for those hospitals that are not meaningful EHR users) in our modeling of aggregate 

payments for FY 2015. We intend to release a final list of hospitals that are not 

meaningful EHR user in September 2014. Hospitals identified on this list will be paid 

based on the applicable proposed standardized amount in Table 1A for discharges 

occurring in FY 2015. 
 1548 

 Each proposed policy change, statutory or otherwise, is then added incrementally 

to this baseline, finally arriving at an FY 2015 model incorporating all of the proposed 

changes. This simulation allows us to isolate the effects of each proposed change. 

 Our final comparison illustrates the proposed percent change in payments per case 

from FY 2014 to FY 2015. 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 2015 using a proposed applicable percentage increase of 2.1 percent. This includes 

our forecasted IPPS operating hospital market basket increase of 2.7 percent with a 

proposed reduction of 0.4 percentage point for the multifactor productivity adjustment 

and a 0.2 percentage point reduction as required under the Affordable Care Act. 

(Hospitals that fail to comply with the quality data submission requirements and are 

meaningful EHR users would receive a proposed update of 1.425 percent. This update 

includes a reduction of one-quarter of the market basket update for failure to submit these 

data). We note that hospitals that do comply with the quality data submission 

requirements but are not meaningful EHR users would receive a proposed update of 

1.425 percent, which includes a reduction of one-quarter of the market basket update. 

Furthermore, hospitals that do not comply with the quality data submission requirements 

and also are not meaningful EHR users would receive a proposed update of 0.75 percent. 

However, as discussed earlier, we do not have a list of hospitals that are not meaningful 

EHR users and have not included this adjustment to the standardized amount (for those 

hospitals that are not meaningful EHR users) in our modeling of aggregate payments for 
 1549 

FY 2015. Under section 1886(b)(3)(B)(iv) of the Act, the updates to the hospital-specific 

amounts for SCHs also are equal to the applicable percentage increase, or 2.1 percent. In 

addition, we are proposing to update the Puerto Rico-specific amount by an applicable 

percentage increase of 2.1 percent, if the hospital submits quality data and is a 

meaningful EHR user. 

 A second significant factor that affects the changes in hospitals’ payments per 

case from FY 2014 to FY 2015 is the change in hospitals’ geographic reclassification 

status from one year to the next. That is, payments may be reduced for hospitals 

reclassified in FY 2014 that are no longer reclassified in FY 2015. Conversely, payments 

may increase for hospitals not reclassified in FY 2014 that are reclassified in FY 2015. 

 A third significant factor is that we currently estimate that actual outlier payments 

during FY 2014 will be 5.79 percent of total MS-DRG payments. When the FY 2014 

IPS/LTCH PPS final rule was published, we projected FY 2014 outlier payments would 

be 5.1 percent of total MS-DRG plus outlier payments; the average standardized amounts 

were offset correspondingly. The effects of the higher than expected outlier payments 

during FY 2014 (as discussed in the Addendum to this proposed rule) are reflected in the 

analyses below comparing our current estimates of FY 2014 payments per case to 

estimated FY 2015 payments per case (with outlier payments projected to equal 

5.1 percent of total MS-DRG payments). 

2. Analysis of Table I 

 Table I displays the results of our analysis of the proposed changes for FY 2015. 

The table categorizes hospitals by various geographic and special payment consideration 
 1550 

groups to illustrate the varying impacts on different types of hospitals. The top row of 

the table shows the overall impact on the 3,388 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 2,542 hospitals located in urban areas included in our analysis. 

Among these, there are 1,395 hospitals located in large urban areas (populations over 

1 million), and 1,147 hospitals in other urban areas (populations of 1 million or fewer). 

In addition, there are 846 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’ proposed 

FY 2015 payment classifications, including any reclassifications under section 

1886(d)(10) of the Act. For example, the rows labeled urban, large urban, other urban, 

and rural show that the numbers of hospitals paid based on these categorizations after 

consideration of geographic reclassifications (including reclassifications under sections 

1886(d)(8)(B) and 1886(d)(8)(E) of the Act that have implications for capital payments) 

are 2,558; 1,408; 1,150; and 830, respectively. 

 The next three groupings examine the impacts of the proposed changes on 

hospitals grouped by whether or not they have GME residency programs (teaching 

hospitals that receive an IME adjustment) or receive Medicare DSH payments, or some 
 1551 

combination of these two adjustments. There are 2,352 nonteaching hospitals in our 

analysis, 792 teaching hospitals with fewer than 100 residents, and 244 teaching hospitals 

with 100 or more residents. 

 In the DSH categories, hospitals are grouped according to their DSH payment 

status, and whether they are considered urban or rural for DSH purposes. The next 

category groups together hospitals considered urban or rural, in terms of whether they 

receive the IME adjustment, the DSH adjustment, both, or neither. 

 The next five rows examine the impacts of the proposed changes on rural 

hospitals by special payment groups (SCHs, RRCs, and MDHs). There were 208 RRCs, 

324 SCHs, and 154 MDHs (MDH status is extended through March 31, 2015 only under 

Pub. L. 113-93), 124 hospitals that are both SCHs and RRCs, and 11 hospitals that are 

MDHs and RRCs (MDH status is through March 31, 2015 only under Pub. L. 113-93). 

 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 2012 or FY 2011 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 2015. The second grouping shows the MGCRB rural reclassifications. 

The final category shows the impact of the proposed policy changes on the 15 cardiac 

hospitals. 
 1552 

TABLE I.—IMPACT ANALYSIS OF PROPOSED CHANGES TO THE IPPS FOR OPERATING CO

No. of 

Hospitals1

Proposed 

Hospital Rate 

Update and 

Documentation and 

Coding Adjustment 2

Proposed FY 

2015 Weights 

and DRG 

Changes with 

Appli-cation 

of Recalibration 

Budget Neutrality3

Proposed FY 

2015 Wage 

Data with 

Appli-cation of 

Wage Budget 

Neu-trality4

Proposed FY 

2015 DRG, Rel. 

Wts., Wage 

Index Changes 

with Wage and 

Recali-bration 

Budget 

Neutrality5

Proposed 

FY 2015 

MGCRB 

Reclassifications6

Proposed 

Rural Floor 

and Imputed 

Floor with 

Applica-tion 

of National 

Rural Floor 

Budget Neutrality7

Proposed 

Impact of the 

New OMB 

CBSA Designations 8

Proposed 

Application 

of the CBSA 

Transition 

Wage Index 

with 

Budget 

Neutra-lity 9

(9) 

Proposed 

Application of 

the 

Frontier 

Wage Index 

and OutMigra-tion 

Adjustment10

(10) 

Proposed 

Hospital 

Readmissions 

Reduction 

Program11 

(1) (2) (3) (4) (5) (6) (7) (8) (11) 

All Hospitals 3,388 1.3 0 0 0 0 0 0 0 0.1 -0.4 By Geographic Location:Urban hospitals 2,542 1.3 0.1 0 0.1 -0.1 0 0 0 0.1 -0.4 Large urban areas 1395 1.3 0.1 0.1 0.2 -0.3 0 0 0 0 -0.4 Other urban areas 1147 1.3 0 -0.2 -0.1 0.2 0 0.1 0 0.2 -0.3 Rural hospitals 846 1.7 -0.6 0.1 -0.5 1.8 -0.3 0.1 0 0.2 -0.4 Bed Size (Urban): 0-99 beds 655 1.4 -0.2 0.1 -0.1 -0.3 0.1 0.2 0 0.3 -0.3 100-199 beds 788 1.3 -0.1 -0.1 -0.2 0.1 0.2 0 0 0.1 -0.5 200-299 beds 469 1.3 0 0 0 0.1 0 0.1 0 0.1 -0.4 300-499 beds 417 1.3 0.1 -0.1 0.1 -0.3 0.1 0 0 0.1 -0.3 500 or more beds 213 1.3 0.2 0 0.3 -0.2 -0.2 0 0 0 -0.3 Bed Size (Rural): 0-49 beds 325 1.8 -1 0 -1 0.7 -0.4 0 0.1 0.3 -0.5 50-99 beds 298 1.7 -0.8 0.2 -0.7 1 -0.3 0 0.1 0.2 -0.4 100-149 beds 136 1.6 -0.6 0 -0.6 2 -0.3 0 0 0.2 -0.6 150-199 beds 50 1.5 -0.3 0.3 -0.2 2.2 -0.3 0 -0.1 0.3 -0.4 200 or more beds 37 1.7 -0.2 0.1 -0.1 3.1 -0.3 0.1 -0.1 0 -0.3 Urban by Region: New England 120 1.3 0.1 0.9 0.9 1.3 2.7 0.1 -0.1 0 -0.5 Middle Atlantic 324 1.3 0 0.3 0.3 -0.1 -0.5 -0.4 0.4 0.1 -0.5 South Atlantic 406 1.3 0 -0.3 -0.3 -0.3 -0.4 0.1 -0.1 0 -0.4 East North Central 397 1.3 0.1 -0.2 0 -0.2 -0.6 0.1 -0.1 0 -0.5 East South Central 153 1.3 0.1 -0.6 -0.5 -0.3 -0.4 0 0 0 -0.5 
 1553 

No. of 

Hospitals1

Proposed 

Hospital Rate 

Update and 

Documentation and 

Coding Adjustment 2

Proposed FY 

2015 Weights 

and DRG 

Changes with 

Appli-cation 

of Recalibration 

Budget Neutrality3

Proposed FY 

2015 Wage 

Data with 

Appli-cation of 

Wage Budget 

Neu-trality4

Proposed FY 

2015 DRG, Rel. 

Wts., Wage 

Index Changes 

with Wage and 

Recali-bration 

Budget 

Neutrality5

Proposed 

FY 2015 

MGCRB 

Reclassifications6

Proposed 

Rural Floor 

and Imputed 

Floor with 

Applica-tion 

of National 

Rural Floor 

Budget Neutrality7

Proposed 

Impact of the 

New OMB 

CBSA Designations 8

Proposed 

Application 

of the CBSA 

Transition 

Wage Index 

with 

Budget 

Neutra-lity 9

(9) 

Proposed 

Application of 

the 

Frontier 

Wage Index 

and OutMigra-tion 

Adjustment10

(10) 

Proposed 

Hospital 

Readmissions 

Reduction 

Program11 

(1) (2) (3) (4) (5) (6) (7) (8) (11) 

West North Central 162 1.3 0.1 0 0.1 -0.7 -0.5 0.1 -0.1 0.8 -0.2 West South Central 385 1.3 0.2 -0.3 -0.1 -0.4 -0.5 0.1 -0.1 0 -0.3 Mountain 159 1.4 0.1 -0.1 0 0 0 0.1 -0.1 0.3 -0.2 Pacific 384 1.3 0.1 0.4 0.5 -0.2 1.5 0.1 -0.1 0 -0.2 Puerto Rico 52 1.5 -0.4 0.2 -0.2 -0.7 0 0 0 0 0 Rural by Region: New England 22 1.5 -0.3 0.7 0.3 2.4 -0.5 0.4 -0.1 0 -0.1 Middle Atlantic 57 1.7 -0.8 0.8 -0.2 1.3 0 -0.3 0.1 0.2 -0.4 South Atlantic 132 1.8 -0.7 0.1 -0.9 2.5 -0.4 0 0 0.1 -0.4 East North Central 115 1.7 -0.5 0 -0.5 1.6 -0.3 0.2 0 0 -0.5 East South Central 165 1.4 -0.3 -0.2 -0.5 2.8 -0.5 0 -0.1 0.1 -0.7 West North Central 102 1.8 -0.8 0.1 -0.7 0.6 -0.1 0.2 0 0.7 -0.2 West South Central 168 1.5 -0.5 0.2 -0.3 1.7 -0.4 -0.1 0.1 0.1 -0.8 Mountain 61 1.8 -0.7 -0.3 -1 0.4 -0.2 0 0 0.9 -0.1 Pacific 24 2 -1.1 0.9 -0.2 1.2 -0.3 0.1 0 0 -0.1 By Payment Classification: Large urban areas 1408 1.3 0.1 0.1 0.2 -0.3 0 0 0 0 -0.4 Other urban areas 1150 1.3 0 -0.2 -0.1 0.2 0 0.1 0 0.1 -0.3 Other urban areas 1,764 1.3 0 0 0 0 0.1 0 0 0.1 -0.4 Rural areas 830 1.7 -0.6 0.1 -0.6 1.4 -0.3 0 0 0.4 -0.4 Teaching Status: Nonteaching 2,352 1.4 -0.2 -0.1 -0.2 0.2 0.1 0.1 0 0.1 -0.5 Fewer than 100 residents 792 1.4 0 0 0 -0.1 0 0 0 0.2 -0.3 100 or more residents 244 1.3 0.3 0.2 0.5 -0.2 -0.2 -0.1 0 0 -0.3 Urban DSH: Non-DSH 682 1.3 -0.1 0 0 0 0 0.1 0.1 0.2 -0.4 
 1554 

No. of 

Hospitals1

Proposed 

Hospital Rate 

Update and 

Documentation and 

Coding Adjustment 2

Proposed FY 

2015 Weights 

and DRG 

Changes with 

Appli-cation 

of Recalibration 

Budget Neutrality3

Proposed FY 

2015 Wage 

Data with 

Appli-cation of 

Wage Budget 

Neu-trality4

Proposed FY 

2015 DRG, Rel. 

Wts., Wage 

Index Changes 

with Wage and 

Recali-bration 

Budget 

Neutrality5

Proposed 

FY 2015 

MGCRB 

Reclassifications6

Proposed 

Rural Floor 

and Imputed 

Floor with 

Applica-tion 

of National 

Rural Floor 

Budget Neutrality7

Proposed 

Impact of the 

New OMB 

CBSA Designations 8

Proposed 

Application 

of the CBSA 

Transition 

Wage Index 

with 

Budget 

Neutra-lity 9

(9) 

Proposed 

Application of 

the 

Frontier 

Wage Index 

and OutMigra-tion 

Adjustment10

(10) 

Proposed 

Hospital 

Readmissions 

Reduction 

Program11 

(1) (2) (3) (4) (5) (6) (7) (8) (11) 

100 or more beds 1,591 1.3 0.1 0 0.1 -0.1 0 0 0 0.1 -0.4 Less than 100 beds 366 1.4 -0.3 0.1 -0.2 0.2 0.1 0.3 0 0.3 -0.4 Rural DSH: SCH 388 1.9 -1 0.1 -1 0.1 -0.1 0 0 0.1 -0.4 RRC 212 1.6 -0.4 0.1 -0.3 2.2 -0.3 0 0 0.5 -0.4 100 or more beds 24 1.3 -0.3 -0.2 -0.5 2.5 -0.6 0.1 0 0.2 -0.6 Less than 100 beds 125 1.3 -0.5 -0.1 -0.6 1.2 -0.6 -0.2 0.1 0.7 -0.5 Urban teaching and DSH: Both teaching and DSH 842 1.3 0.2 0 0.2 -0.2 -0.1 0 0 0.1 -0.3 Teaching and no DSH 133 1.3 0 0.2 0.2 0.1 0.2 -0.1 0.1 0.1 -0.4 No teaching and DSH 1,115 1.3 -0.1 -0.1 -0.1 0.1 0.3 0.1 0 0.1 -0.5 No teaching and no DSH 468 1.3 -0.1 -0.1 -0.2 -0.1 -0.2 0.2 0 0.1 -0.4 Special Hospital Types: RRC 208 1.3 -0.1 0.1 0 2.6 -0.5 0.1 -0.1 0.6 -0.4 SCH 324 1.9 -0.8 0 -0.9 -0.1 -0.1 0 0 0.1 -0.2 MDH 154 1.7 -0.9 0.1 -1 0.4 -0.1 0 0 0.2 -0.8 SCH and RRC 124 1.9 -0.6 0.1 -0.6 0.8 -0.1 0.1 0 0.1 -0.2 MDH and RRC 11 1.8 -0.8 -0.1 -0.9 1 -0.3 0 0 0 -0.9 Type of Ownership: Voluntary 1,925 1.3 0 0 0.1 0 0 0 0 0.1 -0.4 Proprietary 883 1.3 0 -0.1 0 0.2 0.1 0.1 -0.1 0.1 -0.5 Government 540 1.4 0 -0.2 -0.2 0 0 0 0 0 -0.3 Medicare Utilization as a Percent of Inpatient Days: 0-25 445 1.3 0.2 0.1 0.3 -0.3 0 0 0 0 -0.2 25-50 2,004 1.3 0 0 0.1 -0.1 0 0 0 0.1 -0.4 
 1555 

No. of 

Hospitals1

Proposed 

Hospital Rate 

Update and 

Documentation and 

Coding Adjustment 2

Proposed FY 

2015 Weights 

and DRG 

Changes with 

Appli-cation 

of Recalibration 

Budget Neutrality3

Proposed FY 

2015 Wage 

Data with 

Appli-cation of 

Wage Budget 

Neu-trality4

Proposed FY 

2015 DRG, Rel. 

Wts., Wage 

Index Changes 

with Wage and 

Recali-bration 

Budget 

Neutrality5

Proposed 

FY 2015 

MGCRB 

Reclassifications6

Proposed 

Rural Floor 

and Imputed 

Floor with 

Applica-tion 

of National 

Rural Floor 

Budget Neutrality7

Proposed 

Impact of the 

New OMB 

CBSA Designations 8

Proposed 

Application 

of the CBSA 

Transition 

Wage Index 

with 

Budget 

Neutra-lity 9

(9) 

Proposed 

Application of 

the 

Frontier 

Wage Index 

and OutMigra-tion 

Adjustment10

(10) 

Proposed 

Hospital 

Readmissions 

Reduction 

Program11 

(1) (2) (3) (4) (5) (6) (7) (8) (11) 

50-65 718 1.4 -0.2 0 -0.2 0.7 0 0.2 0 0.1 -0.6 Over 65 131 1.5 -0.6 0.1 -0.8 0.4 0 0 0 0.1 -0.7  Proposed FY 2015 Reclassifications by the Medicare Geographic Classification Review Board: All Reclassified Hospitals 804 1.4 -0.1 0.1 0.1 1.8 0 0 0 0 -0.5 Non-Reclassified Hospitals 2,584 1.3 0 0 0 -0.6 0 0.1 0 0.1 -0.4 Urban Hospitals Reclassified 533 1.3 0 0.1 0.2 1.6 0.1 -0.1 0 0 -0.5 Urban Nonreclassified Hospitals, FY 2015 1,965 1.3 0.1 -0.1 0.1 -0.7 0 0.1 0 0.1 -0.4 All Rural Hospitals Reclassified FY 2015 271 1.7 -0.5 0.1 -0.4 2.9 -0.3 0 0 0 -0.5 Rural Nonreclassified Hospitals FY 2015 511 1.7 -0.8 0.1 -0.7 -0.1 -0.3 0 0 0.4 -0.4 All Section 401 Reclassified Hospitals 48 1.7 -0.6 -0.1 -0.6 -0.9 -0.1 0 0 2.2 -0.3 Other Reclassified Hospitals (Section 1886(d)(8)(B)) 66 1.4 -0.5 0.3 -0.1 3.5 -0.5 0.6 0.1 0.1 -0.5 Specialty Hospitals Cardiac specialty Hospitals 15 1.3 0.9 0.3 1.2 -0.8 -0.1 0.1 -0.1 0.7 -0.1 
 1556 

1 Because data necessary to classify some hospitals by category were missing, the total number of hospitals in each category may not eq

total. Discharge data are from FY 2013, and hospital cost report data are from reporting periods beginning in FY 2011 and FY 2010. 2 This column displays the payment impact of the proposed hospital rate update and the proposed documentation and coding adjustmen

adjustment to the national standardized amount (the estimated 2.7 percent market basket update reduced by the proposed 0.4 percentage 

productivity adjustment and the 0.2 percentage point reduction under the Affordable Care Act) and the proposed 0.8 percent documentaadjustment to the national standardized amount. 

3 This column displays the payment impact of the proposed changes to the Version 32.0 GROUPER, the changes to the relative weights 

recalibration of the MS-DRG weights based on FY 2013 MedPAR data in accordance with section 1886(d)(4)(C)(iii) of the Act. This capplication of the proposed recalibration budget neutrality factor of 0.992938 in accordance with section 1886(d)(4)(C)(iii) of the Act. 4 This column displays the payment impact of the proposed update to wage index data using FY 2011 cost report data and the proposed 

area delineations. This column displays the payment impact of the proposed application of the wage budget neutrality factor, which is the recalibration budget neutrality factor, and is calculated in accordance with section 1886(d)(3)(E)(i) of the Act. The proposed wage 

1.000578. 

5 This column displays the combined payment impact of the proposed changes in Columns 3 through 4 and the proposed cumulative bu

MS-DRG and wage changes in accordance with section 1886(d)(4)(C)(iii) of the Act and section 1886(d)(3)(E) of the Act. The proposrecalibration budget neutrality factor of 0.993512 is the product of the proposed wage budget neutrality factor and the proposed recalibrfactor. 

6 Shown here are the effects of geographic reclassifications by the Medicare Geographic Classification Review Board (MGCRB) along 

proposed adoption of the new OMB labor market area delineations on these reclassifications. The effects demonstrate the proposed FY going from no reclassifications to the reclassifications scheduled to be in effect for FY 2015. Reclassification for prior years has no beimpacts shown here. This column reflects the proposed geographic budget neutrality factor of 0.991412. 

7 This column displays the effects of the proposed rural floor and imputed floor based on the proposed adoption of new OMB labor marAffordable Care Act requires the rural floor budget neutrality adjustment to be 100 percent national level adjustment. The proposed rurfactor (which includes the imputed floor) applied to the wage index is 0.989455. 8 This column displays the effects of the proposed adoption of the new OMB labor market area delineations. It does not reflect the prop

hospitals that are currently located in urban counties that would become rural under the proposed new OMB delineations and the one-yOMB delineations where the proposed wage indexes are blended such that hospitals receive 50 percent of their wage index based on thand 50 percent of their wage index based on their current labor market area. Rather, it shows the proposed impact if the new OMB deliimplemented in FY 2015.

9. This column shows the effects of the proposal to apply both the 3-year transition for hospitals that are currently located in urban coun

rural under the proposed new OMB delineations, and the 50/50 blended wage index adjustments in a budget neutral manner. For FY 20

apply both the 3-year transition and 50/50 blended wage index adjustments in a budget neutral manner, with a proposed budget neutrali

applied to the standardized amount. 

10 This column shows the combined impact of the policy required under section 10324 of the Affordable Care Act that hospitals located 

wage index no less than 1.0 and of section 1886(d)(13) of the Act, as added by section 505 of Pub. L. 108-173, which provides for an in
 1557 

wage index if a threshold percentage of residents of the county where the hospital is located commute to work at hospitals in counties wThese are nonbudget neutral policies. 11 This column displays the impact of the implementation of the Hospital Readmissions Reduction Program, section 3025 of the Afford

nonbudget neutral provision that adjusts a hospital’s payment for excess readmissions. 

12 This column displays the impact of the implementation of section 3133 of the Affordable Care Act that reduces Medicare DSH paym

establishes an additional uncompensated care payment. 

13 This column displays the impact of the implementation of the HAC Reduction Program, section 3008 of the Affordable Care Act, a n

provision that reduces total IPPS payments by 1 percent to hospitals ranked in the lowest quartile of performance on HAC rates.

14 This column shows the proposed changes in payments from FY 2014 to FY 2015. It reflects the impact of the proposed FY 2015 hos

proposed adjustment for documentation and coding. It also reflects proposed changes in hospitals' reclassification status in FY 2015 cothe extension of MDH payment status for the first half of FY 2015, under Pub. L. 113-93 enacted on April1, 2014. It incorporates all odisplayed in Columns 2, 5, 6, 7, 8, 9, 10, 11, 12 and 13 (the proposed changes displayed in Columns 3 and 4 are included in Column 5)impacts may be different from the percentage changes shown here due to rounding and interactive effects.
 1558 

a. Effects of the Proposed Hospital Update and Proposed Documentation and Coding 

Adjustment (Column 2) 

 As discussed in section II.D. of the preamble of this proposed rule, this column 

includes the proposed hospital update, including the proposed 2.7 percent market basket 

update, the proposed reduction of 0.4 percentage point for the multifactor productivity 

adjustment, and the 0.2 percentage point reduction in accordance with the Affordable 

Care Act. In addition, this column includes the proposed FY 2015 documentation and 

coding recoupment adjustment of -0.8 percent on the national standardized amount as 

part of the recoupment required by section 631 of the ATRA. As a result, we are 

proposing to make a 1.3 percent update to the national standardized amount. This column 

also includes the proposed 2.1 percent update to the hospital-specific rates which also 

includes the proposed 2.7 percent market basket update, the proposed reduction of 0.4 

percentage point for the multifactor productivity adjustment, and the 0.2 percentage point 

reduction in accordance with the Affordable Care Act. 

 Overall, hospitals would experience a 1.3 percent increase in payments primarily 

due to the effects of the hospital update and documentation and coding adjustment on the 

national standardized amount. Hospitals that are paid under the hospital-specific rate, 

namely SCHs, would experience a 2.1 percent increase in payments; therefore, hospital 

categories with SCHs paid under the hospital-specific rate would experience increases in 

payments of more than 1.3 percent. 
 1559 

b. Effects of the Proposed Changes to the MS-DRG Reclassifications and Relative 

Cost-Based Weights with Recalibration Budget Neutrality (Column 3) 

 Column 3 shows the effects of the proposed changes to the MS-DRGs and 

relative weights with the application of the proposed recalibration budget neutrality factor 

to the standardized amounts. Section 1886(d)(4)(C)(i) of the Act requires us annually to 

make appropriate classification changes in order to reflect changes in treatment patterns, 

technology, and any other factors that may change the relative use of hospital resources. 

Consistent with section 1886(d)(4)(C)(iii) of the Act, we are proposing to calculate a 

recalibration budget neutrality factor to account for the proposed changes in MS-DRGs 

and relative weights to ensure that the overall payment impact is budget neutral. 

 As discussed in section II.E. of the preamble of this proposed rule, the FY 2015 

MS-DRG relative weights will be 100 percent cost-based and 100 percent MS-DRGs. 

For FY 2015, the MS-DRGs are calculated using the FY 2013 MedPAR data grouped to 

the Version 32.0 (FY 2015) MS-DRGs. The proposed methodology to calculate the 

relative weights and the proposed reclassification changes to the GROUPER are 

described in more detail in section II.H. of the preamble of this proposed rule. 

 The “All Hospitals” line in Column 3 indicates that changes due to the MS-DRGs 

and relative weights would result in a 0.0 percent change in payments with the 

application of the proposed recalibration budget neutrality factor of 0.992938 on to the 

standardized amount. Hospital categories that generally treat more surgical cases than 

medical cases would experience increases in their payments due to the changes to the 

relative weight methodology. Rural hospitals would experience a 0.6 percent decrease in 
 1560 

payments because rural hospitals tend to treat fewer surgical cases than medical cases, 

while teaching hospitals with more than 100 residents would experience an increase in 

payments by 0.3 percent as those hospitals treat more surgical cases than medical cases. 

c. Effects of the Proposed Wage Index Changes (Column 4) 

 Column 4 shows the impact of updated wage data using FY 2011 cost report data 

and the proposed new OMB labor market area delineations, with the application of the 

proposed wage budget neutrality factor. The wage index is calculated and assigned to 

hospitals on the basis of the labor market area in which the hospital is located. Under 

section 1886(d)(3)(E) of the Act, beginning with FY 2005, we delineate hospital labor 

market areas based on the Core Based Statistical Areas (CBSAs) established by OMB. 

The current statistical areas used in FY 2014 were based on OMB standards published on 

December 27, 2000 (65 FR 82228) and Census 2000 data and Census Bureau population 

estimates for 2007 and 2008 (OMB Bulletin No. 10-02). 

