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 Pr ospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Proposed Fiscal Year 2015 Rates; Qua lity Reporting Requirements for Specific Providers; Reasonable Compensation E quivalents 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 Me dicaid Services (CMS), HHS.

ACTION: Proposed rule.

SUMMARY: We are proposing to revise the Me dicare hospital inpa tient 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 stat utory provisions contained in the Patient

Protection and Affordable Care Act and the Health Care and Edu cation Reconciliation Act of 2010 (collectively known as the Afford able Care Act), the Protecting Access to Medicare Act of 2014, and other legislat ion. 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 proposi ng to update the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonabl e cost basis subject2 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 prosp ective payment system (PPS) fo r inpatient hosp ital services provided by long-term care hos pitals (LTCHs) and to im plement certain statutory changes to the LTCH PPS under the Afford able 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 prop osing to revise the interruption of stay policy for LTCHs and to retire the “5 per cent” payment adjustment for co-located LTCHs. While many of the statutory mandate s of the Pathway for SGR Reform Act will apply to discharges occurring on or after Oc tober 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 indir ect medical education (IME) payments. We are proposing to establish new requirements or revise requirements for quality reporting by specific providers (acute care hospita ls, 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 R eadmissions Reduction Program, and the Hospital-Acquired Condition (HAC) Reduction Program. In addition, we are proposing3 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 se rvices furnished by physicians to teaching hospitals excluded from the IPPS; regulatory re visions to broaden the specified uses of risk adjustment data and to specify the conditi ons 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 reporti ng and submission timelines for clinical quality measures for the Medicare EHR In centive Program for eligible hospitals and critical access hospitals (CAHs) with the reporting and submission timelines for the Hospital IQR Program. In addition, we provi de guidance and clarif ication of certain policies for eligible hospitals and CAHs such as our policy for reporting zero denominators on clinical quality measures a nd our policy for case threshold exemptions.

DATES : Comment Period: To be assured cons ideration, comments must be received at one of the addresses provided below, no late r than 5 p.m. EDT on [insert 60 days from date of public display at the O ffice 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 wr itten 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 co mments 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 H ubert H. Humphrey Building is not readily available to persons without Federal G overnment 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 fo r persons wishing to re tain 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 indicat ed as appropriate for hand or courier delivery may be delayed and rece ived 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, a nd 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 Educa tion, Capital Prospective Payment, Excluded Hospitals, and Medicare Disproporti onate Share Hospital (DSH) Issues. Michele Hudson, (410) 786-4487, and Judith Richter, (410) 786-2590, Long-Term Care Hospital Prospective Pa yment 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 Inpa tient Quality Reporting and Hospital Value-Based Purchasing--Program Admini stration, Validation, and Reconsideration

Issues. Karen Nakano, (410) 786-6889, Hospital I npatient Quality Reporting--Measures Issues Except Hospital Consumer Assessmen t of Healthcare Providers and Systems Issues; and Readmission Measures for Hospitals Issues. Elizabeth Goldstein, (410) 786-6665, Ho spital Inpatient Qu ality Reporting-- Hospital Consumer Assessment of Healthcare Providers and System s 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 R obert Kuhl (410) 786-4597, Reasonable Compensation Equivalent (RCE) Limits for Physician Services Provided in Providers. Ann Hornsby, (410) 786-1181, and Jenni fer Harlow, (410) 786-4549, Medicare Advantage Encounter Data Issues. Thomas Hamilton, (410) 786-6763, Orga n 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 view ing by the public, including any personally

identifiable or confidential business informa tion that is included in a comment. We post all public comments received before the cl ose of the comment period on the following Web site as soon as possible afte r 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 Sy stem (FDsys), a service of the U.S. Government Printing Office. This databa se can be accessed via the Internet at: http://www.gpo.gov/fdsys

.8 Tables Available Only through th e Internet on the CMS Web Site In the past, a majority of the tables re ferred to throughout this preamble and in the Addendum to the proposed rule and th e final rule were published in the Federal Register as part of the annual proposed and final ru les. 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 avai lable 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 Pa ge” or “Acute Inpatient – Files for

Download”. The LTCH PPS tables for this FY 2015 proposed rule are available only through the Internet on th e CMS Web site at: http://www.cms.gov/Medicare/MedicareFee-for-Service-Payment/LongTer mCareHospitalPPS/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 re aders 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 Tre itel at (410) 786-4552. Acronyms 3M 3M Health Information System