 As stated in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27552) and final 

rule (78 FR 50586), on February 28, 2013, OMB issued OMB Bulletin No. 13-01, which 

established revised delineations for Metropolitan Statistical Areas, Micropolitan 

Statistical Areas, and Combined Statistical Areas, and provided guidance on the use of 

the delineations of these statistical areas. In order to implement these changes for the 

IPPS, it is necessary to identify the new labor market area delineation for each county and 

hospital in the country. However, because the bulletin was not issued until 

February 28, 2013, with supporting data not available until later, and because the changes 

made by the bulletin and their ramifications needed to be extensively reviewed and 
 1561 

verified, we were unable to undertake such a lengthy process before publication of the 

FY 2014 IPPS/LTCH PPS proposed rule and, thus, did not implement changes to the 

wage index for FY 2014 based on these new OMB delineations. In the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50586), we stated that we intended to propose changes 

to the wage index based on the new OMB delineations in this FY 2015 proposed rule. As 

discussed below, in this proposed rule, we are proposing to implement the new OMB 

delineations as described in the February 28, 2013 OMB Bulletin No. 13-01, effective 

beginning with the FY 2015 IPPS wage index. 

 Section 1886(d)(3)(E) of the Act requires that, beginning October 1, 1993, we 

annually update the wage data used to calculate the wage index. In accordance with this 

requirement, the proposed wage index for acute care hospitals for FY 2015 is based on 

data submitted for hospital cost reporting periods beginning on or after October 1, 2010 

and before October 1, 2011. The estimated impact of the updated wage data using the FY 

2011 cost report data and the proposed new OMB labor market area delineations on 

hospital payments is isolated in Column 4 by holding the other payment parameters 

constant in this simulation. That is, Column 4 shows the proposed percentage change in 

payments when going from a model using the FY 2014 wage index, based on FY 2010 

wage data, the labor-related share of 69.6 percent, under the new OMB delineations and 

having a 100-percent occupational mix adjustment applied, to a model using the proposed 

FY 2015 pre-reclassification wage index based on FY 2011 wage data with the proposed 

labor-related share of 69.6 percent, under the new OMB delineations, also having a 

100-percent occupational mix adjustment applied, while holding other payment 
 1562 

parameters such as use of the Version 32.0 MS-DRG GROUPER constant). The 

FY 2015 occupational mix adjustment is based on the CY 2010 occupational mix survey. 

 In addition, the column shows the impact of the application of the proposed wage 

budget neutrality to the proposed national standardized amount. In FY 2010, we began 

calculating separate wage budget neutrality and recalibration budget neutrality factors, in 

accordance with section 1886(d)(3)(E) of the Act, which specifies that budget neutrality 

to account for wage index 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 2015, we are proposing to calculate the 

wage budget neutrality factor to ensure that payments under updated wage data and the 

proposed labor-related share of 69.6 percent are budget neutral without regard to the 

lower labor-related share of 62 percent applied to hospitals with a wage index less than or 

equal to 1.0. In other words, the wage budget neutrality is calculated under the 

assumption that all hospitals receive the higher labor-related share of the standardized 

amount. The proposed wage budget neutrality factor is 1.000578, and the overall 

payment change is zero percent. 

 Column 4 shows the impacts of updating the wage data using FY 2011 cost 

reports. Overall, the new wage data and the proposed labor-related share, combined with 

the proposed wage budget neutrality adjustment, would lead to a 0.0 percent change for 

all hospitals as shown in Column 4. 

 In looking at the wage data itself, the national average hourly wage increased 

1.9 percent compared to FY 2014. Therefore, the only manner in which to maintain or 
 1563 

exceed the previous year’s wage index was to match or exceed the national 1.9 percent 

increase in average hourly wage. Of the 3,373 hospitals with wage data for both 

FYs 2014 and 2015, 1,644 or 48.7 percent would experience an average hourly wage 

increase of 1.9 percent or more. 

 The following chart compares the shifts in proposed wage index values for 

hospitals due to changes in the average hourly wage data for FY 2015 relative to 

FY 2014. Among urban hospitals, 11 would experience a decrease of more than 10 

percent, with no urban hospital experiencing an increase of more than 10 percent. One 

hundred twenty-one urban hospitals would experience an increase or decrease of at least 

5 percent or more but less than or equal to 10 percent. Among rural hospitals, none 

would experience a decrease of more than 5 percent, but 5 rural hospitals would 

experience an increase of greater than 5 percent but less than or equal to10 percent. 

However, 803 rural hospitals would experience increases or decreases of less than or 

equal to 5 percent, while 2,325 urban hospitals would experience increases or decreases 

of less than or equal to 5 percent. One hundred eight urban and rural hospitals would not 

experience a change in their wage index. These figures reflect proposed changes in the 

“pre-reclassified, occupational mix-adjusted wage index,” that is, the proposed wage 

index before the proposed application of geographic reclassification, the proposed rural 

and imputed floors, the proposed out-migration adjustment, and other proposed wage 

index exceptions and adjustments. We note that this analysis was performed by applying 

the new OMB labor market area delineations to the FY 2015 proposed wage data and 

also by recomputing the FY 2014 final wage data to reflect the new OMB delineations. 
 1564 

(We refer readers to sections III.G.2. through III.I. of the preamble of this proposed rule 

for a complete discussion of the exceptions and adjustments to the wage index.) We note 

that the proposed “post-reclassified wage index” or “payment wage index,” the proposed 

wage index that includes all such exceptions and adjustments (as reflected in Tables 2, 

4A, 4B, 4C, and 4F of the Addendum to this proposed rule, which are available via the 

Internet on the CMS Web site) is used to adjust the proposed labor-related share of a 

hospital’s standardized amount, either 69.6 percent or 62 percent, depending upon 

whether a hospital’s wage index is greater than 1.0 or less than or equal to 1.0. 

Therefore, the proposed pre-reclassified wage index figures in the chart below may 

illustrate a somewhat larger or smaller change than would occur in a hospital’s payment 

wage index and total payment. 

 The following chart shows the projected impact of changes in the average hourly 

wage data for urban and rural hospitals. 

Percentage Change in Proposed Area Wage Index 

Values Number of Hospitals 

 Urban Rural 

Increase more than 10 percent 0 0

Increase more than 5 percent and less than or equal to 

10 percent 29 5

Increase or decrease less than or equal to 5 percent 2,325 803

Decrease more than 5 percent and less than or equal to 

10 percent 92 0

Decrease more than 10 percent 11 0

Unchanged 76 32
 1565 

d. Combined Effects of the Proposed MS-DRG and Wage Index Changes (Column 5) 

 Section 1886(d)(4)(C)(iii) of the Act requires that changes to MS-DRG 

reclassifications and the relative weights cannot increase or decrease aggregate payments. 

In addition, section 1886(d)(3)(E) of the Act specifies that any updates or adjustments to 

the wage index are to be budget neutral. We computed a proposed wage budget 

neutrality factor of 1.000578 and a proposed recalibration budget neutrality factor of 

0.992938 (which is applied to the Puerto Rico-specific standardized amount and the 

hospital-specific rates). The product of the two proposed budget neutrality factors is the 

proposed cumulative wage and recalibration budget neutrality factor. The proposed 

cumulative wage and recalibration budget neutrality adjustment is 0.993512, or 

approximately 0.65 percent, which is applied to the national standardized amounts. 

Because the wage budget neutrality and the recalibration budget neutrality are calculated 

under different methodologies according to the statute, when the two budget neutralities 

are combined and applied to the standardized amount, the overall payment impact is not 

necessarily budget neutral. However, in this proposed rule, we are estimating that the 

proposed changes in the MS-DRG relative weights and updated wage data with wage and 

budget neutrality applied would result in a 0.0 percent change in payments. 

e. Effects of Proposed MGCRB Reclassifications (Column 6) 

 Our impact analysis to this point has assumed acute care hospitals are paid on the 

basis of their actual geographic location (with the exception of ongoing policies that 

provide that certain hospitals receive payments on other bases than where they are 

geographically located). The changes in Column 6 reflect the per case payment impact of 
 1566 

moving from this baseline to a simulation incorporating the proposed MGCRB decisions 

for FY 2015 and the effects of the proposed adoption of the new OMB labor market area 

delineations on these reclassifications which affect hospitals’ wage index area 

assignments. 

 By spring of each year, the MGCRB makes reclassification determinations that 

will be effective for the next fiscal year, which begins on October 1. The MGCRB may 

approve a hospital’s reclassification request for the purpose of using another area’s wage 

index value. Hospitals may appeal denials of MGCRB decisions to the CMS 

Administrator. Further, hospitals have 45 days from publication of the IPPS proposed 

rule in the Federal Register to decide whether to withdraw or terminate an approved 

geographic reclassification for the following year. 

 The overall effect of geographic reclassification is required by 

section 1886(d)(8)(D) of the Act to be budget neutral. Therefore, for purposes of this 

impact analysis, we are proposing to apply an adjustment of 0.991412 to ensure that the 

effects of the reclassifications under section 1886(d)(10) of the Act are budget neutral 

(section II.A. of the Addendum to this proposed rule). Geographic reclassification 

generally benefits hospitals in rural areas. We estimate that the geographic 

reclassification would increase payments to rural hospitals by an average of 1.8 percent. 

By region, all the rural hospital categories would experience increases in payments due to 

MGCRB reclassifications. 

 Table 9A listed in section VI. of the Addendum to this proposed rule and 

available via the Internet on the CMS Web site reflects the reclassifications for FY 2015. 
 1567 

f. Effects of the Proposed Rural and Imputed Floor, Including Application of Proposed 

National Budget Neutrality (Column 7) 

 As discussed in section III.B. of the preamble of the FY 2009 IPPS final rule, the 

FY 2010 IPPS/RY 2010 LTCH PPS final rule, the FYs 2011, 2012, 2013 and 2014 

IPPS/LTCH PPS final rules, and this proposed rule, section 4410 of Pub. L. 105-33 

established the rural floor by requiring that the wage index for a hospital in any urban 

area cannot be less than the wage index received by rural hospitals in the same State. We 

apply a uniform budget neutrality adjustment to the wage index. The imputed floor, 

which is also included in the calculation of the budget neutrality adjustment to the wage 

index, was extended in FY 2012 for 2 additional years. In the past, only urban hospitals 

in New Jersey received the imputed floor. As discussed in the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53369), we established an alternative temporary methodology for the 

imputed floor, which resulted in an imputed floor for Rhode Island for FY 2013. For FY 

2014, we extended the imputed rural floor, as calculated under the original methodology 

and the alternative methodology. For FY 2015, we are proposing to extend the imputed 

rural floor, as calculated under the original methodology and the alternative 

methodology. As a result, under this proposal, New Jersey, Rhode Island, and Delaware 

would receive an imputed floor, with 12 out of 64 hospitals in New Jersey receiving the 

imputed floor, 1 out of 6 hospitals in Delaware receiving the imputed floor and 4 out of 

11 hospitals in Rhode Island receiving the imputed floor. 

 The Affordable Care Act requires that we apply one rural floor budget neutrality 

factor to the wage index nationally, and the imputed floor is part of the rural floor budget 
 1568 

neutrality factor applied to the wage index nationally. We have calculated a proposed 

FY 2015 rural floor budget neutrality factor to be applied to the wage index of 0.989455, 

which would reduce wage indexes by 1.1 percent. 

 Column 7 shows the projected impact of the proposed rural floor and imputed 

floor with the proposed national rural floor budget neutrality factor applied to the wage 

index based on the proposed new OMB labor market area delineations. The column 

compares the proposed post-reclassification FY 2015 wage index of providers before the 

rural floor and imputed floor adjustment and the proposed post-reclassification FY 2015 

wage index of providers with the proposed rural floor and imputed floor adjustment 

based on the proposed new OMB labor market area delineations. Only urban hospitals 

can benefit from the rural and imputed floors. Because the provision is budget neutral, 

all other hospitals (that is, all rural hospitals and those urban hospitals to which the 

adjustment is not made) would experience a decrease in payments due to the proposed 

budget neutrality adjustment that is applied nationally to their wage index. 

 We estimate that 441 hospitals benefit from the proposed rural and imputed floors 

while the remaining 2,947 IPPS hospitals in our model have their wage index reduced by 

the proposed rural floor budget neutrality adjustment of 0.989455 (or 1.1 percent). We 

project that, in aggregate, rural hospitals would experience a 0.3 percent decrease in 

payments as a result of the application of the proposed rural floor budget neutrality 

because the rural hospitals do not benefit from the rural floor, but have their wage 

indexes downwardly adjusted to ensure that the application of the rural floor is budget 

neutral overall. We project hospitals located in urban areas would experience no change 
 1569 

in payments because increases in payments by hospitals benefitting from the rural floor 

offset decreases in payments by nonrural floor urban hospitals whose wage index is 

downwardly adjusted by the proposed rural floor budget neutrality factor. Urban 

hospitals in the New England region can expect a 2.7 percent increase in payments 

primarily due to the application of the proposed rural floor in Massachusetts and 

Connecticut. Fifty-one urban providers in Massachusetts are expected to receive the 

proposed rural floor wage index value, including proposed rural floor budget neutrality, 

of 1.3383, increasing payments overall to Massachusetts by an estimated $158 million. 

During most past years, there have been no IPPS hospitals located in rural areas in 

Massachusetts. There was one urban IPPS hospital that was reclassified to rural 

Massachusetts (under section 1886(d)(8)(E) of the Act) which established the 

Massachusetts rural floor, but the wage index resulting from that hospital’s data was not 

high enough for any urban hospital to benefit from the rural floor policy. However, for 

the FY 2012 wage index, the rural floor for Massachusetts was established by the 

conversion of a CAH to an IPPS hospital that is geographically located in rural 

Massachusetts. The rural floor in Massachusetts continues to be set by the wage index of 

the hospital in rural Massachusetts that converted from CAH to IPPS status. We estimate 

that Massachusetts hospitals would receive approximately a 4.9 percent increase in IPPS 

payments due to the application of the rural floor in FY 2015. 

 Urban Puerto Rico hospitals are expected to experience a 0.0 percent change in 

payments as a result of the application of a proposed Puerto Rico rural floor with the 

application of the proposed Puerto Rico rural floor budget neutrality adjustment. We are 
 1570 

proposing to apply a rural floor budget neutrality factor to the Puerto Rico-specific wage 

index of 0.991359 or -0.86 percent. The Puerto Rico-specific wage index adjusts the 

Puerto Rico-specific standardized amount, which represents 25 percent of payments to 

Puerto Rico hospitals. The increases in payments experienced by the urban Puerto Rico 

hospitals that benefit from a rural floor are offset by the decreases in payments by the 

nonrural floor urban Puerto Rico hospitals that have their wage indexes downwardly 

adjusted by the proposed rural floor budget neutrality adjustment. As a result, overall, 

urban Puerto Rico hospitals would experience a 0.0 percent change in payments due to 

the application of the proposed rural floor with rural floor budget neutrality. 

 There are 12 hospitals out of the 64 hospitals in New Jersey that benefit from the 

extension of the proposed imputed floor and would receive the proposed imputed floor 

wage index value under the new OMB labor market area delineations, including the 

proposed rural floor budget neutrality, of 1.0986 which we estimate would increase 

payments to those imputed floor hospitals by $17 million (the State, overall, would see a 

decrease in payments of approximately $5 million due the other hospitals in the State 

experiencing decreases in payments due to the rural floor budget neutrality adjustment). 

Four Rhode Island hospitals would benefit from the proposed imputed rural floor 

calculated under the alternative methodology and receive an additional $3.5 million (the 

State, overall, would receive an additional $1.6 million). One hospital in Delaware would 

benefit from the extension of the proposed imputed floor and would receive the proposed 

imputed floor wage index value under the new OMB labor market area delineations, and 
 1571 

would receive an additional $25,000 (the State, overall, would experience a decrease in 

payments of $2.3 million). 

 In response to a public comment addressed in the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51593), we are providing the payment impact of the proposed rural floor and 

imputed floor with budget neutrality at the State level. Column 1 of the table below 

displays the number of IPPS hospitals located in each State. Column 2 displays the 

number of hospitals in each State that would receive the proposed rural floor or imputed 

floor wage index for FY 2015 based on the proposed new OMB labor market area 

delineations. Column 3 displays the percentage of total payments each State would 

receive or contribute to fund the proposed rural floor and imputed floor with national 

budget neutrality based on the proposed new OMB labor market area delineations. The 

column compares the proposed post-reclassification FY 2015 wage index of providers 

before the proposed rural floor and imputed floor adjustment and the proposed 

post-reclassification FY 2015 wage index of providers with the proposed rural floor and 

imputed floor adjustment with the wage indexes calculated based on the proposed new 

OMB labor market area delineations. Column 4 displays the estimated payment amount 

that each State would gain or lose due to the application of the proposed rural floor and 

imputed floor with national budget neutrality. We will update our State-by-State rural 

floor budget neutrality impact analysis for the FY 2015 IPPS/LTCH PPS final rule. 

 
 1572 

FY 2015 IPPS Proposed Estimated Payments Due to Proposed Rural Floor 

and Imputed Floor with National Budget Neutrality

State 

Number of 

Hospitals 

(1) 

Number of 

Hospitals That 

Would Receive 

the Proposed 

Rural Floor or 

Imputed Floor 

(2) 

Percent Change 

in Payments 

due to 

Application of 

Proposed Rural 

Floor and 

Imputed Floor 

with Budget 

Neutrality 

(3) 

Difference 

(in millions) 

(4) 

Alabama 91 2 -0.5 -$8.5

Alaska 6 4 1.8 $2.6

Arizona 56 8 -0.1 -$2.3

Arkansas 45 0 -0.5 -$5.4

California 308 184 2 $196.3

Colorado 46 5 -0.1 -$1.0

Connecticut 31 8 -0.3 -$4.6

Delaware 6 1 -0.5 -$2.3

Washington, D.C. 7 0 -0.6 -$2.7

Florida 168 25 -0.3 -$19.9

Georgia 106 0 -0.5 -$13.1

Hawaii 12 1 -0.4 -$1.2

Idaho 14 0 -0.4 -$1.3

Illinois 127 0 -0.6 -$28.5

Indiana 91 5 -0.6 -$13.1

Iowa 34 0 -0.3 -$3.2

Kansas 53 0 -0.4 -$4.1

Kentucky 65 1 -0.5 -$7.9

Louisiana 100 3 -0.5 -$7.0

Maine 20 0 -0.5 -$2.5

Massachusetts 61 51 4.9 $157.8

Michigan 95 0 -0.6 -$24.1

Minnesota 51 0 -0.6 -$10.4

Mississippi 64 0 -0.5 -$5.5

Missouri 78 0 -0.5 -$11.7

Montana 12 4 -0.3 -$0.9

Nebraska 23 0 -0.5 -$2.8

Nevada 24 19 1.6 $10.9

New Hampshire 13 9 0.4 $1.8

New Jersey 64 12 -0.1 -$5.0

New Mexico 25 0 -0.4 -$1.7

New York 163 0 -0.6 -$48.9

North Carolina 87 0 -0.5 -$16.7

North Dakota 6 1 -0.3 -$0.8

Ohio 134 11 -0.5 -$17.6
 1573 

FY 2015 IPPS Proposed Estimated Payments Due to Proposed Rural Floor 

and Imputed Floor with National Budget Neutrality

State 

Number of 

Hospitals 

(1) 

Number of 

Hospitals That 

Would Receive 

the Proposed 

Rural Floor or 

Imputed Floor 

(2) 

Percent Change 

in Payments 

due to 

Application of 

Proposed Rural 

Floor and 

Imputed Floor 

with Budget 

Neutrality 

(3) 

Difference 

(in millions) 

(4) 

Oklahoma 86 2 -0.5 -$5.8

Oregon 33 0 -0.6 -$5.0

Pennsylvania 154 10 -0.5 -$22.2

Puerto Rico 52 11 0 -$0.1

Rhode Island 11 4 0.4 $1.6

South Carolina 55 12 -0.1 -$0.9

South Dakota 19 0 -0.4 -$1.2

Tennessee 98 21 -0.3 -$6.0

Texas 322 13 -0.5 -$31.9

Utah 32 2 -0.5 -$2.3

Vermont 6 0 -0.4 -$0.8

Virginia 79 1 -0.5 -$12.4

Washington 49 8 -0.2 -$3.0

West Virginia 30 2 -0.4 -$3.3

Wisconsin 65 1 -0.5 -$8.8

Wyoming 11 0 -0.3 -$0.4

g. Proposed Impact of the New OMB Delineations (Column 8) 

 Column 8 shows the effects of the proposed new OMB labor market area 

delineations. This column compares the payments under the proposed rural and imputed 

floor wage index with rural floor budget neutrality calculated under the new OMB 

delineations and the payments under the proposed rural and imputed floor wage index 

with budget neutrality calculated under the current OMB delineations. It does not reflect 

the proposed 3-year transition for hospitals that are currently located in urban counties 

that would become rural under the new OMB delineations and the 1-year transition to the 

new OMB delineations where the wage indexes are blended such that hospitals receive 
 1574 

50 percent of their wage index based on the new OMB delineations, and 50 percent of 

their wage index based on their current labor market area. Rather, it shows the proposed 

impact if the new OMB delineations were to be fully implemented for FY 2015. 

Approximately 666 hospitals have their wage index impacted due to the new OMB 

delineations. Urban and rural Middle Atlantic hospitals would experience the largest 

decreases in payments if the new OMB delineations were fully implemented for 

FY 2015, with payment decreases of 0.4 and 0.3 percent, respectively. Rural New 

England hospitals and Lugar hospitals would experience the largest increases in 

payments if the new OMB delineations were fully implemented for FY 2015 with 

payment increases of 0.4 percent and 0.6 percent, respectively. 

h. Proposed Application of the CBSA Transition Wage Index with Budget Neutrality 

(Column 9) 

 As discussed earlier in this proposed rule, for FY 2015, we are proposing to use 

the most recent labor market area delineations issued by OMB but are proposing a 

transition period in certain circumstances. Specifically, we are proposing a 3-year 

transition for hospitals that are currently located in an urban county that would become 

rural under the new OMB labor market area delineations under which such hospitals 

would be assigned the urban wage index value of the CBSA in which they are physically 

located for FY 2014 for a period of 3 fiscal years (that is, for FYs 2015, 2016, and 2017). 

We also are proposing a 1-year blended wage index for all hospitals that would 

experience any decrease in their actual payment wage index (that is, a hospital’s actual 

wage index used for payment, which accounts for all applicable effects of reclassification 
 1575 

and redesignation) exclusively due to the proposed implementation of the new OMB 

labor market area delineations. We are proposing that a post-reclassified wage index 

with the rural and imputed floor applied would be computed based on the hospital’s 

FY 2014 CBSA (that is, using all of its FY 2014 constituent county/ies), and another 

post-reclassified wage index with the rural and imputed floor applied would be computed 

based on the hospital’s new FY 2015 CBSA (that is, the FY 2015 constituent county/ies). 

We are proposing to compare these two wage indexes. If the proposed FY 2015 wage 

index with FY 2015 CBSAs would be lower than the proposed FY 2015 wage index with 

FY 2014 CBSAs, we are proposing that a blended wage index would be computed, 

consisting of 50 percent of each of the two wage indexes added together. We are 

proposing that this blended wage index would be the hospital’s wage index for FY 2015. 

This proposed adjustment would only apply to hospitals that would experience a drop in 

their actual payment wage index exclusively due to the proposed implementation of the 

new OMB labor market area delineations. Hospitals that benefit from the new OMB 

labor market area delineations would receive their new wage index based on the new 

OMB labor market area delineations. We refer readers to section III.B. of the preamble 

to this proposed rule for a complete discussion on the transition wage indexes. Lastly, we 

are proposing to apply both the 3-year transition and 50/50 blended wage index 

adjustments in a budget neutral manner. We are proposing to make an adjustment to the 

standardized amount to ensure that the total payments, including the effect of the 

transition provisions, would equal what payments would have been if we would not be 

providing for these transitional wage indexes. 
 1576 

 Column 9 shows the effects of the proposed adoption of the new OMB labor 

market area delineations, including the 3-year hold harmless provision for hospitals that 

are that are currently located in an urban county that would become rural under the new 

OMB delineations and the proposed 1-year transition to the new OMB delineations where 

the wage indexes are blended such that hospitals receive 50 percent of their wage index 

based on the new OMB delineations and 50 percent of their wage index based on their 

current labor market area. For FY 2015, we are proposing to apply both the 3-year 

transition and 50/50 blended wage index adjustments in a budget neutral manner, with a 

proposed budget neutrality factor of 0.998856 (or -0.1 percent) applied to the 

standardized amount to ensure that the total payments, including the effect of the 

transition provisions, would equal what payments would have been if we would not be 

providing for these transitional wage indexes. This column shows the payment impact of 

the proposed transitional wage index. For columns 1 through 8, the payment impacts and 

budget neutrality factors have been calculated under the new OMB labor market area 

delineations. Under the proposed 1-year transition to the new OMB delineations, 

hospitals that would have experienced a decrease in payments if the new OMB 

delineations had been fully implemented this year now would have those decreases 

alleviated due to the transition. Urban Middle Atlantic hospitals would experience a 0.4 

percent increase in payments due to the proposed application of the transitional wage 

index with budget neutrality, while urban New England, South Atlantic, East North 

Central, West North Central, West South Central, Mountain and Pacific hospitals would 
 1577 

experience a -0.1 percent change in payments due to the proposed transitional budget 

neutrality adjustment of -0.1 percent applied to the standard Federal rate. 

i. Effects of the Application of the Proposed Frontier State Wage Index and 

Out-Migration Adjustment (Column 8) 

 This column shows the combined effects of the application of section 10324(a) of 

Affordable Care Act which requires that we establish a minimum post-reclassified 

wage-index of 1.00 for all hospitals located in “frontier States,” and the effects of section 

1886(d)(13) of the Act, as added by section 505 of Pub. L. 108-173, which 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. These two wage index provisions are not budget 

neutral and increase payments overall by 0.1 percent compared to the provisions not 

being in effect. 

 The term “frontier States” is defined in the statute as States in which at least 50 

percent of counties have a population density less than 6 persons per square mile. Based 

on these criteria, four States (Montana, North Dakota, South Dakota, and Wyoming) are 

considered frontier States and 46 hospitals located in those States will receive a frontier 

wage index of 1.0000. Nevada is also, by definition, a frontier State and was assigned a 

frontier floor value of 1.0000 for FY 2012, but since then and including in this proposed 

rule, its rural floor value has been greater than 1.0000 so it has not been subject to the 

frontier wage index. Overall, this provision is not budget neutral and is estimated to 

increase IPPS operating payments by approximately $65 million or approximately 0.1 
 1578 

percent. Rural hospitals located in the Mountain region and urban hospitals located in the 

West North Central region would experience an increase in payments by 0.9 and 0.8 

percent, respectively, because many of the hospitals located in this region are frontier 

State hospitals. 

 In addition, section 1886(d)(13) of the Act, as added by section 505 of Pub. L. 

108-173, provides for an increase in the wage index for hospitals located in certain 

counties that have a relatively high percentage of hospital employees who reside in the 

county, but work in a different area with a higher wage index. Hospitals located in 

counties that qualify for the payment adjustment are to receive an increase in the wage 

index that is equal to a weighted average of the difference between the wage index of the 

resident county, post-reclassification and the higher wage index work area(s), weighted 

by the overall percentage of workers who are employed in an area with a higher wage 

index. There are an estimated 244 providers that would receive the proposed 

out-migration wage adjustment in FY 2015. Rural hospitals generally qualify for the 

adjustment, resulting in a 0.2 percent increase in payments. This provision appears to 

benefit rural Middle Atlantic hospitals most in that they would experience a 0.2 percent 

increase in payments. This out-migration wage adjustment is also not budget neutral, and 

we estimate the impact of these providers receiving the out-migration increase to be 

approximately $47 million. 
 1579 

j. Effects of the Proposed Reductions under the Hospital Readmissions Reduction 

Program (Column 11) 

 Column 11 shows our estimates of the effects of the proposed policies for 

reductions in payments under the Hospital Readmissions Reduction Program, which was 

established under section 3025 of the Affordable Care Act. The Hospital Readmissions 

Reduction Program requires a reduction to a hospital’s base operating DRG payments to 

account for excess readmissions, which for FY 2015, is based on a hospital’s 

risk-adjusted readmission rate during a 3-year period for five applicable conditions: 

acute myocardial infarction, heart failure, pneumonia, total hip and total knee arthroplasty 

and chronic obstructive pulmonary disease. This provision is not budget neutral. A 

hospital’s readmission adjustment is the higher of a ratio of the hospital’s aggregate 

payments for excess readmissions to their aggregate payments for all discharges, or a 

floor, which has been defined in the statute as 0.97 (or a 3.0 percent reduction) for 

FY 2015. A hospital’s base operating DRG payment (that is, wage-adjusted DRG 

payment amount, as discussed in section IV.G. of the preamble of this proposed rule) is 

the portion of the IPPS payment subject to the readmissions payment adjustment (DSH, 

IME, outliers and low-volume add-on payments are not subject to the readmissions 

adjustment). In this proposed rule, we estimate that 2,623 hospitals would have their 

base operating DRG payments reduced by their hospital-specific readmissions 

adjustment, an increase from FY 2014, due to the proposed addition of new readmissions 

measures in the program. As a result, we estimate that the Hospital Readmissions 

Reduction Program would result in a 0.4 percent decrease, or approximately $422 
 1580 

million, in payments to hospitals overall for FY 2015 relative to no provision. We 

estimate that the Hospital Readmissions Reduction Program would result in a 0.2 percent 

decrease in payments relative to FY 2014. 

 Rural West South Central hospitals and hospitals with high Medicare utilization 

would experience the highest decreases of 0.8 and 0.7 percent, respectively. Puerto Rico 

hospitals would show a 0 percent change in payments because they are exempt from the 

provision. 

k. Effects of the Proposed Changes to Medicare DSH Payments (Column 12) 

 Column 12 shows the effects of the proposed adjustments to Medicare DSH 

payments made under section 3133 of the Affordable Care Act. Under section 3133, 

hospitals that are eligible to receive Medicare DSH payments will receive 25 percent of 

the amount they previously would have received under the former statutory formula for 

Medicare DSH payments. The remainder, equal to an estimate of 75 percent of what 

otherwise formerly would have been paid as Medicare DSH payments, reduced to reflect 

changes in the percentage of individuals under age 65 who are uninsured and additional 

statutory adjustments, is available to make additional payments to each hospital that 

qualifies for Medicare DSH payments. Each Medicare DSH hospital will receive an 

additional payment based on its estimated share of the total amount of uncompensated 

care for all Medicare DSH hospitals. The reduction to Medicare DSH payments is not 

budget neutral. 

 For FY 2015, we are proposing that the amount to be distributed on the basis of 

uncompensated care, which is 75 percent of our estimate of what otherwise would have 
 1581 

been paid in Medicare DSH payments (that is, Factor 1), be adjusted to 80.36 percent of 

that amount to reflect changes in the percentage of individuals under age 65 who are 

uninsured and additional statutory adjustments (that is, Factor 1 multiplied by Factor 2). 

For FY 2014, the uncompensated care payment was 75 percent of what otherwise would 

have been paid for Medicare DSH payment adjustments adjusted by a Factor 2 of 94.3 

percent. Assuming DSH payments are constant, the proposed FY 2015 uncompensated 

care amount is approximately 10 percentage points less than the uncompensated care 

amount that we distributed for FY 2014. As a result, we project that compared to the 

empirically justified DSH payments and the uncompensated care payments made last 

year payments for FY 2015 would be reduced overall by 1.0 percent as compared to 

Medicare DSH payments made last year under the first year of the implementation of 

section 3133 of the Affordable Care Act. The proposed uncompensated care payment 

methodology has redistributive effects based on a Medicare DSH hospital’s low income 

insured patient days (sum of Medicaid patient days and Medicare SSI patient days) 

relative to the Medicaid patient days and Medicare SSI patient days for Medicare DSH 

hospitals, and the payment amount is not tied to a hospital’s discharges. 

 Urban Pacific hospitals would experience no change in DSH and uncompensated 

care payments relative to last year. Hospitals with low Medicare utilization (Medicare 

days are less than 25 percent of total inpatient day) would experience the largest 

decreases in payments compared to last year of -2.3 percent. 
 1582 

l. Effects of the Proposed Reductions under the HAC Reduction Program (Column 13) 

 Column 13 shows the estimated effects of the proposed policies for reductions in 

payments under the HAC Reduction Program, established under section 3008 of the 

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

Affordable Care Act, establishes an adjustment to hospital payments for HACs effective 

for discharges beginning on October 1, 2014, and for subsequent program years. 

Beginning in FY 2015, hospitals scoring in the top quartile for the rate of HAC rate as 

compared to the national average will have their IPPS payments reduced by 1 percent for 

all discharges in that Federal fiscal year. We estimate that, under this proposal, 753 

hospitals would be subject to the 1-percent reduction, and that overall payments would 

decrease approximately 0.3 percent or $330 million.

Government hospitals and teaching hospitals with more than 100 residents would 

experience the biggest decrease in payments under the HAC Reduction Program of -0.5 

percent. Twenty-six percent of the government hospitals are estimated to be subject to 

the HAC reduction, while 53 percent of teaching hospitals with more than 100 residents 

are estimated to be subject to the HAC reduction for FY 2015. Puerto Rico hospitals are 

not included in the HAC Reduction Program; therefore, those hospitals would not 

experience a change in payments. 

m. Effects of All Proposed FY 2015 Changes (Column 14) 

 Column 14 shows our estimate of the changes in payments per discharge from 

FY 2014 and FY 2015, resulting from all proposed changes reflected in this proposed 

rule for FY 2015. It includes combined effects of the previous columns in the table. 
 1583 

 The proposed average decrease in payments under the IPPS for all hospitals is 

approximately 0.8 percent for FY 2015 relative to FY 2014. As discussed in section II.D. 

of the preamble of this proposed rule, this column includes the proposed FY 2015 

documentation and coding recoupment adjustment of -0.8 percent on the national 

standardized amount as part of the recoupment required under section 631 of the ATRA. 

In addition, this column includes the proposed annual hospital update of 2.1 percent to 

the national standardized amount. This proposed annual hospital update includes the 

proposed 2.7 percent market basket update, the proposed reduction of 0.4 percentage 

point for the multifactor productivity adjustment, and the 0.2 percentage point reduction 

under section 3401 of the Affordable Care Act. As described in Column 2, the proposed 

annual hospital update combined with the proposed documentation and coding 

recoupment adjustment would result in a 1.3 percent increase in payments in FY 2015 

relative to FY 2014. Column 11 shows the estimated 0.4 percent decrease in payments 

due to the proposed reductions in payments under the Hospital Readmissions Reduction 

Program, which reduces a hospital’s base operating DRG payments by a readmission 

adjustment factor based on a hospital’s performance on readmissions for specified 

conditions, which is an additional 0.2 percent decrease in payments under the Hospital 

Readmissions Reduction Program relative to FY 2014. Column 12 shows the estimated 

1.0 percent decrease in Medicare DSH payments due to the changes made under section 

3133 of the Affordable Care Act, which reduces Medicare DSH payments by 75 percent 

and redistributes the remainder, equal to an estimate of 75 percent of what otherwise 

would have been paid as Medicare DSH payments, reduced to reflect changes in the 
 1584 

percentage of individuals under age 65 who are uninsured, to each hospital that qualifies 

for Medicare DSH payments as an uncompensated care payment based on the hospital’s 

relative share of the total amount of uncompensated care. Column 13 shows the impact 

of the implementation of the HAC Reduction Program which would reduce payments by 

0.3 percent overall. The impact of moving from our estimate of FY 2014 outlier 

payments, 5.79 percent, to the estimate of FY 2015 outlier payments, 5.1 percent, would 

result in a decrease of 0.7 percent in FY 2015 payments relative to FY 2014. Lastly, this 

column reflects the extension of MDH payment status for the first half of FY 2015, under 

Pub. L. 113-93, enacted on April 1, 2014. There also might be interactive effects among 

the various factors comprising the payment system that we are not able to isolate. For 

these reasons, the values in Column 14 may not equal the sum of the estimated 

percentage changes described above. 

 Overall payments to hospitals paid under the IPPS are estimated to decrease by 

0.8 percent for FY 2015. Much of the payment changes among the hospital categories is 

attributed to the proposed reduction in Medicare DSH payments and the redistribution of 

a portion of the Medicare DSH payments as an additional payment for hospitals’ relative 

uncompensated care amounts. Hospitals in urban areas would experience a 0.9 percent 

decrease in payments per discharge in FY 2015 compared to FY 2014. Hospital 

payments per discharge in rural areas are estimated to decrease by 0.2 percent in FY 2015 

due to lesser reductions in Medicare DSH and estimated outlier payments. 
 1585 

3. Impact Analysis of Table II 

 Table II presents the projected impact of the proposed changes for FY 2015 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 2014 with the average 

payments per discharge for FY 2015, as calculated under our models. Therefore, this 

table presents, in terms of the average dollar amounts paid per discharge, the combined 

effects of the proposed changes presented in Table I. The estimated percentage changes 

shown in the last column of Table II equal the estimated percentage changes in average 

payments per discharge from Column 14 of Table I. 
 1586 

TABLE II.--IMPACT ANALYSIS OF PROPOSED CHANGES FOR FY 2015 

ACUTE CARE HOSPITAL OPERATING PROSPECTIVE PAYMENT SYSTEM 

(PAYMENTS PER DISCHARGE) 

Number of 

Hospitals 

(1) 

Estimated 

Average 

FY 2014 

Payment Per 

Discharge 

(2) 

Proposed 

Estimated 

Average 

FY 2015 

Payment Per 

Discharge 

(3) 

All 

Proposed 

FY 2015 

Changes 

(4) 

All Hospitals 3,388 11,237 11,146 -0.8 

By Geographic Location: 

Urban hospitals 2,542 11,629 11,529 -0.9 

Large urban areas 1,395 12,398 12,285 -0.9

Other urban areas 1,147 10,696 10,611 -0.8

Rural hospitals 846 8,089 8,073 -0.2 

Bed Size (Urban): 

0-99 beds 655 9,026 8,980 -0.5 

100-199 beds 788 9,728 9,654 -0.8 

200-299 beds 469 10,517 10,466 -0.5 

300-499 beds 417 11,998 11,896 -0.9 

500 or more beds 213 14,330 14,157 -1.2 

Bed Size (Rural): 

0-49 beds 325 6,614 6,562 -0.8 

50-99 beds 298 7,599 7,523 -1 

100-149 beds 136 7,951 7,976 0.3 

150-199 beds 50 8,898 8,891 -0.1 

200 or more beds 37 9,850 9,913 0.6 

Urban by Region: 

New England 120 12,805 12,699 -0.8 

Middle Atlantic 324 12,927 12,855 -0.6 

South Atlantic 406 10,454 10,339 -1.1 

East North Central 397 10,856 10,748 -1 

East South Central 153 10,086 9,935 -1.5 

West North Central 162 11,373 11,321 -0.5 

West South Central 385 10,670 10,522 -1.4 

Mountain 159 11,891 11,797 -0.8 

Pacific 384 14,704 14,673 -0.2 

Puerto Rico 52 8,194 7,606 -7.2 

Rural by Region: 

New England 22 11,024 11,000 -0.2 

Middle Atlantic 57 8,118 8,070 -0.6 

South Atlantic 132 7,714 7,666 -0.6 

East North Central 115 8,263 8,315 0.6 
 1587 

Number of 

Hospitals 

(1) 

Estimated 

Average 

FY 2014 

Payment Per 

Discharge 

(2) 

Proposed 

Estimated 

Average 

FY 2015 

Payment Per 

Discharge 

(3) 

All 

Proposed 

FY 2015 

Changes 

(4) 

East South Central 165 7,483 7,397 -1.1 

West North Central 102 8,626 8,729 1.2 

West South Central 168 7,064 6,931 -1.9 

Mountain 61 9,111 9,245 1.5 

Pacific 24 10,697 10,952 2.4 

By Payment Classification: 

Urban hospitals 2,558 11,615 11,513 -0.9 

Large urban areas 1,408 12,387 12,273 -0.9

Other urban areas 1,150 10,669 10,582 -0.8

Rural areas 830 8,270 8,270 0 

Teaching Status: 

Nonteaching 2,352 9,312 9,262 -0.5 

Fewer than 100 residents 792 10,966 10,891 -0.7 

100 or more residents 244 16,538 16,317 -1.3 

Urban DSH: 

Non-DSH 682 9,870 9,899 0.3 

100 or more beds 1,591 12,067 11,939 -1.1 

Less than 100 beds 366 8,354 8,247 -1.3 

Rural DSH: 

SCH 388 7,587 7,597 0.1 

RRC 212 9,035 9,057 0.2 

100 or more beds 24 7,422 7,323 -1.3 

Less than 100 beds 125 6,339 6,261 -1.2 

Urban teaching and DSH: 

Both teaching and DSH 842 13,293 13,137 -1.2 

Teaching and no DSH 133 11,107 11,166 0.5 

No teaching and DSH 1,115 9,774 9,692 -0.8 

No teaching and no DSH 468 9,287 9,308 0.2 

Special Hospital Types: 

RRC 208 9,507 9,413 -1 

SCH 324 8,856 9,035 2 

MDH 154 6,800 6,485 -4.6 

SCH and RRC 124 9,933 10,149 2.2 

MDH and RRC 11 8,122 7,641 -5.9 

Type of Ownership: 

Voluntary 1,925 11,370 11,296 -0.7 

Proprietary 883 10,009 9,930 -0.8 

Government 540 12,259 12,058 -1.6 
 1588 

Number of 

Hospitals 

(1) 

Estimated 

Average 

FY 2014 

Payment Per 

Discharge 

(2) 

Proposed 

Estimated 

Average 

FY 2015 

Payment Per 

Discharge 

(3) 

All 

Proposed 

FY 2015 

Changes 

(4) 

Medicare Utilization as a Percent of 

Inpatient Days: 

0-25 445 15,819 15,431 -2.5 

25-50 2,004 11,358 11,281 -0.7 

50-65 718 9,019 9,005 -0.1 

Over 65 131 7,424 7,317 -1.4 

 FY 2015 Reclassifications by the Medicare 

Geographic Classification Review Board: 

All Reclassified Hospitals 804 10,955 10,894 -0.6

Non-Reclassified Hospitals 

2,584 11,344 11,242 -0.9

Urban Hospitals Reclassified 533 11,600 11,518 -0.7

Urban Nonreclassified Hospitals, FY 2015: 1,965 11,664 11,557 -0.9

All Rural Hospitals Reclassified FY 2015: 271 8,572 8,589 0.2

Rural Nonreclassified Hospitals FY 2015: 511 7,511 7,483 -0.4

All Section 401 Reclassified Hospitals: 48 9,810 9,825 0.2

Other Reclassified Hospitals (Section 

1886(d)(8)(B)) 66 7,724 7,543 -2.3

Specialty Hospitals 

Cardiac specialty Hospitals 15 12,351 12,561 1.7

H. Effects of Other Proposed Policy Changes 

 In addition to those proposed policy changes discussed above that we are able to 

model using our IPPS payment simulation model, we are proposing to make various other 

changes in this proposed rule. Generally, we have limited or no specific data available 

with which to estimate the impacts of these proposed changes. Our estimates of the 

likely impacts associated with these other proposed changes are discussed below. 
 1589 

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

 In section II.F. of the preamble of this proposed rule, we discuss our 

implementation of section 1886(d)(4)(D) of the Act, which requires the Secretary to 

identify conditions that are: (1) high cost, high volume, or both; (2) result in the 

assignment of a case to an MS-DRG that has a higher payment when present as a 

secondary diagnosis; and (3) could reasonably have been prevented through application 

of evidence-based guidelines. For discharges occurring on or after October 1, 2008, 

hospitals will not receive additional payment for cases in which one of the selected 

conditions was not present on admission, unless, based on data and clinical judgment, it 

cannot be determined at the time of admission whether a condition is present. That is, the 

case will be paid as though the secondary diagnosis were not present. However, the 

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 
 1590 

small percentage of the cases will have only one secondary diagnosis that would lead to a 

higher payment. Therefore, if at least one nonselected secondary diagnosis that leads to 

higher payment is on the claim, the case will continue to be assigned to the higher paying 

MS-DRG and there will be no Medicare savings from that case. In addition, as discussed 

in section II.F.3. of the preamble of this proposed rule, it is possible to have two severity 

levels where the HAC does not affect the MS-DRG assignment or for an MS-DRG not to 

have severity levels. In either of these circumstances, the case will continue to be 

assigned to the higher paying MS-DRG and there will be no Medicare savings from that 

case. 

 The HAC payment provision went into effect on October 1, 2008. Our savings 

estimates for the next 5 fiscal years are shown below: 

Year Savings 

(in 

millions)

FY 2015 $28

FY 2016 $30

FY 2017 $33

FY 2018 $36

FY 2019 $38

 In section IV.J. of the preamble of this proposed rule, we are proposing changes 

to the HAC Reduction Program for FY 2015. We refer readers to section I.H.6. of this 

Appendix A for a discussion of the impact of these proposed changes. 

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

Payments 
 1591 

 In section II.I. of the preamble to this proposed rule, we discuss the six 

applications for add-on payments for new medical services and technologies for 

FY 2015, as well as the status of the new technologies that were approved to receive new 

technology add-on payments in FY 2014. As explained in the preamble to this proposed 

rule, add-on payments for new medical services and technologies under section 

1886(d)(5)(K) of the Act are not required to be budget neutral. As discussed in section 

II.I.4. of the preamble of this proposed rule, we have not yet determined whether any of 

the six applications we received for consideration for new technology add-on payments 

for FY 2015 will meet the specified criteria. Consequently, it is premature to estimate the 

potential payment impact of these six applications for any potential new technology 

add-on payments for FY 2015. We note that if any of the six applications are found to be 

eligible for new technology add-on payments for FY 2015, in the FY 2015 IPPS/LTCH 

PPS final rule, we would discuss the estimated payment impact for FY 2015. 

 In the preamble of this proposed rule, we are proposing to discontinue new 

technology add-on payments for DIFICIDTM for FY 2015 because the technology will 

have been on the U.S. market for 3 years. We also are proposing to continue making new 

technology add-on payments for Voraxaze®, the Zenith® F.Graft, KcentraTM, the Argus®

II Retinal Prosthesis System, and Zilver® PTX® Drug Eluting Peripheral Stent in 

FY 2015 because these technologies are still considered new. 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 
 1592 

the actual new technology add-on payment for each case, our estimates below are based 

on the increase in add-on payments for FY 2015 as if every claim that would qualify for a 

new technology add-on payment would receive the maximum add-on payment. For 

Voraxaze®, based on the applicant’s estimate from FY 2013, we currently estimate that 

new technology add-on payments for Voraxaze® will increase overall FY 2015 payments 

by $6,300,000. For the Zenith® F. Graft, based on the applicant’s estimate from FY 

2013, we currently estimate that new technology add-on payments for the Zenith® F. 

Graft will increase overall FY 2014 payments by $4,085,750. For KcentraTM, based on 

the applicant’s estimate from FY 2014, we currently estimate that new technology add-on 

payments for KcentraTM will increase overall FY 2015 payments by $5,449,888. For the 

Argus® II Retinal Prosthesis System, based on the applicant’s estimate from FY 2014, we 

currently estimate that new technology add-on payments for the Argus® II Retinal 

Prosthesis System will increase overall FY 2015 payments by $3,601,437. For the 

Zilver® PTX® Drug Eluting Peripheral Stent, based on the applicant’s estimate from 

FY 2014, we currently estimate that new technology add-on payments for the Zilver®

PTX® Drug Eluting Peripheral Stent will increase overall FY 2015 payments by 

$20,463,000. 

3. Effects of Proposed Changes to List of MS-DRGs Subject to Postacute Care Transfer 

and DRG Special Pay Policy 

 In section IV.A. of the preamble of this proposed rule, we discuss proposed 

changes to the list of MS-DRGs subject to the postacute care transfer and DRG special 

payment policies. As reflected in Table 5 listed in section VI. of the Addendum to this 
 1593 

proposed rule and available via the Internet on the CMS Web site, using criteria set forth 

in regulation at § 412.4, we evaluated MS-DRG charge, discharge, and transfer data to 

determine which MS-DRGs qualify for the postacute care transfer and DRG special pay 

policies. We note that we are making no proposal to change these payment policies in 

this FY 2015 proposed rule. We are proposing to change the status of certain MS-DRGs 

as a result of proposals to revise the MS-DRGs for FY 2015. We are proposing to change 

the status of five MS-DRGs to qualify for the postacute care transfer policy in FY 2015. 

One additional MS-DRG that qualified under the policy in FY 2014 does not qualify in 

FY 2015, and we are proposing to change the status accordingly. Finally, five MS-DRGs 

now qualify for the MS-DRG special pay policy in FY 2015 after not qualifying in 

FY 2014, and we are proposing to add them to the list of qualifying MS-DRGs. Column 

4 of Table I in this Appendix A shows the effects of the proposed changes to the 

MS-DRGs and relative payment weights with the application of the recalibration budget 

neutrality factor to the standardized amounts. Section 1886(d)(4)(C)(i) of the Act 

requires us annually to make appropriate classification changes in order to reflect changes 

in treatment patterns, technology, and any other factors that may change the relative use 

of hospital resources. The analysis and methods determining the proposed changes due 

to the MS-DRGs and relative payment weights accounts for and includes changes in 

MS-DRG postacute care transfer and special pay policy statuses. We refer readers to 

section I.G. of this Appendix for a more detailed discussion of payment impacts due to 

MS-DRG reclassification policies. 

4. Effects of the Proposed Payment Adjustment for Low-Volume Hospitals for FY 2015 
 1594 

 In section V.D. of the preamble to this proposed rule, we discuss the provisions of 

the Protecting Access to Medicare Act of 2014 (Pub. L.113-93) that extends for an 

additional year, through March 31, 2015, the temporary changes to the low-volume 

hospital definition and the methodology for determining the payment adjustment made by 

the Affordable Care Act for FYs 2011 and 2012, and extended through FY 2013 by the 

ATRA, and the first half of FY 2014 by the Pathway for SGR Reform Act (Pub. L. 

113-67. Therefore, to qualify for the low-volume hospital payment adjustment for 

FY 2015 discharges occurring before April 1, 2015 under section 1886(d)(12) of the Act, 

a hospital must have less than 1,600 Medicare discharges and be located more than 

15 miles from other IPPS hospitals The payment adjustment for eligible low-volume 

hospital FY 2015 discharges occurring before April 1, 2015 is a continuous, linear sliding 

scale adjustment ranging from an additional 25 percent payment adjustment to qualifying 

hospitals with 200 or fewer Medicare discharges to no additional payment to hospitals 

with 1,600 or more Medicare discharges. 

 Beginning with FY 2015 discharges occurring on or after April 1, 2015, in 

accordance with section 1886(d)(12) of the Act, the low-volume hospital definition and 

payment adjustment methodology revert back to the statutory requirements that were in 

effect prior to the amendments made by the Affordable Care Act as amended by 

subsequent legislation. Therefore, effective for FY 2015 discharges occurring on or after 

April 1, 2015 and subsequent years, in order to qualify as a low-volume hospital, a 

subsection (d) hospital must be more than 25 road miles from another subsection (d) 
 1595 

hospital and have less than 200 discharges (that is, less than 200 discharges total, 

including both Medicare and non-Medicare discharges) during the fiscal year. 

 Based on FY 2013 claims data (December 2013 update of the MedPAR file), we 

estimate that approximately 600 hospitals will qualify as a low-volume hospital in 

FY 2014 and in FY 2015 for discharges occurring before April 1, 2015. With the 

statutory changes to the low-volume hospital payment adjustment, for FY 2015 

discharges occurring on or after April 1, 2015, we estimate only approximately six 

hospitals will continue to qualify as a low-volume hospital. We project that the 

expiration of the temporary changes to the low-volume hospital definition and the 

payment adjustment methodology originally made by the Affordable Care Act and 

extended by subsequent legislation will result in a decrease in payments of approximately 

$343 million in FY 2015 as compared to the low-volume hospital payments in FY 2014. 

This estimate accounts for our projection of the six IPPS low-volume hospitals in 

FY 2014 that are expected to continue to receive a low-volume hospital payment 

adjustment of an additional 25 percent for FY 2015 discharges occurring on or after 

April 1, 2015. 
 1596 

5. Effects of Proposal Related to IME Medicare Part C Add-On Payments to SCHs Paid 

According to Their Hospital-Specific Rates 

 In section IV.E.2. of the preamble of this proposed rule, we discuss our proposal 

related to IME Medicare Part C add-on payments to SCHs that are paid according to their 

hospital-specific rates. Payments based on the Federal rate are based on the IPPS 

standardized amount and include all applicable IPPS add-on payments, such as outliers, 

DSH, and IME, while payments based on the hospital-specific rate include no add-on 

payments. The hospital-specific rate generally reflects the additional costs incurred by a 

teaching hospital for its Medicare Part A patients. However, the hospital-specific rate 

does not reflect the costs associated with Medicare Part C patients and there is no 

payment mechanism for SCHs paid based on their hospital-specific rate to receive the 

IME add-on payment for Medicare Part C patients. Accordingly, we are proposing to 

provide all SCHs that are subsection (d) teaching hospitals, IME add-on payments for 

applicable discharges of Medicare Part C patients in accordance with section 1886(d)(11) 

of the Act, regardless of whether the SCH is paid based on the Federal rate or its 

hospital-specific rate; and that, for purposes of the comparison of payments based on the 

Federal rate and payments based on the hospital-specific rate under section 1886(d)(5)(D) 

of the Act, IME payments under section 1886(d)(11) of the Act for Medicare Part C 

patients will no longer be included as part of the Federal rate payment. 

 We estimate that the proposals at section IV.E.2.of the preamble of this proposed 

rule will result in an increase in payments to approximately 50 hospitals that are both 

SCHs or SCH/RRCs and teaching hospitals of approximately $5 million in FY 2015. 
 1597 

6. Effects of the Extension of the MDH Program for the First Half of FY 2015 

 In section V.G. of the preamble of this proposed rule, we briefly discuss the 

statutory extension of the MDH program through March 31, 2015, that is, through the 

first half of FY 2015, by section 106 of the Protecting Access to Medicare Act of 2014 

(Pub. L. 113-93). Hospitals that qualify as MDHs receive the higher of operating IPPS 

payments made under the Federal standardized amount or the payments made under the 

Federal standardized amount plus 75 percent of the amount by which the hospital-specific 

rate (a hospital-specific cost-based rate) exceeds the Federal standardized amount. Based 

on the latest available data we have for 165 MDHs, we project that 98 MDHs will receive 

the blended payment (that is, the Federal standardized amount plus 75 percent of the 

amount by which the hospital-specific rate exceeds the Federal standardized amount) for 

the first half of FY 2015 (that is, for discharges occurring through March 31, 2015). We 

estimate that those hospitals will experience an overall increase in payments of 

approximately $56 million as compared to our previous estimates of payments to these 

hospitals for FY 2015 prior to the extension of the MDH program through 

March 31, 2015, by section 106 of Pub. L. 113-93. 

7. Effects of Proposed Changes under the FY 2015 Hospital Value-Based Purchasing 

(VBP) Program 

 Section 1886(o)(1)(B) of the Act directs the Secretary to make value-based 

incentive payments under the Hospital VBP Program to hospitals that meet performance 

standards during the performance period for discharges occurring on or after 

October 1, 2012. These incentive payments will be funded for FY 2015 through a 
 1598 

reduction to the FY 2015 base operating DRG payment for each discharge of 

1.50 percent, as required by section 1886(o)(7)(B) of the Act. The applicable percentage 

for FY 2016 is 1.75 percent and for FY 2017 and subsequent years, it is 2 percent. We 

are required to ensure that the total amount available for value-based incentive payments 

is equal to the total amount of reduced payments for all hospitals for the fiscal year, as 

estimated by the Secretary. 