AAMC Association of Amer ican Medical Colleges

ACGME Accreditation Council for Graduate Medical Education9 ACoS American College of Surgeons AHA American Hospital Association AHIC American Health Information Community

AHIMA American Health Inform ation 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 Di agnosis Related Group System APRN Advanced practice registered nurse ARRA American Recovery and Re investment Act of 2009, Pub. L. 111-5 ASCA Administrative Simplificati on Compliance Act of 2002, Pub. L. 107-105 ASITN American Society of Interven tional 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 [S tate Children's Health Insurance Program] Balanced Budget Re finement Act of 1999, Pub. L. 106-113 BIPA Medicare, Medicai d, and SCHIP [State Childr en’s Health Insurance10 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 Assessm ent 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-associ ated bloodstream infection CIPI Capital input price index

CMI Case-mix index

CMS Centers for Medicare & Medicaid Services11

CMSA Consolidated Metr opolitan Statistical Area

COBRA Consolidated Omnibus Rec onciliation 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 professional12 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 Council13 HIS Health information system HIT Health information technology HMO Health maintenance organization HPMP Hospital Payment Monitoring Program HSA Health savings account HSCRC [Maryland] Health Serv ices 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 Classifica tion of Diseases, Ninth Revision,

Clinical Modification

ICD-10-CM International Classifica tion of Diseases, Tenth Revision,

Clinical Modification

ICD-10-PCS International Classificati on of Diseases, Tent h Revision, Procedure Coding System ICR Information collection requirement IGI IHS Global Insight, Inc.

IHS Indian Health Service

IME Indirect medical education I-O Input-Output14

IOM Institute of Medicine IPF Inpatient psychiatric facility IPFQR Inpatient Psychiatric Faci lity Quality Reporting [Program] IPPS [Acute care hospital] inpatie nt 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 Index15 MGCRB Medicare Geographic Cl assification 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, Im provement, and Modernization Act of 2003, Pub. L. 108-173

MMEA Medicare and Medicaid Ex tenders Act of 2010, Pub. L. 111-309 MMSEA Medicare, Medicaid, and SCHI P 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 Industr ial 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 Vita l and Health Statistics NECMA New England County Metropolitan Areas16 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 Ho spital Reporting Initiative OACT [CMS] Office of the Actuary OBRA 86 Omnibus Budget Reconc iliation Act of 1986, Pub. L. 99-509 OES Occupational em ployment 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 ho spital quality reporting PMSAs Primary metropolit an statistical areas

POA Present on admission PPI Producer price index17 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 a nd 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 Flexibil ity 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 psychiatri c long-term care (hospital)

RRC Rural referral center RSMR Risk-standardized mortality rate

RSRR Risk-standard readmission rate RTI Research Triangle In stitute, International18 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 Res ponsibility Act of 1982, Pub. L. 97-248 TEP Technical expert panel THA/TKA Total hip arthroplas ty/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. 104-419 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 Legi slation Discussed in this Proposed Rule

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

Care and Education Reconcilia tion 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 Medi care Act of 2014 (Pub. L. 113-93) D. Summary of the Provisions of This Proposed Rule20 II. Proposed Changes to Medicare Seve rity 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 Standa rdized Amounts Required by Pub. L. 110-90 a. Prospective Adjustment Require d 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 Calculation21 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 Reporti ng in Preparation for Tran sition to ICD-10-CM and

ICD-10-PCS 5. Proposal Regarding Current HACs a nd Previously Considered Candidate

HACs 6. RTI Program Evaluation 7. Current and Previously Cons idered Candidate HACs—RTI Report on

Evidence-Based Guidelines G. Proposed Changes to Sp ecific MS-DRG Classifications 1. Discussion of Changes to Coding System and Basis for Proposed MS-DRG Updates

a. Conversion of MS-DRGs to the Inte rnational Classifica tion of Diseases, 10 th 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 ® Wafer22

b. Endovascular Embolization or Occlusion of Head and Neck 3. MDC 4 (Diseases and Disorders of th e Ear, Nose, Mouth and Throat): Avery Breathing Pacemaker System 4. MDC 5 (Diseases and Disord ers 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 Neonate s 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 Comorb idities (MCCs) and Complications or Comorbidities (CCs) Severity Levels for FY 201523 b. Coronary Atherosclerosis Du e to Calcified Coronary Lesion 11. Complications or Comorb idity (CC) Exclusions List a. Background of the CC List and the CC Exclusions List b. Proposed CC Exclusi ons 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 Developi ng 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. Background24 2. Public Input Before Publicati on 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 An eurysm (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 Appenda ge 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 Areas25