 We refer readers to the Hospital Inpatient VBP Program final rule (76 FR 26490 

through 26547), the CY 2012 OPPS/ASC final rule with comment period (76 FR 74527 

through 74547), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53567 through 53614), 

the FY 2014 IPPS/LTCH PPS final rule (78 FR 50677 through 50707), and the CY 2014 

OPPS/ASC final rule with comment period (78 FR 75120 through 75121) for further 

explanation of the details of the Hospital VBP Program. 

 We specifically refer readers to the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53582 through 53592) and the FY 2014 IPPS/LTCH PPS final rule (78 FR 50678 

through 50679), for discussions of the measures and other policies that we adopted for 

the FY 2015 and FY 2016 Hospital VBP Programs. 

 In section IV.I. of the preamble of this proposed rule, we estimate the available 

pool of funds for value-based incentive payments in the FY 2015 Hospital VBP Program, 

which, in accordance with section 1886(o)(7)(C)(iii) of the Act, will be 1.50 percent of 

base operating DRG payments, or a total of approximately $1.4 billion. This estimated 

available pool for FY 2015 is based on the historical pool of hospitals that were eligible 

to participate in the FY 2014 Hospital VBP Program and the payment information from 
 1599 

the December 2013 update to the FY 2013 MedPAR file. We intend to provide an update 

to this estimate, which will be based on the March 2014 update to the FY 2013 MedPAR 

file, in the FY 2015 IPPS/LTCH PPS final rule. 

 The estimated impacts of the FY 2015 Hospital VBP Program by hospital 

characteristic, found in the table below, are based on historical TPSs. We used the 

FY 2014 Hospital VBP Program TPSs to calculate the proxy adjustment factors used for 

this impact analysis. These are the most recently available scores that hospitals were 

given an opportunity to review and correct. The proxy adjustment factors use estimated 

annual base operating DRG payment amounts derived from the December 2013 update to 

the FY 2013 MedPAR file. The proxy adjustment factors can be found in Table 16 

associated with this proposed rule (available via the Internet on the CMS Web site) 

 The impact analysis shows that, for the FY 2015 Hospital VBP Program, the 

number of hospitals that would receive an increase in base operating DRG payment 

amount is slightly lower than the number of hospitals that would receive a decrease. 

Approximately 42 percent of hospitals would have a change in base operating DRG 

payment amount that is between -0.2 percent and +0.2 percent. Among urban hospitals, 

those in the New England, South Atlantic, East North Central, West North Central, and 

West South Central regions would have an increase, on average, in base operating DRG 

payment amount, and among rural hospitals, those in the New England and East North 

Central regions will have an increase, on average in base operating DRG payment 

amounts. 
 1600 

 Both urban and rural hospitals in the Middle Atlantic, East South Central, 

Mountain, and Pacific regions and rural hospitals in the South Atlantic region would 

receive an average decrease in base operating DRG payment amount. As the percent of 

DSH payments increases, we see a decrease in base operating DRG payment amount, 

while as the Medicare utilization (MCR) percent increases, we see an increase in base 

operating DRG payment amount. 

 Nonteaching and teaching hospitals would have an average decrease in base 

operating DRG payment amount. 

Impact Analysis of Base Operating DRG Payment Amount Changes Resulting from 

the FY 2015 Hospital VBP Program 

Number of Hospitals Average 

BY GEOGRAPHIC LOCATION: 

 All Hospitals 2,728 -0.038% 

 Large Urban 1,113 -0.021% 

 Other Urban 910 -0.030% 

 Rural Area 705 -0.074% 

 

 Urban hospitals 2,023 -0.025% 

 0-99 beds 307 0.025% 

 100-199 beds 677 -0.043% 

 200-299 beds 431 -0.032% 

 300-499 beds 401 -0.033% 

 500 or more beds 207 -0.010% 

 

 Rural hospitals 705 -0.074% 

 0-49 beds 161 -0.041% 

 50-99 beds 296 -0.088% 

 100-149 beds 148 -0.074% 

 150-199 beds 55 -0.106% 

 200 or more beds 45 -0.067% 

 
 1601 

Number of Hospitals Average 

BY GEOGRAPHIC LOCATION: 

BY REGION: 

 Urban By Region 2,023 -0.025% 

 New England 112 0.059% 

 Middle Atlantic 279 -0.076% 

 South Atlantic 346 0.002% 

 East North Central 350 0.052% 

 East South Central 121 -0.043% 

 West North Central 134 0.055% 

 West South Central 248 0.003% 

 Mountain 130 -0.085% 

 Pacific 303 -0.154% 

 Rural By Region 705 -0.074% 

 New England 21 0.044% 

 Middle Atlantic 64 -0.150% 

 South Atlantic 136 -0.024% 

 East North Central 114 0.036% 

 East South Central 114 -0.018% 

 West North Central 82 -0.052% 

 West South Central 101 -0.177% 

 Mountain 45 -0.299% 

 Pacific 28 -0.247% 

By MCR Percent 

 0-25 260 -0.118% 

 25-50 1,788 -0.033% 

 50-65 605 -0.016% 

 Over 65 46 0.003% 

BY DSH Percent: 

 0-25 1,253 0.013% 

 25-50 1,220 -0.063% 

 50-65 141 -0.121% 

 Over 65 114 -0.222% 

BY TEACHING STATUS: 

 Teaching 933 -0.041% 

 Non-Teaching 1,795 -0.036% 
 1602 

 As stated above, we intend to provide an updated impact analysis in the FY 2015 

IPPS/LTCH PPS final rule. However, actual FY 2015 Hospital VBP Program TPSs 

would not be reviewed and corrected by hospitals until after the FY 2015 IPPS/LTCH 

PPS final rule has been published. Therefore, the same historical universe of eligible 

hospitals and corresponding TPSs from the FY 2014 Hospital VBP Program will be used 

for the updated impact analysis. As noted above, the updated impact analysis for the 

final rule will reflect estimated annual base operating DRG payment amount changes 

based on the March 2014 update to the FY 2013 MedPAR file. 

8. Effects of Proposed Changes to the HAC Reduction Program for FY 2015 

 In section IV.J. of the preamble of this proposed rule, we are establishing 

measures, scoring, and a risk adjustment methodology to implement the FY 2015 

payment reduction under the HAC Reduction Program. Section 1886(p) of the Act, as 

added under section 3008(a) of the Affordable Care Act, establishes an adjustment to 

hospital payments for HACs, or a HAC Reduction program, under which payments to 

applicable hospitals are adjusted to provide an incentive to reduce HACs, effective for 

discharges occurring on October 1, 2014 and for subsequent program years. 

 We note that hospitals will have a payment impact for the first time in FY 2015. 

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

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

Appendix A. The table and analyses that we are presenting below show the distributional 

effect of the measures and scoring system for the HAC Reduction Program included in 

the FY 2014 IPPS/LTCH PPS final rule (78 FR 50707 through 50729). 
 1603 

 For FY 2015, we note that we finalized a Total HAC Score methodology in the 

FY 2014 IPPS/LTCH PPS final rule (78 FR 50707 through 50729) that assigns weights 

for Domain 1 and Domain 2 at 35 percent and 65 percent, respectively. Based on this 

methodology, the table below presents data on the proportion of hospitals, by structural 

characteristic, in the worst performing quartile based on the 35/65 weighting scheme. 

 The data for this simulation are derived from the AHRQ PSI results based on 

Medicare FFS discharges from July 2011 through June 2013, using version 4.5 of the 

AHRQ software, and CDC measure results were used based on Standard Infection Ratios 

(SIRs) calculated with data reported to the National Healthcare Safety Network for 

infections occurring between July 2012 and June 2013. To analyze the results by hospital 

characteristic, the FY 2014 impact file were used. Of the 3,337 hospitals included in 

this analysis, 3,298 hospitals were included for geographic location, region, 

DSH percent, and teaching status; 3,278 for ownership; and 3,205 for MCR 

percent. These differences in denominator are due to the source of the hospital 

characteristic data. This analysis does not include Maryland hospitals as 

Maryland hospitals are exempt by waiver from the HAC Reduction Program in 

FY 2015. 

The percentage of hospitals for each characteristic (column 3) indicates 

the percent of hospitals in each level of characteristic. For example, with 

regard to geographic region, 39.4 percent of hospitals (or 1,301 hospitals) are 

characterized as large urban; 32.7 percent of hospitals (or 1,080 hospitals) are 

characterized as other urban; and 27.8 percent of hospitals (or 917 hospitals) 
 1604 

are characterized as rural. The percentage of hospitals in the worst 

performing quartile (column 5) indicates the proportion of hospitals for each 

characteristic that would be penalized. For example, in regards to geographic 

location, 26.6 percent of hospitals (or 346 hospitals) characterized as large urban would 

be subject to a payment adjustment; 22.8 percent of hospitals (or 246 hospitals) 

characterized as other urban would be subject to a payment adjustment; and 17.6 percent 

of hospitals (or 161 hospitals) characterized as rural would be subject to a payment 

adjustment. 

 With regard to geographic location of urban hospitals by bed size, 17.3 percent of 

hospitals (or 101 hospitals) characterized as urban hospitals with bed size of 0 – 99 beds 

would be subject to a payment adjustment; 21.1 percent of hospitals (or 152 hospitals) 

characterized as urban hospitals with bed size of 100 – 199 beds would be subject to a 

payment adjustment; 27.1 percent of hospitals (or 122 hospitals) characterized as urban 

hospitals with bed size of 200 – 299 beds would be subject to a payment adjustment; 27.1 

percent of hospitals (or 71 hospitals) characterized as urban hospitals with bed size of 300 

– 399 beds would be subject to a payment adjustment; 37.7 percent of hospitals (or 58 

hospitals) characterized as urban hospitals with bed size of 400 – 499 beds would be 

subject to a payment adjustment; and 41.7 percent of hospitals (or 88 hospitals) 

characterized as urban hospitals with bed size of 500 or more beds would be subject to a 

payment adjustment. 

 With regard to geographical location of rural hospitals by bed size, 15.5 percent 

of hospitals (or 53 hospitals) characterized as rural hospitals with bed size of 0 – 49 beds 
 1605 

would be subject to a payment adjustment; 20.6 percent of hospitals (or 66 hospitals) 

characterized as rural hospitals with bed size of 50 – 99 beds would be subject to a 

payment adjustment; 13.9 percent of hospitals (or 21 hospitals) characterized as rural 

hospitals with bed size of 100 – 149 beds would be subject to a payment adjustment; 15.3 

percent of hospitals (or 9 hospitals) characterized as rural hospitals with bed size of 150 – 

199 beds would be subject to a payment adjustment; and 26.7 percent of hospitals (or 12 

hospitals) characterized as rural hospitals with bed size of 200 or more beds would be 

subject to a payment adjustment. 

 With regard to region of urban hospitals, 26.1 percent of hospitals (or 31 

hospitals) characterized as urban in the New England region would be subject to a 

payment adjustment; 28.2 percent of hospitals (or 87 hospitals) characterized as urban in 

the Mid-Atlantic region would be subject to a payment adjustment; 24.0 percent of 

hospitals (or 89 hospitals) characterized as urban in the South Atlantic region would be 

subject to a payment adjustment; 23.4 percent of hospitals (or 90 hospitals) characterized 

as urban in the East North Central region would be subject to a payment adjustment; 22.4 

percent of hospitals (or 32 hospitals) characterized as urban in the West South Central 

region would be subject to a payment adjustment; 20.5 percent of hospitals (or 33 

hospitals) characterized as urban in the East North Central region would be subject to a 

payment adjustment; 19.6 percent of hospitals (or 71 hospitals) characterized as urban in 

the West South Central region would be subject to a payment adjustment; 35.8 percent of 

hospitals (or 57 hospitals) characterized as urban in the Mountain region would be 
 1606 

subject to a payment adjustment; and 27.4 percent of hospitals (or 102 hospitals) 

characterized as urban in the Pacific region would be subject to a payment adjustment. 

 With regard to region of rural hospitals, 13.0 percent of hospitals (or 3 hospitals) 

characterized as rural in the New England region would be subject to a payment 

adjustment; 25.8 percent of hospitals (or 17 hospitals) characterized as rural in the MidAtlantic region would be subject to a payment adjustment; 15.1 percent of hospitals (or 

24 hospitals) characterized as rural in the South Atlantic region would be subject to a 

payment adjustment; 21.2 percent of hospitals (or 25 hospitals) characterized as rural in 

the East North Central region would be subject to a payment adjustment; 13.9 percent of 

hospitals (or 23 hospitals) characterized as rural in the West South Central region would 

be subject to a payment adjustment; 19.2 percent of hospitals (or 20 hospitals) in the East 

North Central region would be subject to a payment adjustment; 14.7 percent of hospitals 

(or 26 hospitals) in the West South Central region would be subject to a payment 

adjustment; 24.7 percent of hospitals (or 18 hospitals) in the Mountain region would be 

subject to a payment adjustment; and 16.1 percent of hospitals (or 5 hospitals) in the 

Pacific region would be subject to a payment adjustment. 

 With regard to the DSH percent characteristic, 19.6 percent of hospitals (or 311 

hospitals) characterized in the 0 – 24 DSH percent would be subject to a payment 

adjustment; 24.1 percent of hospitals (or 331 hospitals) characterized in the 25-49 DSH 

percent would be subject to a payment adjustment; 37.6 percent of hospitals (or 68 

hospitals) characterized in the 50 – 64 DSH percent would be subject to a payment 
 1607 

adjustment; and 27.2 percent of hospitals (or 43 hospitals) characterized in the 65 and 

over DSH percent would be subject to a payment adjustment. 

 With regard to the teaching status characteristic, 19.0 percent of hospitals (or 437 

hospitals) characterized as nonteaching would be subject to a payment adjustment; 25.0 

percent of hospitals (or 191 hospitals) characterized as fewer than 100 residents would be 

subject to a payment adjustment; and 52.7 percent of hospitals (or 125 hospitals) 

characterized as 100 or more residents would be subject to a payment adjustment. 

 With regard to the urban teaching and DSH characteristic, 34.2 percent of 

hospitals (or 277 hospitals) characterized as teaching and DSH would be subject to a 

payment adjustment; 22.1 percent of hospitals (or 29 hospitals) characterized as teaching 

and no DSH would be subject to a payment adjustment; 20.4 percent of hospitals (or 206 

hospitals) characterized as no teaching and DSH would be subject to a payment 

adjustment; 18.6 percent of hospitals (or 80 hospitals) characterized as no teaching and 

no DSH would be subject to a payment adjustment; and 17.6 percent of hospitals (or 161 

hospitals) characterized as nonurban would be subject to a payment adjustment. 

 With regard to the type of ownership characteristic, 23.3 percent of hospitals (or 

441 hospitals) characterized as voluntary would be subject to a payment adjustment; 19.5 

percent of hospitals (or 167 hospitals) characterized as proprietary would be subject to a 

payment adjustment; and 26.8 percent of hospitals (or 141 hospitals) characterized as 

government would be subject to a payment adjustment. 

 With regard to the MCR percent characteristic, 37.7 percent of hospitals (or 147 

hospitals) characterized in the 0 – 24 MCR percent would be subject to a payment 
 1608 

adjustment; 23.2 percent of hospitals (or 458 hospitals) characterized in the 25 – 49 MCR 

percent would be subject to a payment adjustment; 15.9 percent of hospitals (or 113 

hospitals) characterized in the 50 – 64 MCR percent would be subject to a payment 

adjustment; and 10.8 percent of hospitals (or 14 hospitals) characterized in the 65 and 

over MCR percent would be subject to a payment adjustment. 

PROPORTION OF HOSPITALS IN THE WORST PERFORMING QUARTILE (>75 PERCENTILE) OF THE 

TOTAL HAC SCORE BY HOSPITAL CHARACTERISTIC 

Hospital Characteristic 

Hospitals in the Worst 

Performing Quartile 

Characteristic 

Number of 

Hospitals Percent* 

Number of 

Hospitals Percent 

By Geographic Location 

All Hospitals: 

Large Urban** 1,301 39.4 346 26.6 

Other Urban 1,080 32.7 246 22.8 

Rural 917 27.8 161 17.6 

Urban Hospitals: 

0-99 beds 584 24.5 101 17.3 

100-199 beds 720 30.2 152 21.1 

200-299 beds 450 18.9 122 27.1 

300-399 beds 262 11.0 71 27.1 

400-499 154 6.5 58 37.7 

500 or more beds 211 8.9 88 41.7 

Rural Hospitals: 

0-49 beds 341 37.2 53 15.5 

50-99 beds 321 35.0 66 20.6 

100-149 beds 151 16.5 21 13.9 

150-199 beds 59 6.4 9 15.3 

200 or more beds 45 4.9 12 26.7 

By Region: 

Urban by Region 

New England 119 3.6 31 26.1 

Mid-Atlantic 308 9.3 87 28.2 

South Atlantic 371 11.2 89 24.0 

East North Central 385 11.7 90 23.4 

West South Central 143 4.3 32 22.4 

East North Central 161 4.9 33 20.5 

West South Central 363 11.0 71 19.6 

Mountain 159 4.8 57 35.8 

Pacific 372 11.3 102 27.4 
 1609 

PROPORTION OF HOSPITALS IN THE WORST PERFORMING QUARTILE (>75 PERCENTILE) OF THE 

TOTAL HAC SCORE BY HOSPITAL CHARACTERISTIC 

Hospital Characteristic 

Hospitals in the Worst 

Performing Quartile 

Characteristic 

Number of 

Hospitals Percent* 

Number of 

Hospitals Percent 

Rural by Region 

New England 23 0.7 3 13.0 

Mid-Atlantic 66 2.0 17 25.8 

South Atlantic 159 4.8 24 15.1 

East North Central 118 3.6 25 21.2 

West South Central 166 5.0 23 13.9 

East North Central 104 3.2 20 19.2 

West South Central 177 5.4 26 14.7 

Mountain 73 2.2 18 24.7 

Pacific 31 0.9 5 16.1 

By DSH Percent: 

0-24 1,588 48.2 311 19.6 

25-49 1,371 41.6 331 24.1 

50-64 181 5.5 68 37.6 

65 and over 158 4.8 43 27.2 

By Teaching Status: 

Non-teaching 2,297 69.6 437 19.0 

Fewer than 100 residents 764 23.2 191 25.0 

100 or more residents 237 7.2 125 52.7 

By Urban Teaching and DSH: 

Teaching and DSH 811 24.6 277 34.2 

Teaching and no DSH 131 4.0 29 22.1 

No teaching and DSH 1,010 30.6 206 20.4 

No teaching and no DSH 429 13.0 80 18.6 

Non-urban 917 27.8 161 17.6 

By Type of Ownership: 

Voluntary 1,893 57.7 441 23.3 

Proprietary 858 26.2 167 19.5 

Government 527 16.1 141 26.8 

By MCR Percent: 

0-24 390 12.2 147 37.7 

25-49 1,976 61.7 458 23.2 

50-64 709 22.1 113 15.9 

65 and over 130 4.1 14 10.8 

*Percents may not sum to 100 due to rounding. 

**Large urban hospitals are hospitals located in large urban areas (populations over 1 million). 
 1610 

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

 Under section IV.K.2. of the preamble of this proposed rule, we discuss our 

proposal to simplify and streamline the timing of CMS’s policies related to when the FTE 

resident caps, the 3-year rolling average, and the IRB ratio cap would become effective 

for new teaching hospitals, by stating that the FTE resident caps, rolling average, and 

IRB ratio cap would be effective simultaneously, beginning with the applicable hospital’s 

cost reporting period that precedes the start of the 6th program year of the first new 

program started. We are proposing that this policy regarding the effective dates of the 

FTE residency caps, rolling average, and IRB ratio cap for FTE residents in new 

programs would be consistent with the methodology for calculation of the FTE resident 

caps as described in the FY 2013 IPPS/LTCH PPS final rule, and implemented at 42 CFR 

413.79(e)(1) and (3). That is, this proposal is effective for urban hospitals that have not 

yet had FTE resident caps established under § 413.79(e)(1), and for rural hospitals, on or 

after October 1, 2012. This proposal would reduce the amount of time that the new 

programs would be exempt from the FTE resident caps by several months, depending on 

the cost reporting period of the new teaching hospital. However, depending on the length 

of new programs started and the point during the 5-year growth period in which new 

programs are started, there may also be some gain and loss for hospitals in terms of the 

amount of time that the FTEs in the new programs would be exempt from the rolling 

average and the IRB ratio cap. In either case, the estimate of possible savings or cost of 

this proposal is less than $5 million a year and therefore, is negligible. 
 1611 

 In section IV.K.3.a. of the preamble of this proposed rule, we discuss our 

proposals related to the effect of new OMB labor market area delineations on certain 

teaching hospitals training residents in rural areas. Under existing regulations a new 

teaching hospital has 5 years from when it first begins training residents in its first new 

program to grow its cap. If the teaching hospital is a rural teaching hospital, it can 

continue to receive permanent cap adjustments even after the initial 5-year cap-building 

period ends if it trains residents in a new program. As a result of OMB redesignations, 

some teaching hospitals may be redesignated from being located in a rural area to an 

urban area, thereby losing their ability to increase their caps again after their initial 5-year 

cap-building period. If a rural hospital had started training residents in the new program 

while it was rural and was redesignated as urban before the end of the 5-year 

cap-building period, we are proposing that effective for cost reporting periods beginning 

on or after October 1, 2014, it can continue growing that program(s) for the remainder of 

the cap-building period and receive a permanent cap adjustment for that new program(s). 

Once the cap-building period for the new program(s) that was started while the hospital 

was still rural expires, the teaching hospital that has been redesignated as urban will no 

longer be able to receive any additional permanent cap adjustments. 

 In section IV.K.3.b. of the preamble of this proposed rule, we discuss our 

proposal related to a redesignated hospital’s participation in a rural track program. Under 

existing regulations, if an urban hospital rotates residents to a separately accredited rural 

track program at a rural site(s) for more than one-half of the duration of the program, the 

urban hospital may receive an adjustment to its cap for training those FTE residents, 
 1612 

referred to as the rural track FTE limitation. We are proposing that any time a rural 

hospital participating in a rural track is in an area redesignated by OMB as urban after 

residents started training in the rural track and during the period that is used to calculate 

the urban hospital’s rural track FTE limitation, the urban hospital may still receive a cap 

adjustment for that rural track. We also are proposing that if the rural hospital 

participating in the rural track is in an area redesignated as urban, the redesignated urban 

hospital can continue to be considered a rural hospital for purposes of the rural track for 

up to 2 years. However, within those 2 years, either the rural hospital that has been 

redesignated as urban must reclassify as rural under § 412.103 for purposes of IME 

payment only, or the urban hospital must find a new geographically rural site to 

participate as the rural site for purposes of the rural track and must be training FTE 

residents at that new site, in order for the urban hospital to receive payment under 

§ 413.79(k)(1) or (k)(2) for the rural track program after the 2-year period ends. 

 We estimate that the proposals discussed under IV.K.3.a. and b. of the preamble 

of this proposed rule would have a very minimal, if any, impact on Medicare 

expenditures. These proposals would only be applied to, at the most, very few hospitals 

(if any at all) and would only apply once every 10 years as a result of OMB changes in 

labor market area delineations due to a recent Census. 

 In sections IV.K.5.a. and b. of the preamble of this proposed rule, we are 

proposing some changes to the current application process for and awarding of cap slots 

from closed hospitals under section 5506 of the Affordable Care Act that would be 

effective for hospital closures announced on or after October 1, 2014. We are proposing 
 1613 

an alternative interpretation of the statutory provision at section 5506(d) of the 

Affordable Care Act, which provides that the Secretary give consideration to the effect of 

the permanent awarding of slots under section 5506 of the Affordable Care Act to any 

temporary cap adjustments to a hospital received under § 413.79(h) of the regulations to 

ensure that there be no duplication of FTE cap slots. Currently, when applying this 

statutory provision for no duplication of FTE slots, we look at all of the hospitals that are 

receiving temporary cap adjustments to train displaced residents and all of the hospitals 

that are applying for a permanent increase in caps under section 5506 when determining 

the effective date for slots permanently awarded to hospitals under Ranking Criterion 

One and Ranking Criteria Three through Eight. In this proposed rule, we are proposing 

to interpret the statutory language at section 5506(d) in a manner that would permit us to 

apply the concept of ensuring no duplication of FTE resident slots on a 

hospital-by-hospital basis, such that if a hospital is both receiving a temporary cap 

adjustment under § 413.79(h) and is applying under section 5506 for permanent cap slots, 

it will not be able to receive a permanent cap adjustment until the displaced residents 

graduate. However, if a hospital is applying under section 5506 for permanent cap slots 

and did not receive a temporary cap adjustment under § 413.79(h), that hospital will not 

have to wait until displaced residents that are training at another hospital graduate to be 

awarded any permanent cap slots under section 5506. We estimate that this proposal 

could result in a slight increase in Medicare expenditures in a rare event a section 5506 

cap adjustment may be provided to one hospital before a temporary cap adjustment 

expires at another hospital. However, we are unable to estimate whether this will occur 
 1614 

with any future hospital closures where section 5506 is applied because we do not know 

how many, if any, residents will be displaced. Furthermore, we believe that any 

temporary duplicate payment would be a rare occurrence as most hospitals that are 

receiving a temporary cap adjustment under § 413.79(h) will also receive a permanent 

cap adjustment under section 5506. In this instance the hospital would only be able to 

receive the permanent cap adjustment once the temporary cap adjustment expires in 

which case there would be no duplication of FTE resident slots. 

 In addition, under section IV.K.5.c. of the preamble of this proposed rule, we are 

proposing to revise the ranking criteria used to award slots under section 5506. First, we 

are proposing to no longer allow hospitals to apply for cap relief, which is included under 

current Ranking Criterion Eight. This proposed change would mean that hospitals would 

be awarded slots under section 5506 for taking over a closed hospital’s residency training 

program, having participated with a closed hospital in a Medicare GME affiliated group, 

taking over part of a closed hospital’s program, expanding or starting a new geriatrics 

program, expanding or starting a new primary care or general surgery program, and 

expanding or starting a new nonprimary care or nongeneral surgery program. Second, 

Ranking Criterion One currently applies to hospitals that are assuming (or have assumed) 

an entire program from the hospital that closed. We are proposing to revise this Ranking 

Criterion to provide priority to a hospital whose FTE resident caps were erroneously 

reduced by CMS under section 5503 of the Affordable Care Act, contrary to the specific 

statutory exception at section 1886(h)(8)(A)(i)(I) of the Act, and the CMS Central Office 

is made aware of the error prior to the posting of this proposed rule. We do not believe 
 1615 

there is any cost associated with these proposals because we would be assigning all of the 

closed hospital’s slots, only the specific hospital awarded the slots may change. 

10. Effects of Implementation of Rural Community Hospital Demonstration Program 

 In section IV.L. of the preamble of this proposed rule, we discuss our 

implementation of section 410A of Pub. L. 108-173, as amended, which requires the 

Secretary to conduct a demonstration that would modify reimbursement for inpatient 

services for up to 30 rural community hospitals. Section 410A(c)(2) requires that “[i]n 

conducting the demonstration program under this section, the Secretary shall ensure that 

the aggregate payments made by the Secretary do not exceed the amount which the 

Secretary would have paid if the demonstration program under this section was not 

implemented.” As discussed in section IV.L. of the preamble of this proposed rule, in the 

IPPS final rules for each of the previous 10 fiscal years, we have estimated the additional 

payments made by the program for each of the participating hospitals as a result of the 

demonstration. In order to achieve budget neutrality, we are proposing to adjust the 

national IPPS rates by an amount sufficient to account for the added costs of this 

demonstration. In other words, we are proposing to apply budget neutrality across the 

payment system as a whole rather than across the participants of this demonstration. 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. 
 1616 

 We are proposing to adjust the national IPPS rates according to the methodology 

set forth elsewhere in this proposed rule. The proposed adjustment to the national IPPS 

rates to account for estimated demonstration cost for FY 2014 for the 7 “pre-expansion” 

participating hospitals that are currently participating in the demonstration and the 15 

additional hospitals participating as a result of the expansion of the demonstration under 

the Affordable Care Act is $53,673,008. In addition, in this proposed rule, we are 

proposing to add to the adjustment of the national IPPS rates the amount by which the 

actual costs of the demonstration for FY 2008 (as shown in the finalized cost reports for 

cost reporting periods beginning in FY 2008 for the hospitals that participated in the 

demonstration during FY 2008) exceed the budget neutrality offset amount that was 

finalized in the FY 2008 IPPS final rule ($10,389,771). Thus, we are proposing that the 

resulting total ($64,062,779) would be the amount for which an adjustment to inpatient 

rates for FY 2015 would be calculated. We also are proposing that if settled cost reports 

for all of the demonstration hospitals that participated in the applicable fiscal year 

(FY 2009, 2010, or 2011), are made available prior to the FY 2015 IPPS/LTCH PPS final 

rule, we would incorporate into the FY 2015 budget neutrality offset amount any 

additional amounts by which the final settled costs of the demonstration for the year (FY 

2009, 2010, or 2011) exceeded the budget neutrality offset amount applicable to such 

year as finalized in the respective year’s IPPS final rule. 

11. Effects of Proposed Changes Related to Reclassification as Rural for CAHs 

 In section VI.C.2. of the preamble of this proposed rule, we discuss our proposals 

relating to reclassifications of CAHs as a result of the proposed adoption of the new 
 1617 

OMB labor market area delineations. A facility is eligible for designation as a CAH only 

if it is either physically located in a rural area or has been reclassified as rural under 

42 CFR 412.103. CAHs can be affected by the recent OMB labor market area 

delineations because facilities that are currently participating as CAHs that were 

previously located in rural areas may now be located in urban areas as a result of the new 

delineations. Previously, in both in the FY 2005 IPPS final rule and the FY 2010 

IPPS/LTCH PPS final rule, we revised the regulations to give currently participating 

CAHs 2 years, from the effective date of the earlier OMB designations, to reclassify as 

rural facilities. However, these regulation changes were specific to a particular 

timeframe. As we are proposing implementation of the latest OMB labor market area 

delineations in this proposed rule, we are proposing that, effective October 1, 2014, 

currently participating CAHs that are located in an area that has been redesignated from 

rural to urban under the new delineations will again be treated as rural for 2 years from 

the date the new OMB delineations are implemented. An affected CAH would have 

2 years from the date the redesignation becomes effective to reclassify as rural and 

thereby retain its CAH status. If a CAH fails to reclassify within those 2 years, it can no 

longer participate in Medicare as a CAH. However, unlike in previous years when the 

regulation changes were specific to a particular timeframe, the change that we are 

proposing to the regulations is not specific to a particular timeframe but would also apply 

to future OMB labor market area delineations. We estimate that this proposal will have 

little or no impact on Medicare expenditures because we expect that virtually all of the 

affected CAHs will be granted rural status by the State in which they are located and, 
 1618 

therefore, will be able to apply for reclassification as rural under § 412.103 in order to 

retain their CAH status. 

12. Effects of Proposed Revision of the Requirements for Physician Certification of 

CAH Inpatient Services 

 In section VI.C.3. of the preamble of this proposed rule, we discuss the statutory 

requirement for physician certification of CAH inpatient services. For inpatient CAH 

services to be payable under Medicare Part A, section 1814(a)(8) of the Act requires that 

a physician certify that the individual may reasonably be expected to be discharged or 

transferred to a hospital within 96 hours after admission to the CAH. These statutory 

requirements are addressed in the regulations at 42 CFR 424.15. In order to provide 

CAHs with greater flexibility in meeting this certification requirement, we are proposing 

to amend the regulations governing the timing of the 96-hour certification requirement at 

§ 424.15(b) such that physician certification is required no later than 1 day before the 

date on which the claim for payment for the inpatient CAH service is submitted. We also 

are proposing to revise § 424.11(d)(5) to remove the phrase “or critical access hospital 

inpatient”. We do not believe there is any significant impact on Medicare expenditures 

associated with these proposed changes because we are simply proposing to provide 

CAHs with additional flexibility in meeting the statutory requirement. The underlying 

statutory requirement itself is unchanged. 

13. Effects of Proposed Changes Relating to Administrative Appeals by Providers and 

Judicial Review for Appropriate Claims in Provider Cost Reports 
 1619 

 In section VIII. of the preamble to this proposed rule, we discuss our proposal to 

require a provider to include an appropriate claim for an item in its Medicare cost report 

with the penalty for the failure to do so being the preclusion of payment for the item in 

the notice of program reimbursement (NPR) issued by the fiscal intermediary and in any 

decision or order issued by a reviewing entity in an administrative appeal filed by the 

provider. The proposal also would revise the Medicare provider appeals regulations by 

eliminating the requirement that a provider must include an appropriate claim for an item 

in its Medicare cost report in order to meet the dissatisfaction requirement for Provider 

Reimbursement Review Board jurisdiction and would make technical corrections to the 

provider reimbursement appeals regulations to conform the regulations to the statute. 

There is no impact to the provider resulting from these proposed provisions. 

I. Effects of Proposed Update to the Reasonable Compensation Equivalent (RCE) Limits 

for Compensation for Physician Services Provided in Providers 

 In section VI.B. of the preamble of this proposed rule, we discuss our proposal to 

update and revise the methodology used to calculate the reasonable compensation 

equivalent (RCE) limits for compensation for physician services provided in providers, in 

accordance with our regulations at 42 CFR 415.70(f)(2). For CY 2015, we estimate that 

59 cancer and children’s hospitals and 46 IPPS teaching hospitals would be subject to the 

RCE limits. We estimate the costs associated with the updated RCE limits for CY 2015 

to be approximately $40 million. We do not expect this proposed RCE limit update to 

impact a significant number of small, rural entities; therefore, a full impact analysis is not 

required.
 1620 

J. Effects of Proposed Changes in the Capital IPPS 

1. General Considerations 

 For the impact analysis presented below, we used data from the December 2013 

update of the FY 2013 MedPAR file and the December 2013 update of the 

Provider-Specific File (PSF) that is used for payment purposes. Although the analyses of 

the proposed changes to the capital prospective payment system do not incorporate cost 

data, we used the December 2013 update of the most recently available hospital cost 

report data (FYs 2011 and 2012) to categorize hospitals. Our analysis has several 

qualifications. We use the best data available and make assumptions about case-mix and 

beneficiary enrollment as described below. 

 Due to the interdependent nature of the IPPS, it is very difficult to precisely 

quantify the impact associated with each proposed change. In addition, we draw upon 

various sources for the data used to categorize hospitals in the tables. In some cases (for 

instance, the number of beds), there is a fair degree of variation in the data from different 

sources. We have attempted to construct these variables with the best available sources 

overall. However, it is possible that some individual hospitals are placed in the wrong 

category. 

 Using cases from the December 2013 update of the FY 2013 MedPAR file, we 

simulated payments under the capital IPPS for FY 2014 and FY 2015 for a comparison of 

total payments per case. Any short-term, acute care hospitals not paid under the general 

IPPS (for example, Indian Health Service hospitals and hospitals in Maryland) are 

excluded from the simulations. 
 1621 

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

§ 412.312. The basic methodology for calculating capital IPPS payments in FY 2015 is 

as follows: 

 (Standard Federal Rate) x (DRG weight) x (GAF) x (COLA for hospitals located 

in Alaska and Hawaii) x (1 + DSH Adjustment Factor + IME adjustment factor, if 

applicable). 

 In addition to the other adjustments, hospitals may also receive outlier payments 

for those cases that qualify under the threshold established for each fiscal year. We 

modeled payments for each hospital by multiplying the capital Federal rate by the GAF 

and the hospital's case-mix. We then added estimated payments for indirect medical 

education, disproportionate share, and outliers, if applicable. For purposes of this impact 

analysis, the model includes the following assumptions: 

● We estimate that the Medicare case-mix index will increase by 0.5 percent in 

both FYs 2014 and 2015. 

● We estimate that Medicare discharges will be approximately 12.2 million in 

FY 2014 and 12.6 million in FY 2015. 

● The capital Federal rate was updated beginning in FY 1996 by an analytical 

framework that considers changes in the prices associated with capital-related costs and 

adjustments to account for forecast error, changes in the case-mix index, allowable 

changes in intensity, and other factors. As discussed in section III.A.1.a. of the 

Addendum to this proposed rule, the proposed update is 1.5 percent for FY 2015. 
 1622 

● In addition to the proposed FY 2015 update factor, the proposed FY 2015 

capital Federal rate was calculated based on a proposed GAF/DRG budget neutrality 

adjustment factor of 0.9957 and a proposed outlier adjustment factor of 0.9374. As 

discussed in section VI.C. of the preamble of this proposed rule, we are not proposing to 

make an additional MS-DRG documentation and coding adjustment to the capital IPPS 

Federal rates for FY 2015. 

2. Results 

 We used the actuarial model described above to estimate the potential impact of 

our proposed changes for FY 2015 on total capital payments per case, using a universe of 

3,388 hospitals. As described above, the individual hospital payment parameters are 

taken from the best available data, including the December 2013 update of the FY 2013 

MedPAR file, the December 2013 update to the PSF, and the most recent cost report data 

from the December 2013 update of HCRIS. In Table III, we present a comparison of 

estimated total payments per case for FY 2014 and estimated total payments per case for 

FY 2015 based on the proposed FY 2015 payment policies. Column 2 shows estimates 

of payments per case under our model for FY 2014. Column 3 shows estimates of 

payments per case under our model for FY 2015. Column 4 shows the total percentage 

change in payments from FY 2014 to FY 2015. The change represented in Column 4 

includes the proposed 1.5 percent update to the capital Federal rate and other proposed 

changes in the adjustments to the capital Federal rate. The comparisons are provided by: 

(1) geographic location; (2) region; and (3) payment classification. 
 1623 

 The simulation results show that, on average, capital payments per case in 

FY 2015 are expected to increase as compared to capital payments per case in FY 2014. 

This expected increase is due primarily to the approximately 0.9 percent increase in the 

proposed capital Federal rate for FY 2015 as compared to the FY 2014 capital Federal 

rate. Overall, across all hospitals, the proposed changes to the GAFs are expected to have 

no net effect on capital payments. However, regionally, the effects of the proposed 

changes to the GAFs on capital payments are consistent with the projected changes in 

payments due to proposed changes in the wage index (and proposed policies affecting the 

wage index) as shown in Table I in section I.G. of this Appendix. 

 Overall, there is an increase in capital payments per case due to the effects of 

proposed changes to the MS-DRG reclassifications and recalibrations, with more of this 

increase expected for urban hospitals. However, this increase is offset by projected 

changes in outlier payments, with rural areas expected to experience more of this offset. 

 The net impact of these proposed changes is an estimated 1.2 percent change in 

capital payments per case from FY 2014 to FY 2015 for all hospitals (as shown below in 

Table III). 

 The geographic comparison shows that, on average, with the exception of 

hospitals in the Rural Mountain area, most hospitals are expected to experience an 

increase in capital IPPS payments per case in FY 2015 as compared to FY 2014. As we 

stated above, these expected increases are primarily due to the proposed increase in the 

capital Federal rate. Capital IPPS payments per case for hospitals in “large urban areas” 

are expected to have an estimated increase of 1.4 percent, while hospitals in rural areas, 
 1624 

on average, are expected to experience a 0.7 percent increase in capital payments per case 

from FY 2014 to FY 2015. Capital IPPS payments per case for “other urban hospitals” 

are estimated to increase 1.2 percent. The primary factor contributing to the difference in 

the proposed projected increase in capital IPPS payments per case for urban hospitals as 

compared to rural hospitals is the proposed increase in capital payments to urban 

hospitals due to proposed changes to the MS-DRG relative weights. This projected 

increase is slightly lower for rural hospitals. 

 The comparisons by region show that the estimated increases in capital payments 

per case from FY 2014 to FY 2015 in urban areas range from a 2.0 percent increase for 

the Pacific urban region to a 0.8 percent increase for the East South Central urban region, 

and a 0.6 percent increase for the Puerto Rico urban region. For rural regions, the Pacific 

rural region is expected to experience the largest increase in capital IPPS payments per 

case of 1.9 percent, while the Mountain rural region is the only region projected to have a 

decrease in capital payments per case, 0.1 percent, compared to FY 2014 payments per 

case. Unlike most other urban and rural regions where proposed changes in the GAFs 

contribute to a projected decrease in capital payments, the proposed changes in the GAFs 

contribute to an expected increase in capital IPPS payments per case for the Pacific urban 

and rural regions. A larger than average decrease in capital payments per case for the 

Mountain rural area due to the proposed change in outliers offset the projected increases 

to that area’s capital payments per case in FY 2015 compared to FY 2014. 

 Hospitals of all types of ownership (that is, voluntary hospitals, government 

hospitals, and proprietary hospitals) are estimated to experience an increase in capital 
 1625 

payments per case from FY 2014 to FY 2015. The proposed increase in capital payments 

for proprietary hospitals is estimated at 1.2 percent; for voluntary hospitals, at 1.3 

percent. Government hospitals are estimated to experience a 1.1 percent increase in 

capital payments per case from FY 2014 to FY 2015. 

 Section 1886(d)(10) of the Act established the MGCRB. Hospitals may apply for 

reclassification for purposes of the wage index for FY 2015. Reclassification for wage 

index purposes also affects the GAFs because that factor is constructed from the hospital 

wage index. To present the effects of the hospitals being reclassified as of the publication 

of this proposed rule for FY 2015, we show the average capital payments per case for 

reclassified hospitals for FY 2015. Urban reclassified hospitals are expected to 

experience an increase in capital payments of 1.5 percent, whereas for urban 

nonreclassified hospitals, the expected increase is 1.2 percent. The estimated percentage 

increase for rural reclassified hospitals is 0.7 percent, and for rural nonreclassified 

hospitals, the estimated percentage increase is 0.3 percent. Other reclassified hospitals 

(that is, hospitals reclassified under section 1886(d)(8)(B) of the Act) are expected to 

experience the largest increase (2.2 percent) in capital payments from FY 2014 to 

FY 2015. 

 
 1626 

TABLE III.—COMPARISON OF TOTAL PAYMENTS PER CASE

[FY 2014 PAYMENTS COMPARED TO FY 2015 PAYMENTS] 

Number of 

hospitals 

Average FY 

2014 

payments/ 

case 

Average FY 

2015 

payments/ 

case 

Change 

By Geographic Location: 

All hospitals ............................................................................................................. 3,388 848 859 1.2 

Large urban areas (populations over 1 million) ....................................................... 1,395 936 948 1.4 

Other urban areas (populations of 1 million of fewer) ............................................. 1,147 817 827 1.2 

Rural areas .............................................................................................................. 846 577 581 0.7 

Urban hospitals ....................................................................................................... 2,542 882 893 1.3 

0-99 beds ................................................................................................................ 655 728 732 0.5 

100-199 beds .......................................................................................................... 788 761 770 1.2 

200-299 beds .......................................................................................................... 469 810 821 1.4 

300-499 beds .......................................................................................................... 417 902 915 1.4 

500 or more beds .................................................................................................... 213 1,056 1,070 1.3 

Rural hospitals ........................................................................................................ 846 577 581 0.7 

0-49 beds ................................................................................................................ 325 470 473 0.6 

50-99 beds .............................................................................................................. 298 534 537 0.5 

100-149 beds .......................................................................................................... 136 575 579 0.7 

150-199 beds .......................................................................................................... 50 640 645 0.8 

200 or more beds .................................................................................................... 37 704 711 0.9 

By Region: 

Urban by Region ..................................................................................................... 2,542 882 893 1.3 

New England ........................................................................................................... 120 974 985 1.2 

Middle Atlantic ......................................................................................................... 324 946 963 1.7 

South Atlantic .......................................................................................................... 406 796 805 1.1 

East North Central ................................................................................................... 397 848 856 0.9 

East South Central .................................................................................................. 153 758 764 0.8 

West North Central .................................................................................................. 162 876 887 1.3 

West South Central ................................................................................................. 385 816 824 0.9 

Mountain.................................................................................................................. 159 906 916 1.1 

Pacific ...................................................................................................................... 384 1,111 1,133 2.0 

Puerto Rico ............................................................................................................. 52 406 408 0.6 

Rural by Region ...................................................................................................... 846 577 581 0.7 

New England ........................................................................................................... 22 802 812 1.2 

Middle Atlantic ......................................................................................................... 57 562 569 1.3 

South Atlantic .......................................................................................................... 132 550 551 0.2 

East North Central ................................................................................................... 115 601 606 0.8 

East South Central .................................................................................................. 165 530 534 0.7 

West North Central .................................................................................................. 102 613 617 0.6 

West South Central ................................................................................................. 168 511 513 0.5 

Mountain.................................................................................................................. 61 651 650 -0.1 

Pacific ...................................................................................................................... 24 742 756 1.9 

Puerto Rico ............................................................................................................. 0 0 0 0.0 

By Payment Classification: 

All hospitals ............................................................................................................. 3,388 848 859 1.2 

Large urban areas (populations over 1 million) ....................................................... 794 879 889 1.1 

Other urban areas (populations of 1 million of fewer) ............................................. 1,764 882 894 1.4 

Rural areas .............................................................................................................. 830 588 591 0.5 

Teaching Status: 

Non-teaching ........................................................................................................... 2,352 722 730 1.1 

Fewer than 100 Residents ...................................................................................... 792 831 841 1.3

100 or more Residents ............................................................................................ 244 1,196 1,213 1.4 

Urban DSH: 

100 or more beds .................................................................................................... 1,591 902 914 1.3 

Less than 100 beds ................................................................................................. 366 635 639 0.8 

Rural DSH: 

Sole Community (SCH/EACH) ................................................................................ 388 521 524 0.6 

Referral Center (RRC/EACH) ................................................................................. 212 649 653 0.6 
 1627 

TABLE III.—COMPARISON OF TOTAL PAYMENTS PER CASE

[FY 2014 PAYMENTS COMPARED TO FY 2015 PAYMENTS] 

Number of 

hospitals 

Average FY 

2014 

payments/ 

case 

Average FY 

2015 

payments/ 

case 

Change 

Other Rural: 

100 or more beds .................................................................................................... 24 548 546 -0.3 

Less than 100 beds ................................................................................................. 125 459 461 0.4 

Urban teaching and DSH: 

Both teaching and DSH ........................................................................................... 842 980 993 1.3 

Teaching and no DSH ............................................................................................. 133 884 897 1.6 

No teaching and DSH ............................................................................................. 1,115 754 763 1.3 

No teaching and no DSH ........................................................................................ 468 791 798 0.9

Rural Hospital Types: 

Non special status hospitals .................................................................................... 2,576 882 893 1.2 

RRC/EACH.............................................................................................................. 197 717 730 1.8 

SCH/EACH .............................................................................................................. 325 619 624 0.8 

SCH, RRC and EACH ............................................................................................. 125 704 710 0.9

Hospitals Reclassified by the Medicare Geographic Classification Review Board: 

FY2015 Reclassifications: 

All Urban Reclassified ............................................................................................. 533 883 896 1.5 

All Urban Non-Reclassified ..................................................................................... 1,858 890 901 1.2 

All Rural Reclassified .............................................................................................. 271 615 620 0.7 

All Rural Non-Reclassified ...................................................................................... 379 541 543 0.3 

Other Reclassified Hospitals (Section 1886(d)(8)(B)) ............................................. 60 574 587 2.2 

Type of Ownership: 

Voluntary ................................................................................................................. 1,925 861 872 1.3 

Proprietary ............................................................................................................... 883 770 779 1.2 

Government ............................................................................................................ 540 886 895 1.1 

Medicare Utilization as a Percent of Inpatient Days: 

0-25 ......................................................................................................................... 445 1,069 1,082 1.3 

25-50 ....................................................................................................................... 2,004 865 876 1.3 

50-65 ....................................................................................................................... 718 704 713 1.2 

Over 65.................................................................................................................... 131 560 565 0.9 
 1628 

K. Effects of Proposed Payment Rate Changes and Policy Changes under the LTCH PPS 

1. Introduction and General Considerations 

 In section VII. of the preamble of this proposed rule and section V. of the 

Addendum to this proposed rule, we set forth the proposed annual update to the payment 

rates for the LTCH PPS for FY 2015. In the preamble of this proposed rule, we specify 

the statutory authority for the proposed provisions that are presented, identify those 

proposed policies, and present rationales for our proposed decisions as well as 

alternatives that were considered. In this section of Appendix A to this proposed rule, we 

discuss the impact of the proposed changes to the payment rate, factors, and other 

payment rate policies related to the LTCH PPS that are presented in the preamble of this 

proposed rule in terms of their estimated fiscal impact on the Medicare budget and on 

LTCHs. 

 Currently, there are 422 LTCHs included in this impacts analysis, which includes 

data for 91 nonprofit (voluntary ownership control) LTCHs, 288 proprietary LTCHs, and 

43 LTCHs that are government-owned and operated. (We note that although there are 

currently approximately 435 LTCHs, for purposes of this impact analysis, we excluded 

the data of all inclusive rate providers and the LTCHs that are paid in accordance with 

demonstration projects, consistent with the development of the proposed FY 2015 

MS-LTC-DRG relative weights (discussed in section VII.B.3.c. of the preamble of this 

proposed rule)). In the impact analysis, we used the proposed payment rate, factors, and 

policies presented in this proposed rule, including the proposed 2.1 percent annual update 

for LTCHs that submit quality data in accordance with section 1886(m)(5)(C) of the Act, 
 1629 

which is based on the full estimated increase of the LTCH PPS market basket and the 

reductions required by sections 1886(m)(3) and (m)(4) of the Act, the proposed final year 

of the phase-in of a one-time prospective adjustment factor of 0.98734 

(approximately -1.3 percent), the proposed update to the MS-LTC-DRG classifications 

and relative weights, the proposed update to the wage index values, including the 

proposed implementation of the new OMB delineations, and labor-related share, and the 

best available claims and CCR data to estimate the change in payments for FY 2015. (As 

discussed in section VII.C. of the preamble of this proposed rule, in accordance with 

section 1886(m)(5)(C) of the Act, for LTCHs that fail to submit quality data, the 

proposed annual update to the LTCH PPS standard Federal rate is reduced by 2.0 

percentage points in FY 2015.) 

 The standard Federal rate for FY 2014 is $40,607.31 for LTCHs that submit 

quality data in accordance with the requirements of section 1886(m)(5)(C) of the Act. 

For FY 2015, we are proposing to establish a standard Federal rate of $40,943.51 for 

LTCHs that submit quality data in accordance with the requirements of section 

1886(m)(5)(C) of the Act, which reflects the proposed 2.1 percent annual update to the 

standard Federal rate, and the proposed area wage budget neutrality factor of 1.0002034 

to ensure that the proposed changes in the wage index, including the proposed 

implementation of the new OMB delineations, and labor-related share do not influence 

aggregate payments, and the proposed final year of the phase-in of a one-time prospective 

adjustment factor of 0.98734. For LTCHs that fail to submit data for the LTCHQR 

Program, in accordance with section 1886(m)(5)(C) of the Act, we are proposing to 
 1630 

establish a standard Federal rate of $40,141.47. This reduced standard Federal rate 

reflects the proposed updates described above in addition to a 2.0 percentage point to the 

annual update for failure to submit data to the LTCHQR Program. We note that the 

proposed factors described above to determine the proposed FY 2015 standard Federal 

rate are applied to the FY 2014 Federal standard rate set forth under 

§ 412.523(c)(3)(ix)(A) (that is, $40,607.31). 

 Based on the best available data for the 422 LTCHs in our database, we estimate 

that the proposed annual update to the standard Federal rate for FY 2015, including the 

reduced updated for LTCHs that fail to submit quality data in accordance with the 

requirements of the LTCHQR Program (discussed in section V.A.2. of the Addendum to 

this proposed rule) and the proposed changes to the area wage adjustment for FY 2015 

(discussed in section V.B. of the Addendum to this proposed rule), in addition to an 

estimated decrease in HCO payments would result in an increase in estimated payments 

from FY 2014 of approximately $44 million. Based on the 422 LTCHs in our database, 

we estimate that the FY 2015 LTCH PPS payments would be approximately $5.594 

billion, as compared to estimated FY 2014 LTCH PPS payments of approximately $5.550 

billion. Because the combined distributional effects and estimated changes to the 

Medicare program payments are over approximately $100 million, this proposed rule is 

considered a major economic rule, as defined in this section. We note that the 

approximate $44 million for the projected increase in estimated aggregate proposed 

LTCH PPS payments from FY 2014 to FY 2015 does not reflect changes in LTCH 
 1631 

admissions or case-mix intensity in estimated LTCH PPS payments, which also will 

affect overall payment changes. 

 The projected 0.8 percent increase in estimated proposed payments per discharge 

from FY 2014 to FY 2015 is attributable to several factors, including the proposed 

2.1 percent annual update to the standard Federal rate (or 0.1 percent annual update for 

LTCHs that failed to submit data under the requirements of the LTCHQR Program), a 

proposed one-time prospective adjustment factor for FY 2015 of 0.98734 (approximately 

-1.3 percent), and projected decreases in estimated HCO payments. Although the net 

effect of the proposed 2.1 percent annual update and the approximate -1.3 percent 

proposed one-time prospective adjustment factor is approximately 0.8 percent (that is, 2.1 

percent - 1.3 percent = 0.8 percent), Table IV (column 6) shows the estimated change 

attributable solely to the proposed annual update to the standard Federal rate (2.1 percent 

for LTCHs that submit quality data under the requirements of the LTCHQR Program and 

0.1 percent for LTCHs that failed submit quality data under the requirements of the 

LTCHQR Program), including a proposed one-time prospective adjustment factor for 

FY 2015 under the final year of the phase–in (approximately 1.3 percent), is projected to 

result in an increase of 0.7 percent in payments per discharge from FY 2014 to FY 2015, 

on average, for all LTCHs. In addition to the proposed 2.1 percent annual update for 

FY 2015 (or 0.1 percent annual update for LTCHs that failed to submit data under the 

LTCHQR Program), and a proposed -1.3 percent one-time prospective adjustment factor 

for FY 2015, this estimated increase in aggregate LTCH PPS payments of 0.7 percent 

shown in column 6 of Table IV also includes estimated payments for SSO cases that are 
 1632 

paid using special methodologies that are not affected by the annual update to the 

standard Federal rate. Therefore, for some hospital categories, the projected increase in 

payments based on the proposed standard Federal rate is slightly less than the net effect 

of the proposed 2.1 percent annual update and the approximate -1.3 percent proposed 

one-time prospective adjustment factor (or 0.8 percent) for FY 2015. Because we are 

proposing to apply an area wage level budget neutrality factor to the standard Federal 

rate, the proposed annual update to the wage data, including the proposed implementation 

of the new OMB delineations, and labor-related share does not impact the increase in 

aggregate payments. 

 As discussed in section V.B. of the Addendum to this proposed rule, we are 

proposing to update the wage index values for FY 2015 based on the most recent 

available data and the proposed adoption of the new OMB labor market area delineations. 

Under our proposal to adopt the new OMB delineations, we are proposing a transitional 

blended wage index for FY 2015 for LTCH’s that would have a lower wage index value 

under those delineations, as discussed in section VII.D.2. of the preamble of this 

proposed rule. Therefore, this column reflects the proposed blended wage index that is 

calculated as a 50/50 blend of the wage index under the current CBSA designations and 

the wage index under the new OMB delineations under our proposed transitional wage 

index policy. In addition, we are proposing a slight increase to the labor-related share 

from 62.537 percent to 62.571 percent under the LTCH PPS for FY 2015, based on the 

most recent available data on the relative importance of the labor-related share of 

operating and capital costs based on the FY 2009-based LTCH-specific market basket. 
 1633 

We also are proposing to apply an area wage level budget neutrality factor of 1.0002034, 

which increases the proposed standard Federal rate by approximately 0.02 percent. 