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 Provider s Other Than Acute Care Hospitals under

the IPPS

D. Verification of Wo rksheet S-3 Wage Data E. Method for Computing the Propos ed FY 2015 Unadjusted Wage Index F. Proposed Occupational Mix Adjustme nt to the Proposed FY 2015 Wage Index 1. Development of Data for the Pro posed FY 2015 Occupational Mix Adjustment Based on the 2010 Occupational Mix Survey 2. New 2013 Occupational Mix Su rvey 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 Occupa tional Mix Adjustment and the Proposed Occupational Mix Adjusted Wage Index 2. Proposed Application of the Rural, Imputed, and Frontier Floors26 a. Proposed Rural Floor b. Proposed Imputed Floor and A lternative, 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 Sec tion 1886(d)(8)(B) of the Act Seeking Reclassification by the MGCRB c. Rural Counties No Longer Meeting th e Criteria to be Redesignated as Lugar 4. Waiving Lugar Redesignation fo r the Out-Migration Adjustment 5. Update of Application of Urba n to Rural Reclassification Criteria I. Proposed FY 2015 Wage Index Adju stment Based on Commuting Patterns of Hospital Employees27 J. Process for Requests for Wage Index Data Corrections K. Notice of Change to Wa ge Index Development Timetable L. Labor-Related Share for the Proposed FY 2015 Wage Index IV. Other Decisions and Proposed Change s 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 I npatient Hospital U pdates for FY 2015 (§§ 412.64(d) and 412.211(c)) 1. Proposed FY 2015 Inpa tient Hospital Update 2. Proposed FY 2015 Puerto Rico Hospital Update C. Rural Referral Centers (RRCs): Pr oposed 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 Protecti ng 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 201528 2. Proposed IME Medicare Part C A dd-On Payments to Sole Community Hospitals (SCHs) That Are Paid Accordi ng 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 Shar e 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 Sec tion 3133 of the Affordable Care Act (§ 412.106)

a. General Discussion b. Eligibility for Empirically Ju stified 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 Program29 H. Hospital Readmissions Reduction Program: Proposed Changes for FY 2015 through FY 2017 (§§ 412.150 through 412.154) 1. Statutory Basis for the Hosp ital 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 Pl anned 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 Ar throplasty and Total Knee Arthroplasty (THA/TKA) 30-Day Readmission Measure Cohort c. Anticipated Effect of Pr oposed Refinements on Measures 5. No Proposed Expansion of the Applicable Conditions for FY 2016 6. Proposed Expansion of the Appli cable 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) Surgery30 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 Readmi ssions 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 Pr ogram 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 Am ount 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 Measures31 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 Co st 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 a nd Performance Periods for the FY 2017 Hospital VBP Program c. Proposed Clinical Care - Proces s Domain Performance Period and Baseline Period for the FY 2017 Hospital VBP Program d. Proposed Patient and Caregive r-Centered Experience of Care/Care

Coordination Domain Performance Period and Baseline Period for the FY 2017 Hospital VBP Program32 e. Proposed Safety Domain Perfor mance Period and Base line 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 Clinic al 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 an d 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 Performan ce Standards for the FY 2017, FY 2018, and FY 2019 Hospital VBP Programs33 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 fo r the FY 2017 Hospital VBP Program for Hospitals Receiving Scores on Fewer than Four Domains 12. Proposed Minimum Numbers of Ca ses 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 Meas ures – Efficiency and Cost Reduction

Domain e. Proposed Minimum Number of Meas ures – Patient and Caregiver Centered Experience of Care/Care C oordination (PEC/CC) Domain34 13. Applicability of the Hospital VBP Program to Maryland Hospitals 14. Disaster/Extraordinary Circum stance 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 Hospita ls and Performance Scoring Policy e. Reporting Hospital-Specific Informa tion, Including the Review and Correction

of Information

f. Limitation on Administ rative 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 Ho spitals and Performance Scoring35