Therefore, the proposed changes to the wage data, including the proposed adoption of the 

new OMB delineations, and labor-related share do not result in a change in estimated 

aggregate LTCH PPS payments. 

 Table IV below shows the impact of the proposed payment rate and the proposed 

policy changes on LTCH PPS payments for FY 2015 presented in this proposed rule by 

comparing estimated FY 2014 payments to estimated FY 2015 payments. The projected 

increase in payments from FY 2014 to FY 2015 of 0.8 percent is attributable to the 

impacts of the proposed change to the standard Federal rate (0.7 percent in Column 6) 

and the effect of the estimated slight decrease in proposed payments for HCO cases (0.1 

percent) and an estimated increase in payments for SSO cases (0.2 percent). We currently 

estimate total HCO payments are projected to decrease slightly from FY 2014 to FY 2015 

in order to ensure that the estimated HCO payments would be 8 percent of the total 

estimated LTCH PPS payments in FY 2015. An analysis of the most recent available 

LTCH PPS claims data (that is, FY 2013 claims data from the December 2013 update of 

the MedPAR file) indicates that the FY 2014 HCO threshold of $13,314 (as established 

in the FY 2014 IPPS/LTCH PPS final rule) may result in HCO payments in FY 2015 that 

are slightly above the estimated 8 percent. Specifically, we currently estimate that HCO 

payments would be approximately 8.1 percent of the estimated total LTCH PPS 

payments in FY 2014. We estimate that the impact of the slight decrease in HCO 

payments would result in approximately a 0.1 percent decrease in estimated payments 
 1634 

from FY 2014 to FY 2015, on average, for all LTCHs. Furthermore, in calculating the 

estimated HCO payments for FYs 2014 and 2015, we increased estimated costs by the 

applicable market basket percentage increase as projected by our actuaries. This increase 

in estimated costs also results in a projected increase in SSO payments of approximately 

0.2 percent relative to last year. The net result of these projected changes in HCO and 

SSO payments in FY 2015 is an estimated change in aggregate payments of 0.1 percent. 

We note that estimated payments for all SSO cases comprise approximately 12 percent of 

the estimated total LTCH PPS payments, and estimated payments for HCO cases 

comprise approximately 8 percent of the estimated total FY 2015 LTCH PPS payments. 

Payments for HCO cases are based on 80 percent of the estimated cost of the case above 

the HCO threshold, while the majority of the payments for SSO cases (approximately 

60 percent) are based on the estimated cost of the case. 

 In addition to the projected increase in LTCH PPS payments per discharge of 

approximately $44 million (0.8 percent) from FY 2014 to FY 2015, as shown in Table IV 

below, we also estimate that the net effect of the projected impact of certain other 

proposed LTCH PPS policy changes (that is, the reinstatement of the moratorium on the 

full implementation of the “25-percent policy” payment adjustment; the reinstatement of 

the moratorium on the development of new LTCHs and LTCH satellite facilities and 

additional LTCH beds; the proposed revision of the “greater than 3-day interruption of 

stay” policy; the proposed revocation of on-site discharges and readmissions policy; and 

the proposed payment adjustment for “subclause (II)” LTCHs) would result in a 

$14 million decrease in aggregate LTCH PPS payments in FY 2015. The individual 
 1635 

impact of these proposed policy changes are discussed in greater detail below in section 

I.K.3.b. of this Appendix. 

 As we discuss in detail throughout this proposed rule, based on the most recent 

available data, we believe that the provisions of this proposed rule relating to the 

LTCH PPS would result in an increase in estimated aggregate LTCH PPS payments and 

that the resulting LTCH PPS payment amounts would result in appropriate Medicare 

payments. 

2. Impact on Rural Hospitals 

 For purposes of section 1102(b) of the Act, we define a small rural hospital as a 

hospital that is located outside of an urban area and has fewer than 100 beds. As shown 

in Table IV, we are projecting a 0.7 percent increase in estimated payments per discharge 

for FY 2015 as compared to FY 2014 for rural LTCHs that would result from the 

proposed changes presented in this proposed rule, as well as the effect of estimated 

changes to HCO and SSO payments. This estimated impact is based on the data for the 

22 rural LTCHs in our database (out of 422 LTCHs) for which complete data were 

available. 

 The estimated increase in LTCH PPS payments from FY 2014 to FY 2015 for 

rural LTCHs (0.7 percent) is slightly less than the national average increase (0.8 percent). 

The estimated increase in LTCH PPS payments from FY 2014 to FY 2015 for rural 

LTCHs is primarily due to the proposed increase to the standard Federal rate. However, 

rural LTCHs are experiencing slightly lower increases than the national average due to 

decreases in their wage index for FY 2015 compared to FY 2014. 
 1636 

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

Changes 

a. Budgetary Impact 

 Section 123(a)(1) of the BBRA requires that the PPS developed for LTCHs 

“maintain budget neutrality.” We believe that the statute’s mandate for budget neutrality 

applies only to the first year of the implementation of the LTCH PPS (that is, FY 2003). 

Therefore, in calculating the FY 2003 standard Federal rate under § 412.523(d)(2), we set 

total estimated payments for FY 2003 under the LTCH PPS so that estimated aggregate 

payments under the LTCH PPS were estimated to equal the amount that would have been 

paid if the LTCH PPS had not been implemented. 

 As discussed above in section I.K.1. of this Appendix, we project an increase in 

aggregate LTCH PPS payments per discharge in FY 2015 relative to FY 2014 of 

approximately $44 million based on the 422 LTCHs in our database. In addition, as 

discussed below in section I.K.3.b. of this Appendix, we also estimate that the net effect 

of the projected impact of certain other proposed LTCH PPS policy changes would result 

in a $14 million decrease in aggregate LTCH PPS payments in FY 2015. 
 1637 

b. Impact of Certain Proposed LTCH PPS Policy Changes 

(1) Proposed Reinstatement of the Moratorium on the Full Implementation of the 

“25-Percent Policy” Payment Adjustment (§ 412.534 and § 412.536) and Proposed 

Reinstatement of the Moratorium on the Development of New LTCHs and LTCH 

Satellites and Additional LTCH beds (§ 412.23(e) and §§ 412.23(e)(6) and (7)) 

 Section 1206(b) of Pub. L. 113-67 provides for the retroactive reinstatement and 

extension, for an additional 4 years, of the moratorium on the full implementation of the 

25-percent threshold payment adjustment (referred to as the “25-percent policy” payment 

adjustment) established under section 114(c) of the MMSEA, as amended by section 

4302(a) of the ARRA and sections 3106(c) and 10312(a) of the Affordable Care Act. As 

discussed in section VII.E. of the preamble of this proposed rule, we are proposing to 

reinstate this payment adjustment retroactively for LTCH cost reporting periods 

beginning on or after July 1, 2013 or October 1, 2013, as applicable under the regulations 

at § 412.534 and § 412.536. 

 Section 1206(b)(2) of Pub. L. 113-67, as amended by section 112(b) of the 

Protecting Access to Medicare Act of 2-14 (Pub. L. 113-93), provides for moratoria on 

the establishment of new LTCHs and LTCH satellite facilities and on bed increases in 

LTCHs effective for the period beginning April 1, 2014, and ending September 30, 2017. 

This statutory provision also provides specific exceptions to the moratorium on the 

establishment of new LTCHs and LTCH satellites. We are proposing to implement this 

policy under the regulations at § 412.23(e) and §§ 412.23(e)(6) and (7), respectively. For 

additional details, refer to section VII.G. of the preamble of this proposed rule. 
 1638 

 Our Office of the Actuary projects that the reinstatement of “25-percent policy” 

adjustment policy would result in approximately a $120 million increase in aggregate 

LTCH PPS payments in FY 2015. In addition, our Office of the Actuary projects that the 

portion of the moratoria on the establishment of new LTCHs and LTCH satellite facilities 

and additional LTCH beds that would occur during FY 2015 is estimated to result in 

approximately a $30 million reduction in aggregate LTCH PPS payments in FY 2015. 

Therefore, we project our proposed implementation of both of these statutory provisions 

would result in approximately a $90 million increase in aggregate LTCH PPS payments 

in FY 2015. 

(2) Proposed Revision of the “Greater than 3-Day Interruption of Stay” Policy 

(§ 412.531) and Proposed Revocation of On-Site Discharges and Readmissions Policy 

(§ 412.532) 

 The LTCH greater than 3-day interruption of stay policy under § 412.531 is a 

payment adjustment that is applied when during the course of an LTCH hospitalization, a 

patient is discharged to an inpatient acute care hospital, an IRF, or a SNF for treatment or 

services not available at the LTCH for a specified period followed by readmittance to the 

same LTCH. Specifically, under this policy, we established specific fixed-day 

thresholds, which apply to the days away from the LTCH, depending upon the 

intervening provider. If the stay is an “interrupted stay,” that is, the patient returned to 

the LTCH within the threshold number of days, payment for both “halves” of the LTCH 

discharge is “bundled,” and Medicare makes one payment based on the second date of 

discharge. As discussed in section VII.F. of the preamble of this proposed rule, we are 
 1639 

proposing to revise the fixed-day thresholds under the “greater than 3-day interruption of 

stay policy” to apply a uniform 30-day threshold as an “acceptable standard” for 

determining a linkage between an index discharge and a readmission. 

 As also discussed in section VII.F. of the preamble of this proposed rule, we also 

are proposing to remove the discharge and readmission requirement specified in the 

regulations under § 412.532 (referred to as the “5-percent payment threshold”). Under 

the “5-percent payment threshold” policy, if an LTCH (or a LTCH satellite facility) 

directly readmits more than 5 percent of its total Medicare inpatients discharged from an 

“on-site facility” (for example, a co-located acute care hospital, an IRF, or a SNF, or a in 

the case of a LTCH satellite facility, that is co-located with an LTCH), all such 

discharges to the co-located “on-site facility” and the readmissions to the LTCH are 

treated as one discharge for that cost reporting period, and, as such, one LTCH PPS 

payment is made on the basis of each patient's initial principal diagnosis. 

 We estimate that the proposed revision to the greater than 3-day interruption of 

stay policy under § 412.531 would result in a reduction in aggregate LTCH PPS 

payments of approximately $130 million for FY 2015, if the proposal to apply a uniform 

30-day threshold is finalized. We also estimate that the proposed discontinuation of the 

“5-percent payment threshold” policy would result in an increase of approximately $20 

million in aggregate LTCH PPS payments in FY 2015. Accordingly, our Office of the 

Actuary projects that, together, these proposed policy revisions are estimated to decrease 

aggregate LTCH PPS payments in FY 2015 by approximately $110 million. 
 1640 

(3) Proposed Payment Adjustment for “Subclause (II)” LTCHs (proposed § 412.526) 

 Section 1206(d) of Pub. L. 113-67 requires the Secretary to evaluate payments 

and regulations governing “hospitals which are classified under subclause (II) of 

subsection (d)(1)(B)(iv)”. In addition, based on the result of such evaluations, the statute 

authorizes the Secretary to adjust the payment rates for this type of hospital and to adjust 

regulations governing a subclause (II) LTCH that otherwise apply to subclause (I) 

LTCHs. As discussed in section VII.H. of the preamble of this proposed rule, under new 

§ 412.526, we are proposing to apply a payment adjustment under the LTCH PPS to a 

subclause (II) LTCH beginning in FY 2015 that would result in payments to this type of 

LTCH resembling those under the reasonable cost TEFRA payment system model. Our 

Office of the Actuary projects that, if the proposed payment adjustment for “subclause 

(II)” LTCHs is finalized, it would increase aggregate LTCH PPS payments in FY 2015 

by approximately $6 million. 

c. Impact on Providers 

 The basic methodology for determining a per discharge LTCH PPS payment is set 

forth under § 412.515 through § 412.536. In addition to the basic MS-LTC-DRG 

payment (the standard Federal rate multiplied by the MS-LTC-DRG relative weight), we 

make adjustments for differences in area wage levels, a COLA for LTCHs located in 

Alaska and Hawaii, and SSOs. Furthermore, LTCHs may also receive HCO payments 

for those cases that qualify based on the threshold established each year. 

 To understand the impact of the proposed changes to the LTCH PPS payments 

presented in this proposed rule on different categories of LTCHs for FY 2015, it is 
 1641 

necessary to estimate payments per discharge for FY 2014 using the rates, factors 

(including the FY 2014 GROUPER (Version 31.0), and relative weights and the policies 

established in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50753 through 50760 and 

51002). It is also necessary to estimate the payments per discharge that would be made 

under the proposed LTCH PPS rates and factors, and GROUPER (proposed Version 

32.0) for FY 2015 (as discussed in section VII. of the preamble of this proposed rule and 

section V. of the Addendum to this proposed rule). These estimates of FY 2014 and 

FY 2015 LTCH PPS payments are based on the best available LTCH claims data and 

other factors, such as the application of inflation factors to estimate costs for SSO and 

HCO cases in each year. We also evaluated the proposed change in estimated FY 2014 

payments to estimated FY 2015 payments (on a per discharge basis) for each category of 

LTCHs. We are proposing to establish a standard Federal rate for FY 2015 of $40,943.51 

(for LTCHs that submit quality data under the requirements of the LTCHQR Program), 

which includes the proposed 2.1 percent annual update, the proposed area wage budget 

neutrality factor of 1.0002304, and a proposed one-time prospective adjustment to the 

standard Federal rate for FY 2015 of 0.98734 (approximately -1.3 percent). For LTCHs 

that fail to submit data to the LTCH Quality Reporting Program, we are proposing to 

establish a standard Federal rate for FY 2015 of $40,141.47 that includes a 2.0 percentage 

point reduction applied to the proposed annual update under the requirements of section 

1886(m)(5)(C) of the Act in addition to the other proposed adjustments noted above. 
 1642 

 Hospital groups were based on characteristics provided in the OSCAR data, 

FY 2010 through FY 2012 cost report data in HCRIS, and PSF data. Hospital groups 

included the following: 

● Location: large urban/other urban/rural. 

● Participation date. 

● Ownership control. 

● Census region. 

● Bed size. 

 To estimate the impacts of the proposed payment rates and policy changes among 

the various categories of existing providers, we used LTCH cases from the FY 2013 

MedPAR file to estimate payments for FY 2014 and to estimate payments for FY 2015 

for 422 LTCHs. We believe that the discharges based on the FY 2013 MedPAR data for 

the 422 LTCHs in our database, which includes 288 proprietary LTCHs, provide 

sufficient representation in the MS-LTC-DRGs containing discharges for patients who 

received LTCH care for the most commonly treated LTCH patients' diagnoses. 

d. Calculation of Prospective Payments 

 For purposes of this impact analysis, to estimate per discharge payments under the 

LTCH PPS, we simulated payments on a case-by-case basis using LTCH claims from the 

FY 2013 MedPAR files. For modeling estimated LTCH PPS payments for FY 2014, we 

used the FY 2014 standard Federal rate (that is, $40,607.31 for LTCHs that submit 

quality data under the requirements of the LTCHQR Program and $ 39,808.74 for LTCHs 

that failed to submit quality data under the requirements of the LTCHQR Program) used 
 1643 

to make payments for LTCH discharges occurring on or after October 1, 2013 through 

September 30, 2014). 

 For modeling estimated proposed LTCH PPS payments for FY 2015, we used the 

proposed FY 2015 standard Federal rate of $40,943.51 (for LTCHs that submit quality 

data under the requirements of the LTCHQR Program), which includes a proposed 

one-time prospective adjustment of 0.98734 for FY 2015 for the final year of the 3-year 

phase-in. For LTCHs that we project to have failed to submit the requisite quality data 

for FY 2015 under the LTCH Quality Reporting Program, we used the proposed FY 2015 

standard Federal rate of $40,141.47, which reflects the 2.0 percentage points reduction 

required by section 1886(m)(5)(C)of the Act. The proposed FY 2015 standard Federal 

rates also include the proposed application of an area wage level budget neutrality factor 

of 1.0002034 (as discussed in section V.B.5. of the Addendum to this proposed rule). 

Furthermore, in modeling estimated LTCH PPS payments for both FY 2014 and FY 2015 

in this impact analysis, we applied the FY 2014 and the proposed FY 2015 adjustments 

for area wage levels and the proposed COLA for LTCHs located in Alaska and Hawaii. 

Specifically, we adjusted for differences in area wage levels in determining estimated 

FY 2014 payments using the current LTCH PPS labor-related share of 62.537 percent 

(78 FR 50995 through 50996) and the wage index values established in the Tables 12A 

and 12B listed in the Addendum to the FY 2014 IPPS/LTCH PPS final rule (which are 

available via the Internet on the CMS Web site. We also applied the FY 2014 COLA 

factors shown in the table in section V.C. of the Addendum to that final rule (78 FR 

50997 through 50998) to adjust the FY 2014 nonlabor-related share (37.463 percent) for 
 1644 

LTCHs located in Alaska and Hawaii. Similarly, we adjusted for differences in area 

wage levels in determining the estimated FY 2015 payments using the proposed FY 2015 

LTCH PPS labor-related share of 62.571 percent and the proposed FY 2015 wage index 

values, including the proposed 50/50 blended wage index, determined from the proposed 

wage index values presented in Tables 12A through 12D listed in section VI. of the 

Addendum to this proposed rule (and available via the Internet). We also applied the 

proposed FY 2015 COLA factors shown in the table in section V.C. of the Addendum to 

this proposed rule to the proposed FY 2015 nonlabor-related share (37.429 percent) for 

LTCHs located in Alaska and Hawaii. 

 As discussed above, our impact analysis reflects an estimated change in payments 

for SSO cases, as well as an estimated increase in payments for HCO cases (as described 

in section V.D. of the Addendum to this proposed rule). In modeling proposed payments 

for SSO and HCO cases in FY 2015, we applied an inflation factor of 4.7 percent 

(determined by OACT) to estimate the costs of each case using the charges reported on 

the claims in the FY 2013 MedPAR files and the best available CCRs from the 

December 2013 update of the PSF. Furthermore, in modeling estimated LTCH PPS 

payments for FY 2015 in this impact analysis, we used the proposed FY 2015 fixed-loss 

amount of $15,730 (as discussed in section V.D. of the Addendum to this proposed rule). 

 These impacts reflect the estimated “losses” or “gains” among the various 

classifications of LTCHs from FY 2014 to FY 2015 based on the proposed payment rates 

and policy changes presented in this proposed rule. Table IV illustrates the estimated 

aggregate impact of the LTCH PPS among various classifications of LTCHs. 
 1645 

● The first column, LTCH Classification, identifies the type of LTCH. 

● The second column lists the number of LTCHs of each classification type. 

● The third column identifies the number of LTCH cases. 

● The fourth column shows the estimated payment per discharge for FY 2014 (as 

described above). 

● The fifth column shows the estimated payment per discharge for FY 2015 (as 

described above). 

● The sixth column shows the percentage change in estimated payments per 

discharge from FY 2014 to FY 2015 due to the proposed annual update to the standard 

Federal rate (as discussed in section V.A.2. of the Addendum to this proposed rule), 

including the proposed 2.0 percentage point reduction to the update to the standard 

Federal rate for LTCHs that fail to submit data to the LTCHQR Program and the final 

year of the phase-in of a one-time prospective adjustment factor for FY 2015. 

● The seventh column shows the percentage change in estimated payments per 

discharge from FY 2014 to FY 2015 for proposed changes to the area wage level 

adjustment (that is, the proposed wage indexes, including the proposed implementation of 

the new OMB delineations, and proposed labor-related share), including the proposed 

application of an area wage level budget neutrality factor, (as discussed in section V.B. of 

the Addendum to this proposed rule. This column includes the proposed wage index 

calculated as a 50/50 blend of the wage index under the current CBSA designations and 

the wage index under the new OMB delineations under our proposed transitional wage 

index policy for the proposed implementation of the new OMB delineations. 
 1646 

● The eighth column shows the percentage change in estimated payments per 

discharge from FY 2014 (Column 4) to FY 2015 (Column 5) for all proposed changes 

(and includes the effect of estimated proposed changes to HCO and SSO payments). 
 1647 

TABLE IV: IMPACT OF PROPOSED PAYMENT RATE AND POLICY 

CHANGES TO LTCH PPS PAYMENTS FOR FY 2015 (ESTIMATED FY 2014 

PAYMENTS COMPARED TO ESTIMATED FY 2015 PAYMENTS) 

LTCH Classification 

(1) 

Number 

of 

LTCHs 

(2) 

Number of 

LTCH PPS 

Cases 

(3) 

Average FY 

2014 LTCH 

PPS Payment 

Per Case

(4) 

Average FY 

2015 LTCH 

PPS Payment 

Per Case1 

(5)

Percent 

Change in 

Estimated 

Payments 

Per 

Discharge 

from FY 

2014 to FY 

2015 for the 

Proposed 

Annual 

Update to 

the Federal 

Rate 2 

(6) 

Percent 

Change in 

Estimated 

Payments 

Per 

Discharge 

from FY 

2014 to FY 

2015 for 

Proposed 

Changes to 

the Area 

Wage Level 

Adjustment 

with 

Proposed 

Budget 

Neutrality3 

(7) 

Percent 

Change 

in 

Payments 

Per 

Discharge 

from FY 

2014 to 

FY 2015 

for All 

Proposed 

Changes4 

(8) 

ALL PROVIDERS 422 137,897 $40,247.74 $40,567.74 0.7 0 0.8 

 

BY LOCATION: 

 RURAL 22 5,691 $35,633.63 $35,893.55 0.8 -0.2 0.7 

 URBAN 400 132,206 $40,446.36 $40,768.95 0.7 0 0.8 

 LARGE 200 76,347 $42,694 $43,082 0.7 0.1 0.9 

 OTHER 200 55,859 $37,375 $37,608 0.7 -0.2 0.6 

 

BY PARTICIPATION DATE: 

 BEFORE OCT. 1983 16 5,200 $37,560.33 $38,297.27 0.7 0.8 2 

 OCT. 1983 - SEPT. 1993 44 16,796 $43,706.56 $44,005.21 0.7 -0.2 0.7 

 OCT. 1993 - SEPT. 2002 181 62,686 $39,413.76 $39,694.92 0.7 -0.1 0.7 

 OCTOBER 2002and AFTER 181 53,215 $40,401.05 $40,732.81 0.7 0.1 0.8 

 

BY OWNERSHIP TYPE: 

 VOLUNTARY 91 21,887 $41,091.65 $41,428.06 0.7 0.1 0.8 

 PROPRIETARY 288 104,450 $39,975.38 $40,291.47 0.7 0 0.8 

 GOVERNMENT 43 11,560 $41,110.80 $41,435.10 0.7 0.1 0.8 

 

BY REGION: 

 NEW ENGLAND 14 6,948 $36,681.66 $37,478.17 0.7 1.1 2.2 

 MIDDLE ATLANTIC 29 8,522 $42,608.78 $43,311.85 0.7 1.1 1.7 

 SOUTH ATLANTIC 61 18,561 $42,577.65 $42,756.02 0.7 -0.3 0.4 

 EAST NORTH CENTRAL 70 20,072 $42,055.63 $42,256.47 0.7 -0.1 0.5 

 EAST SOUTH CENTRAL 31 8,940 $39,632.87 $39,809.48 0.7 -0.5 0.4 

 WEST NORTH CENTRAL 26 6,446 $39,279.06 $39,620.34 0.7 0.1 0.9 

 WEST SOUTH CENTRAL 134 48,191 $35,731.94 $36,001.75 0.7 -0.2 0.8 

 MOUNTAIN 32 6,775 $43,403.32 $43,675.91 0.7 -0.1 0.6 

 PACIFIC 25 13,442 $50,149.94 $50,643.35 0.7 0.1 1 

 

BY BED SIZE: 

 BEDS: 0-24 24 2,593 $35,165.11 $35,370.96 0.8 -0.2 0.6 

 BEDS: 25-49 200 47,183 $39,176.76 $39,479.06 0.7 0 0.8 

 BEDS: 50-74 117 37,486 $40,905.58 $41,253.12 0.7 0.1 0.8 

 BEDS: 75-124 45 22,044 $42,299.43 $42,677.61 0.7 0.2 0.9 

 BEDS: 125-199 22 15,353 $39,223.11 $39,498.04 0.7 -0.1 0.7 

 BEDS: 200 + 14 13,238 $40,969.52 $41,252.44 0.7 -0.2 0.7 
 1648 

1

 Estimated FY 2015 LTCH PPS payments based on the proposed payment rate and factor changes presented in the preamble of and 

the Addendum to this proposed rule. 

2

 Percent change in estimated payments per discharge from FY 2014 to FY 2015 for the proposed annual update to the standard 

Federal rate and the proposed one-time prospective adjustment factor for FY 2015 as discussed in section V.A.2. of the Addendum to 

this proposed rule. 

3

 Percent change in estimated payments per discharge from FY 2014 to FY 2015 for proposed changes to the area wage level 

adjustment under § 412.525(c) (as discussed in section V.B. of the Addendum to this proposed rule). 4

 Percent change in estimated payments per discharge from FY 2014 LTCH PPS (shown in Column 4) to FY 2015 LTCH PPS (shown 

in Column 5), including all of the proposed changes to the rates and factors presented in the preamble of and the Addendum to this 

proposed rule. Note, this column, which shows the percent change in estimated payments per discharge for all proposed changes, does 

not equal the sum of the percent changes in estimated payments per discharge for the proposed annual update to the standard Federal 

rate (column 6) and the proposed changes to the area wage level adjustment with budget neutrality (Column 7) due to the effect of 

estimated proposed changes in both estimated payments to SSO cases that are paid based on estimated costs and aggregate HCO 

payments (as discussed in this impact analysis), as well as other interactive effects that cannot be isolated. 

e. Results 

 Based on the most recent available data for 422 LTCHs, we have prepared the 

following summary of the impact (as shown above in Table IV) of the proposed LTCH 

PPS payment rate and policy changes presented in this proposed rule. The impact 

analysis in Table IV shows that estimated payments per discharge are expected to 

increase 0.8 percent, on average, for all LTCHs from FY 2014 to FY 2015 as a result of 

the proposed payment rate and policy changes presented in this proposed rule, including 

an estimated slight decrease in HCO payments. This estimated 0.8 percent increase in 

LTCH PPS payments per discharge from the FY 2014 to FY 2015 for all LTCHs (as 

shown in Table IV) was determined by comparing estimated FY 2015 LTCH PPS 

payments (using the proposed payment rates and factors discussed in this proposed rule) 

to estimated FY 2014 LTCH PPS payments (as described above in section I.L.1. of this 

Appendix). 

 We are proposing to establish a standard Federal rate of $40,943.51 (or a standard 

Federal rate of $40,141.47 for LTCHs that failed to submit data under the requirements of 

the LTCHQR Program) for FY 2015. Specifically, we are proposing to update the 

standard Federal rate for FY 2015 by 2.1 percent, which is based on the latest estimate of 
 1649 

the proposed LTCH PPS market basket increase (2.7 percent), the proposed reduction of 

0.4 percentage point for the MFP adjustment, and the 0.2 percentage point reduction 

consistent with sections 1886(m)(3) and (m)(4) of the Act. For LTCHs that fail to submit 

quality data under the requirements of the LTCHQR Program, as required by section 

1886(m)(5)(C) of the Act, a 2.0 percentage point reduction is applied to the proposed 

annual update to the standard Federal rate. In addition, we are proposing to apply a onetime prospective adjustment factor for FY 2015 of 0.98734 (approximately -1.3 percent) 

to the standard Federal rate for the final year of the 3-year phase-in. 

 We noted earlier in this section that, for most categories of LTCHs, as shown in 

Table IV (Column 6), the payment increase due to the proposed 2.1 percent annual 

update to the standard Federal rate and the proposed application of a one-time 

prospective adjustment for FY 2015 of approximately -1.3 percent for the final year of 

the 3-year phase-in is projected to result in approximately a 0.7 percent decrease in 

estimated payments per discharge for all LTCHs from FY 2014 to FY 2015. 

 In addition, our estimate of the proposed changes in payments due to the proposed 

update to the standard Federal rate also reflects estimated payments for SSO cases that 

are paid using special methodologies that are not affected by the update to the standard 

Federal rate. For these reasons, we estimate that payments may increase by less than 0.8 

percent for certain hospital categories due to the proposed annual update to the standard 

Federal rate and the proposed application of the final phase of the one-time prospective 

adjustment for FY 2015. 

(1) Location 
 1650 

 Based on the most recent available data, the vast majority of LTCHs are located 

in urban areas. Only approximately 5 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 FY 2014 to FY 2015 for all hospitals 

is 0.8 percent for all proposed changes. For rural LTCHs, the percent change for all 

proposed changes is estimated to be a 0.7 percent increase, while for urban LTCHs, we 

estimate the increase would be 0.8 percent. Large urban LTCHs are projected to 

experience an increase of 0.9 percent in estimated payments per discharge from FY 2014 

to FY 2015, while other urban LTCHs are projected to experience an increase of 0.6 

percent in estimated payments per discharge from FY 2014 to FY 2015, as shown in 

Table IV. 

(2) Participation Date 

 LTCHs are grouped by participation date into four categories: (1) before 

October 1983; (2) between October 1983 and September 1993; (3) between October 1993 

and September 2002; and (4) October 2002 and after. Based on the most recent available 

data, the categories of LTCHs with the largest percentage of LTCH cases (approximately 

45 percent) are in hospitals that began participating in the Medicare program between 

October 1993 and September 2002, and they are projected to experience a 0.7 percent 

increase in estimated payments per discharge from FY 2014 to FY 2015, as shown in 

Table IV. 
 1651 

 Approximately 4 percent of LTCHs began participating in the Medicare program 

before October 1983, and these LTCHs are projected to experience a higher than 

average percent increase (2.0 percent) in estimated payments per discharge from FY 2014 

to FY 2015, as shown in Table IV. Approximately 10 percent of LTCHs began 

participating in the Medicare program between October 1983 and September 1993. 

These LTCHs are projected to experience a 0.7 percent increase in estimated payments 

from FY 2014 to FY 2015. LTCHs that began participating in the Medicare program 

after October 1, 2002, which treat approximately 39 percent of all LTCH cases, are 

projected to experience a 0.8 percent increase in estimated payments from FY 2014 to 

FY 2015. 

(3) Ownership Control 

 LTCHs are grouped into three categories based on ownership control type: 

voluntary, proprietary, and government. Based on the most recent available data, 

approximately 22 percent of LTCHs are identified as voluntary (Table IV). The majority 

(nearly 68 percent) of LTCHs are identified as proprietary while government-owned and 

operated LTCHs represent about 10 percent of LTCHs. Based on ownership type, each 

category of LTCHs is expected to experience the average increase in payments of 0.8 

percent in estimated payments per discharge from FY 2014 to FY 2015. 

(4) Census Region 

 Estimated payments per discharge for FY 2015 are projected to increase for 

LTCHs located in all regions in comparison to FY 2014. Of the 9 census regions, we 

project that the increase in estimated payments per discharge would have the largest 
 1652 

positive impact on LTCHs in the New England and Middle Atlantic regions (2.2 percent 

and 1.7 percent, respectively as shown in Table IV). The estimated percent increase in 

payments per discharge from FY 2014 to FY 2015 for those regions is largely attributable 

to the proposed changes in the area wage level adjustment. 

 In contrast, LTCHs located in the South Atlantic and East South Central regions 

are projected to experience the smallest increase in estimated payments per discharge 

from FY 2014 to FY 2015. The lower than national average estimated increase in 

payments of 0.4 percent is primarily due to estimated decreases in payments associated 

with the proposed changes to the area wage level adjustment. 

(5) Bed Size 

 LTCHs are grouped into six categories based on bed size: 0-24 beds; 25-49 beds; 

50-74 beds; 75-124 beds; 125-199 beds; and greater than 200 beds. Most bed size 

categories are projected to receive either a slightly higher or slightly lower than average 

increase in estimated payments per discharge from FY 2014 to FY 2015. We project that 

small LTCHs (0-24 beds) would experience a 0.6 percent increase in payments, mostly 

due to decreases in the area wage level adjustment, while large LTCHs (200+ beds) 

would experience a 0.7 percent increase in payments. LTCHs with between 75 and 124 

beds are expected to experience an above average increase in payments per discharge 

from FY 2014 to FY 2015 (0.9 percent). 

4. Effect on the Medicare Program 

 As noted previously, we project that the provisions of this proposed rule would 

result in an increase in estimated aggregate LTCH PPS payments in FY 2015 relative to 
 1653 

FY 2014 of approximately $44 million (or approximately 0.8 percent) for the 422 LTCHs 

in our database. 

5. Effect on Medicare Beneficiaries 

 Under the LTCH PPS, hospitals receive payment based on the average resources 

consumed by patients for each diagnosis. We do not expect any changes in the quality of 

care or access to services for Medicare beneficiaries under the LTCH PPS, but we 

continue to expect that paying prospectively for LTCH services will enhance the 

efficiency of the Medicare program.
 1654 

L. Effects of Proposed Requirements for Hospital Inpatient Quality Reporting (IQR) 

Program 

 In section IX.A. of the preamble of this proposed rule, we discuss our proposed 

requirements for hospitals to report quality data under the Hospital IQR Program in order 

to receive the full annual percentage increase for the FY 2017 payment determination. 

We are proposing to remove a total of 20 measures from the Hospital IQR Program for 

the FY 2016 payment determination and subsequent years, which begins in the CY 2015 

reporting period. The first five measures are: (1) AMI-1 Aspirin at arrival (NQF #0132); 

(2) AMI-3 ACEI/ARB for left ventricular systolic dysfunction (NQF #0137); (3) AMI-5 

Beta-blocker prescribed at discharge (NQF #0160); (4) SCIP INF-6 Appropriate Hair 

Removal; and (5) Participation in a systematic database for cardiac surgery (NQF #0113). 

Of those, the first four measures are currently suspended. The fifth measure was 

recommended by the MAP for removal because it is “topped-out.” We believe that an 

additional 15 chart-abstracted measures are “topped out,” based on the previously 

adopted criteria, and we are proposing to remove them from the FY 2017 payment 

determination and subsequent years measure set. However, we are proposing to retain 

the electronic clinical quality measure version of 10 of these chart-abstracted measures 

for Hospital IQR Program reporting as discussed in section IX.A.7.f. of the preamble of 

this proposed rule. 

 We also are proposing to add one chart-abstracted measure in this proposed rule: 

Severe sepsis and septic shock: management bundle (NQF#0500). 
 1655 

 We are proposing to incorporate refinements for several measures for the FY 

2017 payment determination and subsequent years that were previously adopted in the 

Hospital IQR Program. These refinements have either arisen out of the NQF 

endorsement maintenance process, or during our internal efforts to harmonize measure 

approaches. The measure refinements include the following: (1) refining the planned 

readmission algorithm for all seven readmission measures included in the Hospital IQR 

Program; (2) modifying the hip/knee readmission and complication measure cohorts to 

exclude index admissions with a secondary fracture diagnosis; and (3) modifying the 

hip/knee complication measure to not count as complications coded as “present on 

admission” (POA) during the index admission. We do not anticipate any hospital burden 

associated with these revisions, as each is based on claims submitted by hospitals for 

payment purposes. 

 Information is not available to determine the precise number of hospitals that 

would not meet the requirements to receive the full annual percentage increase for the 

FY 2017 payment determination. Historically, an average of 100 hospitals that 

participate in the Hospital IQR Program do not receive the full annual percentage 

increase in any fiscal year. We anticipate that because of the new requirements we are 

proposing for reporting for the FY 2017 payment determination, the number of hospitals 

not receiving the full annual percentage increase may be higher than average. The 

highest number of hospitals failing to meet program requirements was approximately 200 

after the introduction of new NHSN reporting requirements. If the number of hospitals 

failing does increase because of proposed new requirements, we anticipate that over the 
 1656 

long run, this number will decline as hospitals gain more experience with these 

requirements. 

 As discussed in section XIII.B.6. of the preamble of this proposed rule, we 

estimate that our proposals for the adoption and removal of measures will result in an 

overall decrease of 5.86 million hours or 1,775 hours per hospital. The table below 

describes the hospital burden associated with the Hospital IQR Program requirements. 

We 

estima

te that 

the 

total 

burden 

associ

ated 

with 

the 

propos

ed 

voluntary electronic clinical quality measure reporting option will be similar to the 

Burden Impact of Proposed Hospital IQR Program Requirements for FY 2017 

Hospital IQR 

Program 

Requirement 

Number 

of 

hospitals 

impacted 

Burden per 

hospital for 

previously 

finalized 

requirements 

Burden per hospital 

for all requirements 

as proposed 

(continuing, 

removed, added) 

Net change 

in burden 

per 

hospital 

Chart-abstracted 

and structural 

measures, forms 

3,300 1,291 hours 963 hours -328 hours 

Review reports 

for claims-based 

measures 

3,300 4 hours 4 hours 0 

Reporting of 

voluntary 

electronic 

clinical quality 

measures (ECQM) in place 

of chartabstracted 

measures 

Unknown -570 hours -554 hours 16 hours 

Validation 

templates 

Up to 600 144 hours 144 hours 0 

E-CQM 

validation test 

Up to 100 0 16 hours 16 hours 

Validation 

charts 

photocopying 

Up to 600 $8,640 $8,496 $-144 
 1657 

burden outlined for hospitals in the Medicare EHR Incentive Program Stage 2 final rule 

(77 FR 53968 through 54162). However, by allowing hospitals to submit data for a 

maximum of 16 measures that could be used to satisfy partial requirements for both 

programs, each hospital that participates in the voluntary electronic quality measure 

reporting option could realize a reduction in burden of up to approximately 554 hours. 

To achieve a savings of 554 hours, we made the following assumptions. We assumed an 

average annual collection burden for 164 chart-abstracted measures (in Stroke, VTE, ED, 

and PC-01 topic areas) to be a combined 582 hours annually per hospital over 4 quarters. 

We estimate that each quarter, each hospital will need approximately 2 hours and 40 

minutes (10 minutes per measure) to process and submit measures results electronically 

per quarter. This equates to 10 hours and 40 minutes annually. Because the remaining 

12 electronic clinical quality measures submitted to the Hospital IQR Program would not 

replace any chart-abstracted reporting requirements, there would be an extra 2 hours per 

quarter per hospital in burden (8 hours total), with no commensurate savings. 

 In the FY 2014 IPPS/LTCH PPS final rule, hospitals were permitted to meet 

Hospital IQR program requirements for these 16 measures by submitting data 

electronically for a single quarter (78 FR 50811 through 50819) for the FY 2016 payment 

determination. Moreover, there were no options for submitting 12 additional measures. 

Therefore, we estimate that savings for hospitals choosing to submit all optional 

measures electronically for the FY 2016 payment determination would have been about 

579 hours (582 hours minus 2 hours and 40 minutes). The net burden of the proposal for 

the FY 2017 payment determination compared with the policy finalized for the FY 2016 
 1658 

payment determination is an additional 16 hours for a hospital choosing to submit all 

possible required and optional measures electronically. 

M. Effects of Proposed Requirements for the PPS-Exempt Cancer Hospital Quality 

Reporting (PCHQR) Program for FY 2017 

 In section IX.B. of the preamble of this proposed rule, we discuss our proposed 

policies for the quality data reporting program for PPS-exempt cancer hospitals (PCHs), 

which we refer to as the PCHQR Program. The PCHQR Program is authorized under 

section 1866(k) of the Act, which was added by section 3005 of the Affordable Care Act. 

 In this proposed rule, we are proposing that PCHs submit data on one additional 

measure beginning with the FY 2017 program which, if finalized, would increase the 

total number of measures in the FY 2017 PCHQR measure set to 19 measures. We also 

are proposing to update the specifications for the five previously finalized clinical 

process/oncology care measures to require PCHs to report all-patient data for each of 

these measures, and to adopt a new sampling methodology that PCHs can use to report 

these measures. Furthermore, we are proposing to require PCHs to submit population 

and sample size counts for these measures. We also are proposing to give PCHs a choice 

of one of two reporting options to report the clinical process/oncology care, SCIP, and 

clinical process/cancer specific treatment measures. 

 The impact of the proposed requirements for the PCHQR program is expected to 

be minimal overall because some PCHs are already submitting previously adopted 

quality measure data to CMS. As a result, these PCHs are familiar with our IT 

infrastructure and programmatic operations. In addition to fostering transparency and 
 1659 

facilitating public reporting, we believe our proposed requirements introduce minimal 

burden while increasing quality of care. We further believe that these requirements 

outweigh any burden. 

 One expected effect of the PCHQR Program is to keep the public informed of the 

quality of care provided by PCHs. We will publicly display quality measure data 

collected under the PCHQR Program as required under the Act. These data will be 

displayed on the Hospital Compare Web site. The goals of making these data available 

to the public in a user-friendly and relevant format, include, but are not limited to: 

(1) allowing the public to compare PCHs in order to make informed health care decisions 

regarding care setting; and (2) providing information about current trends in health care. 

Furthermore, PCHs can use their own health care quality data for many purposes such as 

in risk management programs, health care acquired infection prevention programs, and 

research and development activities, among others. 

N. Effects of Proposed Requirements for the Long-Term Care Hospital Quality 

Reporting (LTCHQR) Program for FY 2015 through FY 2018 

 In section IX.C. of the preamble of this proposed rule, we discuss the 

implementation of section 1886(m)(5) of the Act, which was added by section 3004(a) of 

the Affordable Care Act. Section 1886(m)(5) of the Act provides that, for rate year 2014 

and each subsequent year, any LTCH that does not submit data to the Secretary in 

accordance with section 1886(m)(5)(C) of the Act shall receive a 2-percentage point 

reduction to the annual update to the standard Federal rate for discharges for the hospital 

during the applicable fiscal year. In the FY 2012 IPPS/LTCH PPS final rule 
 1660 

(76 FR 51839 through 51840), we estimated that only a few LTCHs would not receive 

the full annual percentage increase in any fiscal year as a result of failure to submit data 

under the LTCHQR Program. Information is not available to determine the precise 

number of LTCHs that would not meet the requirements to receive the full annual 

percentage increase for the FY 2016 payment determination. At the time that this 

analysis was prepared, 8 of the 442 active Medicare-certified LTCHs did not receive the 

full annual percentage increase for the FY 2014 payment determination. We believe that 

a majority of LTCHs will continue to collect and submit data for the FY 2015 payment 

determination and subsequent years because they will continue to view the LTCHQR 

Program as an important step in improving the quality of care patients receive in the 

LTCHs. We believe that the burden associated with the LTCHQR Program is the time 

and effort associated with data collection. There are approximately 442 LTCHs currently 

reporting quality data to CMS. 

 In this proposed rule, we are retaining seven previously finalized measures, 

proposing revisions to two previously finalized measures, and are proposing three 

additional quality measures for inclusion in the LTCHQR Program. In section IX.C.7. of 

the preamble of this proposed rule, we are proposing three new quality measures for 

inclusion in the LTCHQR Program affecting the FY 2018 payment determination and 

subsequent years: (1) Percent of Long-Term Care Hospital Patients with an Admission 

and Discharge Functional Assessment and a Care Plan That Addresses Function; 

(2) Functional Outcome Measure: Change in Mobility among Long-Term Care Hospital 
 1661 

Patients Requiring Ventilator Support; and (3) National Healthcare Safety Network 

(NHSN) Ventilator-Associate Event (VAE) Outcome Measure. 

 Six of the previously adopted and newly proposed measures either will or would 

be collected via the NHSN. In section IX.C.7.b. of the preamble of this proposed rule, 

we are proposing to collect the NHSN VAE Outcome Measure. Normally, we would 

only discuss the burden associated with those measures that are being proposed in any 

given rule. Because we have access to information that now indicates our previous 

calculations for the CAUTI, CLABSI, MRSA, and CDI were incorrect (we estimated in 

the FY 2014 IPPS/LTCH PPS final rule (78 FR 50959 through 50964) that LTCHs would 

submit six infection events per month for each of these measures), we offer below the 

recalculation of the associated burden. Based on submissions to the NHSN, we now 

estimate that each LTCH will execute approximately 7 NHSN submissions per month; 1 

MRSA event; 1 CDI event; 2 CLABSI events; 3 CAUTI events (84 events per LTCH 

annually). This equates to a total of approximately 37,128 submissions of events to the 

NHSN from all LTCHs per year (includes CAUTI, CLABSI, MRSA, and CDI). The 

CDC estimated the public reporting burden of the collection of information for each 

measure to include the time for reviewing instructions, searching existing data sources, 

gathering and maintaining the data needed, and completing and reviewing the collection 

of information. MRSA and CDI events are estimated to require an average of 15 minutes 

per response (10 minutes of clinical (RN) time, and 5 minutes of clerical (Medical 

Record or Healthcare Information Technician). CAUTI is estimated to require an average 

of 29 minutes per response, and CLABSI events are estimated to require an average of 32 
 1662 

minutes per response. In addition, each LTCH must also complete a Patient Safety 

Monthly Reporting Plan estimated at 35 minutes per Plan and a Denominator for 

Specialty Care Area, which is estimated at 5 hours per month. Based on this estimate, we 

expect each LTCH would expend 8.6 hours per month for each LTCH, 103.2 hours 

annually for each LTCH, or 45,614.4 annually for all LTCHs reporting to the NHSN. 

 In addition, each LTCH must submit the Influenza Vaccination Coverage among 

Healthcare Personnel (NQF #0431), which the CDC estimates will take 10 minutes 

annually per LTCH, or an additional 73.66 hours for all LTCH annually. In total, the 

burden we have recalculated for all previously finalized measures (including CAUTI, 

CLABSI, MRSA, CDI, HCP, Patient Safety Monthly Reporting plan, and Denominator 

for Specialty Care Area) will equal 103.4 hours annually per LTCH or 45,072.8 hours for 

all LTCHs annually. 

 For the newly proposed VAE measure, which will also be reported by LTCHs 

through the CDC’s NHSN, the CDC estimates that each LTCH will submit 1 VAE per 

month, which will require approximately 22 minutes of clinical time per response. This 

equates to 22 minutes per LTCH monthly, 4.4 hours per LTCH annually, and 1,944.8 

hours for all LTCHs annually. According to the US Bureau of Labor and Statistics, the 

mean hourly wage for a registered nurse (RN) is $33.13191; the mean hourly wage for a 

medical records and health information technician is $16.81. However, in order to 

account for overhead and fringe benefits, we have double the mean hourly wage, making 

 

191 According to the U.S. Bureau of Labor Statistics, the mean hourly wage for a Registered Nurse is 

$31.48. See: http://www.bls.gov/ooh/healthcare/registered-nurses.htm. Fringe benefits are calculated at a 

rate of 36.25 percent in accordance with OMB Circular A-76, Attachment C, Table C.1. After adding the 

fringe benefits, the total hourly cost for an RN is $42.89. 
 1663 

it $66.26 for an RN, and $33.62 for a Medical Record or Health Information Technician. 

We estimate that the annual cost per each LTCH for the previously finalized measures, 

for which we have recalculated burden (including CAUTI, CLABSI, MRSA, CDI, HCP, 

Patient Safety Monthly Reporting plan, and Denominator for Specialty Care Area) to be 

$6,770.10 and that the total yearly cost to all LTCHs for the submission of data to NHSN 

would be $2,992,384.20. We estimate that the total cost for the newly proposed VAE 

measure would be $291.54 per LTCH annually, or $128,860.68 for all LTCHs annually. 

 The All-Cause Unplanned Readmission Measure for 30 Days Post-Discharge 

from Long-Term Care Hospitals is a Medicare claims-based measure; because 

claims-based measures can be calculated based on data that are already reported to the 

Medicare program for payment purposes, we believe there will be no additional impact. 

 The remaining five measures will be collected utilizing the LTCH CARE Data 

Set. The burden estimates associated with OMB control number 0938-1163 estimate that 

each LTCH has an impact data collection burden of 243.24 hours or $6,755.84 associated 

with collection of the LTCH CARE Data Set, which includes the following three 

measures: Percent of Residents or Patients with Pressure Ulcers That Are New or 

Worsened (NQF #0678); Percent of Residents or Patients Who Were Assessed and 

Appropriately Given the Seasonal Influenza Vaccine (NQF #0680), and the Application 

of Percent of Residents Experiencing One or More Falls with Major Injury (Long Stay) 

(NQF #0674). 

We also are proposing to use the LTCH CARE Data Set to report the two 

additional proposed measures, Functional Outcome Measure: Change in Mobility among 
 1664 

Long-Term Care Hospital Patients Requiring Ventilator Support; and Percent of LongTerm Care Hospital Patients with an Admission and Discharge Functional Assessment 

and a Care Plan That Addresses Function for the FY 2018 payment determination and 

subsequent years. In addition, the LTCH CARE Data Set will be used to report the 

previously finalized measure. We estimate the additional elements for two newly 

proposed measures will take 13.5 minutes of nursing/clinical staff time to report data for 

Admission assessment and 13 minutes of nursing/clinical staff time to report data for 

Discharge assessment, for a total of 26.5 minutes. In accordance with OMB control 

number 0920-0666, we estimate 202,050 discharges from all LTCHs annually, with an 

additional burden of 26.5 minutes. This would equate to 89,238.75 total hours or 201.9 

hours per LTCH. We believe this work will be completed by RN staff. As previously 

noted, per the US Bureau of Labor and Statistics, the mean hourly wage for a registered 

nurse (RN) is $33.13192. However, in order to account for overhead and fringe benefits, 

we have double the mean hourly wage, making it $66.26 for an RN. The total cost 

related to the two newly proposed functional status measures referenced above is 

estimated at $13,377.89 per LTCH annually, or $5,913,027.38 for all LTCHs annually. 

 Lastly, we are proposing to validate data submitted on the LTCH CARE Data Set 

by requesting portions of 1,300 patient charts from 260 LTCHs submitted during 

CY 2015 be copied and mailed to a CMS validation contractor. We estimate the total 

submission for each chart to be no more than 270 pages in length. In the FY 2013 

 

192 According to the U.S. Bureau of Labor Statistics, the mean hourly wage for a Registered Nurse is 

$31.48. See: http://www.bls.gov/ooh/healthcare/registered-nurses.htm. Fringe benefits are calculated at a 

rate of 36.25 percent in accordance with OMB Circular A-76, Attachment C, Table C.1. After adding the 

fringe benefits, the total hourly cost for an RN is $42.89. 
 1665 

IPPS/LTCH PPS final rule (77 FR 53269), we estimated the appropriate cost for sending 

charts under the Hospital IQR Program to be 12 cents per page in accordance with our 

photocopying payment methodology (68 FR 67955). We believe that the costs would be 

the same under the LTCHQR Program because we would use the same photocopying 

payment methodology. Each chart also will require approximately $4.00 shipping. Two 

hundred seventy pages at a rate of $0.12 per page with a $4.00 shipping cost would be 

$36.40 per chart. We estimate the total cost of sending charts selected for validation to 

be $36.40 multiplied by 1,300 charts for a total of $47,320. 

 In summary, the total cost for all previously finalized HAI and vaccination 

measures (CAUTI, CLABSI, MRSA, CDI, HCP, Patient Safety Monthly Reporting plan, 

and Denominator for Specialty Care Area) reported through the CDC’s NHSN, that we 

have recalculated based on new information regarding the number of infection events 

reported by LTCHs per month, is $6,770.10 per LTCH annually, or $2,992,384.20 for all 

LTCHs annually. The total cost per LTCH for the three newly proposed measures in this 

proposed rule (Functional Outcome Measure: Change in Mobility among Inpatients 

requiring Ventilator Support, Percent of LTCH Inpatients with an Admission and 

Discharge Functional Assessment and a Care Plan That Addresses Function, and 

Ventilator-Associated Events) is $13,669.43 per LTCH annually, or $6,041,886.06 for all 

LTCHs annually. The total cost for the 260 LTCHs selected under our newly proposed 

data accuracy validation policy is $47,320, which would be paid by CMS. 
 1666 

O. Effects of Proposals Regarding Electronic Health Record (EHR) Incentive Program 

and Hospital IQR Program 

 In sections IX.D. of the preamble of this proposed rule, we discuss proposed 

requirements for the EHR Incentive Program. We are proposing to align the Medicare 

EHR Incentive Program reporting and submission timelines for clinical quality measures 

for eligible hospitals and CAHs with the Hospital IQR Program’s reporting and 

submission timelines. 

 We have determined that the electronic submission of aggregate-level data using 

QRDA-III will not be feasible in 2015 for eligible hospitals and CAHs under the 

Medicare EHR Incentive Program. We are proposing to continue, for FY 2015, the 

policy we adopted for FY 2014 for eligible hospitals and CAHs submitting CQMs under 

the Medicare EHR Incentive Program. For FY 2015, eligible hospitals and CAHs would 

be able to electronically submit using a method similar to the 2012 and 2013 EHR 

Incentive Program electronic reporting pilot for eligible hospitals and CAHs, which used 

QRDA-I (patient-level data). Eligible hospitals and CAHs that are beyond their first year 

of meaningful use may continue to report aggregate CQM results through attestation. We 

also are clarifying our policy on zero denominators and the case threshold exemption for 

clinical quality measures. 

 We do not believe that our proposals to align the Medicare EHR Incentive 

program reporting and submission timelines for clinical quality measures with the 

Hospital IQR Program’s reporting and submission timelines and to allow the electronic 

submission of QRDA-I (patient-level data) for eligible hospitals and CAHs to electronic 
 1667 

submit CQMs under the Medicare EHR Incentive Program will have a significant impact. 

P. Effects of Proposed Revision of Regulations Governing Use and Release of Medicare 

Advantage Risk Adjustment Data 

 Under section X. of the preamble of this proposed rule, we are proposing to revise 

the existing regulations at § 422.310(f) to broaden the specified uses of risk adjustment 

data in order to strengthen program management and increase transparency in the MA 

program and to specify the conditions for release of risk adjustment data to entities 

outside of CMS. We are proposing to revise the regulations to specify four additional 

purposes for which CMS may use or release risk adjustment data submitted by MA 

organizations: (1) to conduct evaluations and other analysis to support the Medicare 

program (including demonstrations) and to support public health initiatives and other 

health care-related research; (2) for activities to support the administration of the 

Medicare program; (3) for activities conducted to support program integrity; and (4) for 

purposes explicitly permitted by other laws. In addition, the existing regulations do not 

specify conditions for release by CMS of risk adjustment data submitted by MA 

organizations. Therefore, we are proposing to add regulatory language to address CMS’ 

release of such data to non-CMS entities. 

 We have determined that the proposed regulatory amendments do not impose any 

mandatory costs on entities that may choose, under this proposal, to request data files 

from CMS for their research analyses or other purposes listed in the proposal. 

Requesting data from CMS is at the discretion of the requester. Therefore, we have 

determined that there are not any economically significant effects of the proposed 
 1668 

provisions. We also have determined that the proposed regulatory amendments would 

not impose a burden on the entity requesting data files. 

Q. Effects of Proposed Changes to Enforcement Provisions for Organ Transplant Centers 

 Under section XI. of the preamble of this proposed rule, we discuss our proposals 

to expand and clarify the current organ transplant regulation as it relates to a transplant 

program’s ability to request approval for participation in Medicare based on mitigating 

factors, the timelines for such review, and potential System Improvement Agreements 

that may allow a transplant program to improve outcomes and avert Medicare termination 

when outcomes have not met CMS requirements. Our proposals also would allow for 

consideration of factors such as innovative practice in the field of organ transplantation, 

and for potential mitigating factors consideration of a transplant program’s outcomes 

using Bayesian methodology for calculating outcomes for patient death and graft failure. 