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 fo r 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 a nd 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 Agreements36 6. Proposed Regulatory Clarification A pplicable 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 Ho spitals Excluded from the IPPS A. Proposed Rate-of-Increase in Paym ents to Excluded Hospitals for FY 201537 B. Proposed Updates to the Reasonabl e 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 R eclassifications as Rural for CAHs 3. Proposed Revision of the Requirement s 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 Beneficiaries38 4. Administrative Simplification Comp liance Act (ASCA) and Health Insurance Portability and Accountability Act (HIPAA) Compliance B. Proposed Medicare Severity L ong-Term Care Diagnosis-Related Group (MS-LTC-DRG) Classifications a nd 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 Developm ent 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 Relativ e 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. Overview39 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 Hospita l Quality Reporting (LTCHQR) Program 1. Background 2. Proposed Reduction to the Annual Upda te 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 Bask et Update for LTCHs for FY 2015 3. Proposed Adjustment for the Final Y ear of the Phase-In of the One-Time Prospective Adjustment to the Stan dard 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 Di fferent Urban CBSA under the New OMB

Labor Market Area Delineations40 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 Po licy under the LTCH PPS 1. Background 2. Thresholds Used in Recent Statutory Programs 3. Proposed Changes to the Greater Th an 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 LTC H 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 Provide r Cost Reports; Administrative Appeals by

Providers and Judicial Review41 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 Clai ms Required in Provider Cost Reports and for Provider Administrative Appeals 1. Proposed Addition to the Cost Re porting Regulations of the Substantive Reimbursement Requirement of an Appropriate Cost Report Claim 2. Proposed Revisions to the Provide r Reimbursement Appeal Regulations C. Proposed Conforming Changes to the Board Appeal Regulations and Corresponding Revisions to the C ontractor Hearing Regulations

1. Technical Corrections and C onforming 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 Requirement s for Specific Providers and Suppliers A. Hospital Inpatient Qu ality Reporting (IQR) Program42 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 A dopted 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 Ar throplasty 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 IQ R Program Measures for the FY 2017 Payment Determination and Subsequent Years43 a. Proposed Hospital 30-day, All- cause, Unplanned, Risk-Standardized Readmission Rate (RSRR) Following Corona ry Artery Bypass Graft (CABG) Surgery b. Proposed Hospital 30-day, All-caus e, Risk-standardized Mortality Rate (RSMR) Following Coronary Artery Bypass Graft (CABG) Surgery c. Proposed Hospital-level, Risk-standa rdized 30-day Episode-of-Care Payment

Measure for Pneumonia d. Proposed Hospital-Level, Risk-standa rdized 30-day Episode-of-Care Payment

Measure for Heart Failure e. Proposed Severe Sepsis and Sept ic Shock: Management Bundle Measure (NQF #0500)

f. Electronic Health Reco rd-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 a nd Measure Topics for Future Years a. Mandatory Electronic Clinical Quality Measure Reporting for FY 2018 Payment Determination

b. Possible Future Electroni c 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 Years44 c. Data Submission Requirements for Chart-Abstracted Measures d. Alignment of the EHR Incentiv e 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 Re quirements for Healthcare-Associated Infection (HAI) Measures Reported via NHSN

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

Web Site11. Proposed Modifications to the Existing Processes for Validation of Chartabstracted Hospital IQR Program Data a. Eligibility Criteria for Ho spitals Selected for Validation b. Number of Charts to be Submitted per Hospital for Validation c. Combining Scores for HAI and C linical Process of Care Topic Areas

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

e. Plans to Validate Electronic Clinical Quality Measure Data45 12. Data Accuracy and Completene ss 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 Measures46 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 th e 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 fo r the Clinical Process/Oncology Care Measures Beginning with the FY 2016 Program 10. Exceptions from Program Requirements C. Long-Term Care Hospital Qu ality Reporting ( LTCHQR) Program 1. Background 2. General Considerations Used for Selection of Quality Measures for the LTCHQR Program 3. Policy for Retention of LTCHQR Pr ogram Measures Adopted for Previous Payment Determinations 4. Policy for Adopting Change s to LTCHQR Program Measures 5. Previously Adopted Quality Measures47 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 Collecti on Timelines and Submission Deadlines for Previously Adopted Quality Measures a. Proposed Revisions to Data Collec tion 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 Collec tion Timelines and Submission Deadlines for the Application of Percent of Residents Experiencing One or Mo re 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 Functi onal Status Quality Measures for the FY 2018 Payment Determination and Subsequent Years b. Proposed Quality Measure: Nationa l 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 Years48 a. Background