 These proposals will not have a significant effect on Medicare and Medicaid 

programs as it will allow organ transplant programs to continue to participate in Medicare 

if approved based on mitigating factors or during the time established in the Systems 

Improvement Agreement. There is an added benefit to patients who receive transplants, 

and to the Medicare program, when a transplant program improves patient and graft 

survival through completion of a system Improvement Agreement. However, sufficient 

data are not currently available to quantify the added benefit of System Improvement 

Agreements or innovative practices. Therefore, we project only that the cost impact of 

the proposals to the Medicare and Medicaid programs would be negligible. 
 1669 

 Historical data reflect that between the date the transplant regulation was codified 

in 2007 and August 2013, CMS rendered a final determination for 129 organ transplant 

programs that applied for Medicare approval based on mitigating factors. Of the 129 

transplant programs, 20 terminated Medicare participation. An additional 33 transplant 

programs averted Medicare termination by successful completion of a Systems 

Improvement Agreement and resulting substantial improvement in patient and graft 

survival. The remaining programs were approved for mitigating factors based on 

improved outcomes (without needing a System Improvement Agreement), special 

circumstances, or came into compliance with CMS requirements during the mitigating 

factors review period. We estimate the cost associated with the application for mitigating 

factors at $10,000. This is based on the salary for the transplant administrator to prepare 

the documents for the application during the 30-day timeframe allotted. The cost does 

not represent any increase from what is anticipated in the existing transplant regulation 

related to mitigating factors. For transplant programs that enter into a Systems 

Improvement Agreement, the estimated cost to the transplant program is $200,000 to 

$250,000 based on reports from programs that have completed such Agreements in the 

past. Both a mitigating factors review and completion of a System Improvement 

Agreement are voluntary acts on the part of a hospital that maintains a transplant 

program. Since the 2007 effective date of the CMS regulation, only one hospital has 

elected not to file a mitigating factors review after being cited by CMS for a conditionlevel deficiency for patient outcomes or clinical experience, and few hospitals have 

declined a CMS offer to complete a System Improvement Agreement. Therefore, we 
 1670 

conclude that the costs involved in these activities are much lower for the hospital 

compared with other alternatives, such as filing an appeal and incurring the legal costs of 

that appeal. 

 Our proposals would not have a significant impact on a substantial number of 

small businesses or other small entities. Nor would they have a significant impact on 

small rural hospitals. 

II. Alternatives Considered 

 This proposed rule contains a range of proposed policies. It also provides 

descriptions of the statutory provisions that are addressed, identifies the proposed 

policies, and presents rationales for our decisions and, where relevant, alternatives that 

were considered. 

III. Overall Conclusion 

1. Acute Care Hospitals 

 Table I of section I.G. of this Appendix demonstrates the estimated distributional 

impact of the IPPS budget neutrality requirements for the proposed MS-DRG and wage 

index changes, and for the wage index reclassifications under the MGCRB. Table I also 

shows an overall decrease of 0.8 percent in operating payments. As discussed in section 

I.G. of this Appendix, we estimate that proposed operating payments will decrease by 

approximately $864 million in FY 2015 relative to FY 2014. However, when we account 

for the impact of the changes in Medicare DSH payments and the impact of the new 

additional payments based on uncompensated care in accordance with section 3133 of the 

Affordable Care Act, based on estimates provided by the CMS Office of the Actuary, 
 1671 

consistent with our policy discussed in section IV.F. of the preamble of this proposed 

rule, we estimate that operating payments would decrease by approximately $30 million 

relative to FY 2014. In addition, we estimate a savings of $28 million associated with the 

proposed HACs policies in FY 2015, which is an additional $2 million in savings as 

compared to FY 2014. We estimate that the expiration of the expansion of low-volume 

hospital payments for discharges beginning on April 1, 2015, under the Protecting Access 

to Medicare Act of 2014 (Pub. L. 113-93) will result in a decrease in payments of 

approximately $343 million relative to FY 2014. We estimate that the continuation of 

certain new technology add-on payments for FY 2015 will increase spending by 

approximately $7 million. Finally, we estimate that the proposed policies related to 

validation, including submission of and payment for secure electronic versions of medical 

information for validation for the FY 2017 payment determination and subsequent years, 

as described in the ICRs for the Hospital IQR Program in section XII.B.6. of the 

preamble of this proposed rule, will result in a cost savings to CMS of approximately 

$0.5 million. These estimates, combined with our estimated decrease in FY 2015 

operating payment of -$30 million, result in an estimated decrease of approximately $367 

million for FY 2015. We estimate that hospitals will experience a 1.2 percent increase in 

capital payments per case, as shown in Table III of section I.I. of this Appendix. We 

project that there will be a $126 million increase in capital payments in FY 2015 

compared to FY 2014. The proposed cumulative operating and capital payments would 

result in a net decrease of approximately $241 million to IPPS providers. The 
 1672 

discussions presented in the previous pages, in combination with the rest of this proposed 

rule, constitute a regulatory impact analysis. 

2. LTCHs 

 Overall, LTCHs are projected to experience an increase in estimated payments per 

discharge in FY 2015. In the impact analysis, we are using the proposed rates, factors, 

and policies presented in this proposed rule, including proposed updated wage index 

values and relative weights, and the best available claims and CCR data to estimate the 

change in payments under the LTCH PPS for FY 2015. Accordingly, based on the best 

available data for the 423 LTCHs in our database, we estimate that FY 2015 LTCH PPS 

payments will increase approximately $44 million relative to FY 2014 as a result of the 

proposed payment rates and factors presented in this proposed rule. In addition, we 

estimate that net effect of the projected impact of certain other proposed LTCH PPS 

policy changes (that is, the reinstatement of the moratorium on the full implementation of 

the “25 percent threshold” payment adjustment as discussed in section VII.E. of the 

preamble of this proposed rule; the reinstatement of the moratorium on the development 

of new LTCHs and LTCH satellite facilities and additional LTCH beds as discussed in 

section VII.G. of the preamble of this proposed rule; the proposed revision of the “greater 

than 3-day interruption of stay” policy as discussed in section VII.F. of the preamble of 

this proposed rule; the proposed revocation of onsite discharges and readmissions policy 

as discussed in section VII.H. of the preamble of this proposed rule; and the proposed 

payment adjustment for “subclause (II)” LTCHs as discussed in section VII.I. of the 

preamble of this proposed rule) is estimated to result in a reduction in LTCH PPS 
 1673 

payments of approximately $14 million. The impact analysis of the proposed payment 

rates and factors presented in this proposed rule under the LTCH PPS, in conjunction 

with the estimated payment impacts of certain other proposed LTCH PPS policy changes 

would result in a net increase of $30 million to LTCH providers. Additionally, we 

present the costs to LTCHs associated with the completion of the proposed data for the 

LTCHQR Program at $6.08 million or approximately $3.11 million more than FY 2014. 

IV. Accounting Statements and Tables 

A. Acute Care Hospitals 

 As required by OMB Circular A-4 (available at 

http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table V below, we have prepared an 

accounting statement showing the classification of the expenditures associated with the 

provisions of this proposed rule as they relate to acute care hospitals. This table provides 

our best estimate of the change in Medicare payments to providers as a result of the 

proposed changes to the IPPS presented in this proposed rule. All expenditures are 

classified as transfers to Medicare providers. 

 The savings to the Federal Government associated with the policies in this 

proposed rule are estimated at $241 million. 

Table V.—Accounting Statement: Classification of Proposed Estimated 

Expenditures under the IPPS from FY 2014 to FY 2015 

Category Transfers 

Annualized Monetized Transfers -$241 million 

From Whom to Whom Federal Government to IPPS Medicare Providers 
 1674 

B. LTCHs 

 As discussed in section I.L. of this Appendix, the impact analysis of the proposed 

payment rates and factors presented in this proposed rule under the LTCH PPS, As 

discussed in section I.L. of this Appendix, the impact analysis of the proposed payment 

rates and factors presented in this proposed rule under the LTCH PPS, in conjunction 

with the estimated payment impacts of certain other proposed LTCH PPS policy changes 

(that is, the reinstatement of the moratorium on the full implementation of the 

“25-percent threshold” payment adjustment; the reinstatement of the moratorium on the 

development of new LTCHs and LTCH satellite facilities and increase in the number of 

LTCH beds; the proposed revision of the “greater than 3-day interruption of stay” policy; 

the proposed revocation of onsite discharges and readmissions policy; and the proposed 

payment adjustment for “subclause (II)” LTCHs), is projected to result in an increase in 

estimated aggregate LTCH PPS payments in FY 2015 relative to FY 2014 of 

approximately $30 million based on the data for 423 LTCHs in our database that are 

subject to payment under the LTCH PPS. Therefore, as required by OMB Circular A-4 

(available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table VI below, 

we have prepared an accounting statement showing the classification of the expenditures 

associated with the provisions of this proposed rule as they relate to the proposed changes 

to the LTCH PPS. Table VI provides our best estimate of the estimated increase in 

Medicare payments under the LTCH PPS as a result of the proposed payment rates and 

factors and other provisions presented in this proposed rule based on the data for the 

423 LTCHs in our database. All expenditures are classified as transfers to Medicare 
 1675 

providers (that is, LTCHs). Lastly, we present the costs to LTCHs associated with the 

completion of the proposed data for the LTCHQR Program at $6.08 million or 

approximately $3.11 million more than FY 2014. 

 The cost to the Federal Government associated with the proposed policies for 

LTCHs in this proposed rule is estimated at $30 million. 

TABLE VI.—Accounting Statement: Classification of Proposed Estimated 

Expenditures from the FY 2014 LTCH PPS to the FY 2015 LTCH PPS 

Category Transfers 

Annualized Monetized Transfers $30 million 

From Whom to Whom Federal Government to LTCH Medicare Providers 

Category Costs 

Annualized Monetized Costs for 

LTCHs to Submit Quality Data $3.11 million 

V. Regulatory Flexibility Act (RFA) Analysis 

 The RFA requires agencies to analyze options for regulatory relief of small 

entities. For purposes of the RFA, small entities include small businesses, nonprofit 

organizations, and small government jurisdictions. We estimate that most hospitals and 

most other providers and suppliers are small entities as that term is used in the RFA. The 

great majority of hospitals and most other health care providers and suppliers are small 

entities, either by being nonprofit organizations or by meeting the SBA definition of a 

small business (having revenues of less than $7.0 million to $35.5 million in any 1 year). 

(For details on the latest standards for health care providers, we refer readers to page 36 

of the Table of Small Business Size Standards for NAIC 622 found on the SBA Web site 

at: http://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf.) 
 1676 

 For purposes of the RFA, all hospitals and other providers and suppliers are 

considered to be small entities. Individuals and States are not included in the definition 

of a small entity. We believe that the provisions of this proposed rule relating to acute 

care hospitals would have a significant impact on small entities as explained in this 

Appendix. Because we lack data on individual hospital receipts, we cannot determine the 

number of small proprietary LTCHs. Therefore, we are assuming that all LTCHs are 

considered small entities for the purpose of the analysis in section I.L. of this Appendix. 

MACs are not considered to be small entities. Because we acknowledge that many of the 

affected entities are small entities, the analysis discussed throughout the preamble of this 

proposed rule constitutes our regulatory flexibility analysis. In this proposed rule, we are 

soliciting public comments on our estimates and analysis of the impact of our proposals 

on those small entities. Any public comments that we receive and our responses will be 

presented in the final rule. 

VI. Impact on Small Rural Hospitals 

 Section 1102(b) of the Social Security Act requires us to prepare a regulatory 

impact analysis for any proposed or final rule that may have a significant impact on the 

operations of a substantial number of small rural hospitals. This analysis must conform 

to the provisions of section 603 of the RFA. With the exception of hospitals located in 

certain New England counties, for purposes of section 1102(b) of the Act, we define a 

small rural hospital as a hospital that is located outside of an urban area and has fewer 

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 
 1677 

adjacent urban area. Thus, for purposes of the IPPS and the LTCH PPS, we continue to 

classify these hospitals as urban hospitals. (We refer readers to Table I in section I.G. of 

this Appendix for the quantitative effects of the proposed policy changes under the IPPS 

for operating costs.) 

VII. Unfunded Mandates Reform Act Analysis 

 Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) also 

requires that agencies assess anticipated costs and benefits before issuing any rule whose 

mandates require spending in any 1 year of $100 million in 1995 dollars, updated 

annually for inflation. In 2014, that threshold level is approximately $141 million. This 

proposed rule will not mandate any requirements for State, local, or tribal governments, 

nor will it affect private sector costs. 

VIII. Executive Order 12866 

In accordance with the provisions of Executive Order 12866, the Executive Office 

of Management and Budget reviewed this proposed rule. 
 1678 

Appendix B: Recommendation of Update Factors for Operating Cost Rates of 

Payment for Inpatient Hospital Services 

I. Background 

 Section 1886(e)(4)(A) of the Act requires that the Secretary, taking into 

consideration the recommendations of MedPAC, recommend update factors for inpatient 

hospital services for each fiscal year that take into account the amounts necessary for the 

efficient and effective delivery of medically appropriate and necessary care of high 

quality. Under section 1886(e)(5) of the Act, we are required to publish update factors 

recommended by the Secretary in the proposed and final IPPS rules, respectively. 

Accordingly, this Appendix provides the recommendations for the update factors for the 

IPPS national standardized amount, the Puerto Rico-specific standardized amount, the 

hospital-specific rate for SCHs and MDHs, and the rate-of-increase limits for certain 

hospitals excluded from the IPPS, as well as LTCHs. In prior years, we have made a 

recommendation in the IPPS proposed rule and final rule for the update factors for the 

payment rates for IRFs and IPFs. However, for FY 2015, we plan to include the 

Secretary’s recommendation for the update factors for IRFs and IPFs in separate Federal 

Register documents at the time that we announce the annual updates for IRFs and IPFs. 

We also discuss our response to MedPAC’s recommended update factors for inpatient 

hospital services. 
 1679 

II. Inpatient Hospital Update for FY 2015 

A. Proposed FY 2015 Inpatient Hospital Update 

 As discussed in section IV. B of the preamble to this proposed rule, for FY 2015, 

consistent with section 1886(b)(3)(B) of the Act, as amended by sections 3401(a) and 

10319(a) of the Affordable Care Act, we are setting the applicable percentage increase by 

applying the following adjustments in the following sequence. Specifically, the 

applicable percentage increase under the IPPS is equal to the rate-of-increase in the 

hospital market basket for IPPS hospitals in all areas, subject to a reduction of onequarter of the applicable percentage increase (prior to the application of other statutory 

adjustments; also referred to as the market basket update or rate-of-increase (with no 

adjustments)) for hospitals that fail to submit quality information under rules established 

by the Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act and a 33 1/3 

percent reduction to three-fourths of the applicable percentage increase (prior to the 

application of other statutory adjustments; also referred to as the market basket update or 

rate-of-increase (with no adjustments)) for hospitals not considered to be meaningful 

electronic health record (EHR) users in accordance with section 1886(b)(3)(B)(ix) of the 

Act, and then subject to an adjustment based on changes in economy-wide productivity 

(the multifactor productivity (MFP) adjustment), and an additional reduction of 

0.2 percentage point as required by section 1886(b)(3)(B)(xii) of the Act. Sections 

1886(b)(3)(B)(xi) and (b)(3)(B)(xii) of the Act, as added by section 3401(a) of the 

Affordable Care Act, state that application of the MFP adjustment and the additional 
 1680 

FY 2015 adjustment of 0.2 percentage point may result in the applicable percentage 

increase being less than zero. 

 Based on the most recent data available for this FY 2015 proposed rule, in 

accordance with section 1886(b)(3)(B) of the Act, we are proposing to base the proposed 

FY 2015 market basket update used to determine the applicable percentage increase for 

the IPPS on IHS Global Insight, Inc.’s (IGI’s) first quarter 2014 forecast of the 

FY 2010-based IPPS market basket rate-of-increase with historical data through fourth 

quarter 2013, which is estimated to be 2.7 percent. In accordance with section 

1886(b)(3)(B) of the Act, as amended by section 3401(a) of the Affordable Care Act, in 

section IV.B.1. of the preamble of this FY 2015 IPPS/LTCH PPS proposed rule, we are 

proposing a multifactor productivity (MFP) adjustment (the 10-year moving average of 

MFP for the period ending FY 2015 ) of 0.4 percent. Therefore, based on IGI’s first 

quarter 2014 forecast of the FY 2010-based IPPS market basket, depending on whether a 

hospital submits quality data under the rules established in accordance with section 

1886(b)(3)(B)(viii) of the Act (hereafter referred to as a hospital that submits quality 

data) and is a meaningful EHR user under section 1886(b)(3)(B)(ix) of the Act (hereafter 

referred to as a hospital that is a meaningful EHR user), there are four possible applicable 

percentage increases that can be applied to the standardized amount. Below we provide a 

table summarizing the four proposed applicable percentage increases. 

 
 1681 

FY 2015 

Hospital 

Submitted 

Quality 

Data and is 

a 

Meaningful 

EHR User 

Hospital 

Submitted 

Quality Data 

and is NOT a 

Meaningful 

EHR User 

Hospital Did 

NOT Submit 

Quality Data 

and is a 

Meaningful 

EHR User 

Hospital Did 

NOT Submit 

Quality Data 

and is NOT a 

Meaningful 

EHR User 

Market Basket 

Rate-of-Increase 2.7 2.7 2.7 2.7

Adjustment for Failure to 

Submit Quality Data under 

Section 1886(b)(3)(B)(viii) 

of the Act 0.0 0.0 -0.675 -0.675

Adjustment for Failure to 

be a Meaningful EHR User 

under Section 

1886(b)(3)(B)(ix) of the 

Act 0.0 -0.675 0.0 -0.675

MFP Adjustment under 

Section 1886(b)(3)(B)(xi) 

of the Act -0.4 -0.4 -0.4 -0.4

Statutory Adjustment 

under Section 

1886(b)(3)(B)(xii) of the 

Act -0.2 -0.2 -0.2 -0.2

Proposed Applicable 

Percentage Increase 

Applied to Standardized 

Amount 2.1 1.425 1.425 0.75

B. Proposed Update for SCHs and MDHs for FY 2015 

 Section 1886(b)(3)(B)(iv) of the Act provides that the FY 2015 applicable 

percentage increase in the hospital-specific rate for SCHs and MDHs equals the 

applicable percentage increase set forth in section 1886(b)(3)(B)(i) of the Act (that is, the 

same update factor as for all other hospitals subject to the IPPS). 

 As discussed in section IV.G. of the preamble of this proposed rule, section 1106 

of the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67), enacted on 
 1682 

December 26, 2013, extended the MDH program from the end of FY 2013 through the 

first half of FY 2014 (that is, for discharges occurring before April 1, 2014). 

Subsequently, section 106 of the Protecting Access to Medicare Act of 2014 (Pub. L. 

113-93), enacted on April 1, 2014, further extended the MDH program through the first 

half of FY 2015 (that is, for discharges occurring before April 1, 2015). Prior to the 

enactment of Pub. L. 113-67, the MDH program was to be in effect through the end of 

FY 2013 only. The MDH program expires for discharges beginning on April 1, 2015, 

under current law. Accordingly, the proposed update of the hospital-specific rates for 

FY 2015 for MDHs will apply in determining payments for FY 2015 discharges 

occurring before April 1, 2015. 

 As mentioned above, the update to the hospital specific rate for SCHs and MDHs 

is subject to section 1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and 

10319(a) of the Affordable Care Act. Accordingly, depending on whether a hospital 

submits quality data and is a meaningful EHR user, we are proposing the same four 

possible applicable percentage increases in the table above to the hospital-specific rate 

applicable to SCHs and MDHs. 

C. Proposed FY 2015 Puerto Rico Hospital Update 

 Section 401(c) of Pub. L. 108-173 amended section 1886(d)(9)(C)(i) of the Act 

and states that, for discharges occurring in a fiscal year (beginning with FY 2004), the 

Secretary shall compute an average standardized amount for hospitals located in any area 

of Puerto Rico that is equal to the average standardized amount computed under 

subclause (I) for FY 2003 for hospitals in a large urban area (or, beginning with FY 2005, 
 1683 

for all hospitals in the previous fiscal year) increased by the applicable percentage 

increase under subsection (b)(3)(B) for the fiscal year involved. Therefore, the update to 

the Puerto Rico-specific operating standardized amount is subject to the applicable 

percentage increase set forth in section 1886(b)(3)(B)(i) of the Act as amended by 

sections 3401(a) and 10319(a) of the Affordable Care Act (that is, the same update factor 

as for all other hospitals subject to the IPPS). Accordingly, we are proposing an 

applicable percentage increase to the Puerto Rico-specific standardized amount of 

2.1percent. 

D. Proposed Update for Hospitals Excluded from the IPPS for FY 2015 

 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 hospitals, cancer 

hospitals, and hospitals located outside the 50 States, the District of Columbia, and Puerto 

Rico (that is, short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the 

Northern Mariana Islands, and America Samoa). Section 1886(b)(3)(B)(ii) of the Act 

sets the percentage increase in the rate-of-increase limits equal to the market basket 

percentage increase. In accordance with § 403.752(a) of the regulations, RNHCIs are 

paid under the provisions of § 413.40, which also use section 1886(b)(3)(B)(ii) of the Act 

to update the percentage increase in the rate-of-increase limits. 

 Currently, children’s hospitals, PPS-excluded cancer hospitals, RNHCIs, and 

short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern 

Mariana Islands, and American Samoa are among the remaining types of hospitals still 

paid under the reasonable cost methodology, subject to the rate-of-increase limits. We 
 1684 

are proposing that the FY 2015 rate-of-increase percentage to be applied to the target 

amount for children’s hospitals, PPS-excluded cancer hospitals, RNHCIs, and short-term 

acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana 

Islands, and American Samoa would be the percentage increase in the IPPS operating 

market basket. For this proposed rule, the current estimate of the FY 2015 IPPS 

operating market basket percentage increase is 2.7 percent. 

E. Proposed Update for LTCHs for FY 2015 

 Section 123 of Pub. L. 106-113, as amended by section 307(b) of Pub. L. 106-554 

(and codified at section 1886(m)(1) of the Act), provides the statutory authority for 

updating payment rates under the LTCH PPS. 

 As discussed in section V.A. of the Addendum to this proposed rule, we are 

proposing to establish an update to the LTCH PPS standard Federal rate for FY 2015 

based on the full LTCH PPS market basket increase estimate (for this proposed rule, 

estimated to be 2.7 percent), subject to an adjustment based on changes in economy-wide 

productivity and an additional reduction required by sections 1886(m)(3)(A)(ii) and 

(m)(4)(E) of the Act. In accordance with the LTCHQR Program under section 

1886(m)(5) of the Act, we are proposing to reduce the annual update to the LTCH PPS 

standard Federal rate by 2.0 percentage points for failure of a LTCH to submit the 

required quality data. The MFP adjustment described in section 1886(b)(3)(B)(xi)(ii) of 

the Act is currently estimated to be 0.4 percent for FY 2015. In addition, section 

1886(m)(3)(A)(ii) of the Act requires that any annual update for FY 2015 be reduced by 

the “other adjustment” at section 1886(m)(4)(E) of the Act, which is 0.2 percentage point. 
 1685 

Therefore, based on IGI’s first quarter 2014 forecast of the FY 2015 LTCH PPS market 

basket increase, we are proposing an annual update to the LTCH PPS standard Federal 

rate of 2.1 percent (that is, the current proposed FY 2015 estimate of the market basket 

rate-of-increase of 2.7 percent less an adjustment of 0.4 percentage point for MFP and 

less 0.2 percentage point). Accordingly, we are proposing to apply an update factor of 

1.021 in determining the LTCH PPS standard Federal rate for FY 2015. For LTCHs that 

fail to submit quality data for FY 2015, we are proposing an annual update to the LTCH 

PPS standard Federal rate of 0.1 percent (that is, the proposed annual update for FY 2015 

of 2.1 percent less 2.0 percentage points for failure to submit the required quality data in 

accordance with section 1886(m)(5)(C) of the Act and our rules) by applying an update 

factor of 1.001 in determining the LTCH PPS standard Federal rate for FY 2015. 

Furthermore, we are proposing an adjustment for the final year of the 3-year phase-in of 

the one-time prospective adjustment to the standard Federal rate under § 412.523(d)(3) 

by applying a factor of 0.98734 (or approximately –1.3 percent) in FY 2015, consistent 

with current law. 

III. Secretary’s Recommendations 

 MedPAC is recommending an inpatient hospital update equal to 3.25 percent for 

FY 2015. MedPAC’s rationale for this update recommendation is described in more 

detail below. As mentioned above, section 1886(e)(4)(A) of the Act requires that the 

Secretary, taking into consideration the recommendations of MedPAC, recommend 

update factors for inpatient hospital services for each fiscal year that take into account the 

amounts necessary for the efficient and effective delivery of medically appropriate and 
 1686 

necessary care of high quality. Consistent with current law, depending on whether a 

hospital submits quality data and is a meaningful EHR user, we are recommending the 

four possible applicable percentage increases to the standardized amount listed in the 

table under section II. of this Appendix B. We are recommending that the same 

applicable percentage increases apply to SCHs and MDHs. For the Puerto Rico-specific 

standardized amount, we are recommending an update of 2.1 percent. 

 In addition to making a recommendation for IPPS hospitals, in accordance with 

section 1886(e)(4)(A) of the Act, we are recommending update factors for certain other 

types of hospitals excluded from the IPPS. Consistent with our policies for these 

facilities, we are recommending an update to the target amounts for children's hospitals, 

cancer hospitals, RNHCIs, and short-term acute care hospitals located in the U.S. Virgin 

Islands, Guam, the Northern Mariana Islands, and American Samoa of 2.7 percent. 

 For FY 2015, consistent with policy set forth in section VII. of the preamble of 

this proposed rule, we are recommending an update of 2.1 percent (that is, the current 

FY 2015 estimate of the LTCH PPS market basket rate-of-increase of 2.7 percent less a 

proposed adjustment of 0.4 percentage point for MFP and less 0.2 percentage point) to 

the LTCH PPS standard Federal rate. 
 1687 

IV. MedPAC Recommendation for Assessing Payment Adequacy and Updating 

Payments in Traditional Medicare 

 In its March 2014 Report to Congress, MedPAC assessed the adequacy of current 

payments and costs, and the relationship between payments and an appropriate cost base. 

MedPAC recommended an update to the hospital inpatient rates equal to 3.25 percent 

concurrent with changes to the outpatient prospective payment system and with initiating 

change to the LTCH PPS. We refer the reader to the March 2014 MedPAC report, which 

is available for download at www.medpac.gov for a complete discussion on this 

recommendation. MedPAC expects Medicare margins to remain low in 2014. At the 

same time, MedPAC’s analysis finds that efficient hospitals have been able to maintain 

positive Medicare margins while maintaining a relatively high quality of care. 

 Response: With regard to MedPAC’s recommendation of an update to the 

hospital inpatient rates equal to 3.25 percent, for FY 2015, as discussed above, sections 

3401(a) and 10319(a) of the Affordable Care Act amended section 1886(b)(3)(B) of the 

Act. Section 1886(b)(3)(B) of the Act, as amended by these sections, sets the 

requirements for the FY 2015 applicable percentage increase. Therefore, we are 

proposing an applicable percentage increase for FY 2015 of 2.1 percent, provided the 

hospital submits quality data and is a meaningful EHR user, consistent with these 

statutory requirements. 

 We note that, because the operating and capital prospective payment systems 

remain separate, we are continuing to use separate updates for operating and capital 
 1688 

payments. The proposed update to the capital rate is discussed in section III. of the 

Addendum to this proposed rule. 

[FR Doc. 2014-10067 Filed 04/30/2014 at 4:15 pm; Publication Date: 05/15/2014]