b. Finalized Timeline for Data Subm ission 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 Resi dents 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 fo r Proposed New LTCHQR Program Quality Measures and for Proposed Revision to Previously Adopted Quality Measure e. Proposed Data Collection Timelin es 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 Resi dents Experiencing One or Mo re Falls with Major Injury (Long Stay) (NQF #0674) Measure for the FY 2018 Payment Determination and Subsequent Years g. Proposed Data Collection Timelin es 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. Overview49 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 Prev ention (CDC) National Healthcare Safety Network (NHSN) d. Application of the 2 Percentage Poin t 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 Poin t 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 S ubmission Exception and Extension Requirements for the FY 2017 Payment Determination and Subsequent Years 14. Proposed LTCHQR Program Reconsider ation 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 Reconsider ation and Appeals Procedures for the FY 2016 Payment Determination and Subsequent Years 15. Electronic Health Records (EHR) a nd Health Information Exchange (HIE)50 D. Electronic Health Record (EHR) Incentive Program and Meaningful Use (MU) 1. Background 2. Alignment of the Medicare EHR Incen tive Program Reporting and Submission Timelines for Clinical Quality Measures with Hospital IQR Program Reporting and

Submission Timelines 3. Quality Reporting Data Architect ure 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 G overning Use and Release of Medicare Advantage Risk Adjustment Data A. Background B. Proposed Regulatory Changes 1. Proposed Expansion of Uses and Reas ons for Disclosure of Risk Adjustment

Data 2. Proposed Conditions for CMS Release of Data 3. Proposed Technical Change XI. Proposed Changes to Enforcement Pr ovisions for Organ Tr ansplant Centers A. Background51 B. Basis for Proposals in This Proposed Rule 1. Proposed Expansion of Mitigatin g Factors Based on CMS’ Experience

2. Coordination with Efforts of the Organ Procurement and Transplantation Network (OPTN) and Health Resour ces 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 Ad justment to the Proposed FY 2015 Wage Index (Hospital Wage Index Occupational Mix Survey) 4. Hospital Applications for Geogr aphic Reclassifications by the MGCRB 5. ICRs for Applicati on for GME Resident Slots 6. ICRs for the Hospital Inpati ent Quality Reporting (IQR) Program52 7. ICRs for PPS-Exempt Cancer Hosp ital Quality Reporting (PCHQR) Program 8. ICRs for Hospital Value- Based Purchasing (VBP) Program 9. ICRs for the Long-Term Care Hosp ital Quality Reporting (LTCHQR) Program 10. ICR Regarding Electronic Health Record (EHR) Incentive Program and Meaningful Use (MU) 11. ICR Regarding Proposed Revisi on of Regulations Governing Use and Release of Medicare Advantage (MA) Risk Adjustment Data (§ 422.310(f)) Regulation Text Addendum—Proposed Schedule of Standardiz ed Amounts, Update Factors, and Rate-of-Increase Percentages Effective with Cost Reporting Periods Beginning on or after October 1, 2014 and Payment Rates fo r LTCHs Effective with Discharges Occurring on or after October 1, 2014 I. Summary and Background II. Proposed Changes to the Prospective Pa yment 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 Hospita l Inpatient Capital-Related Prospective Payment Rate Update53 B. Calculation of the Proposed Inpatie nt 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 Paymen t 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 Classificati ons Based on the New OMB Delineations 3. Proposed LTCH PPS Labor-Related Share 4. Proposed LTCH PPS Wa ge 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 PPS54 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 DS H Payment Adjustment Methodology F. Computing the Proposed Adjusted LTCH PPS Federal Prospective Payments

for FY 2015 VI. Tables Referenced in this Proposed Ru le and Available thr ough 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 Pr oposed 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 Changes55 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 M DH 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 Program56 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 Re lating to Administrative Appeals by Providers and Judicial Review for Appropr iate Claims in Provider Cost Reports I. Effects of Proposed Changes to Updates to the Reasonable Compensation Equivalent (RCE) Limits for Physic ian 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 Beneficiaries57 L. Effects of Proposed Requirements fo r 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 El ectronic Health Reco rd (EHR) Incentive Program and Hospital IQR Program P. Effects of Proposed Revision of Re gulations Governing Use and Release of Medicare Advantage Risk Adjustment Data Q. Effects of Proposed Changes to En forcement Provisions fo r 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) Analysis58

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 paym ent systems (IPPS) for operating and capital-related costs of acute care hospita ls 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 se rvices provided by long-term care hospitals (LTCHs) under the long-term car e hospital prospective payment system59 (LTCH PPS). It also would make polic y 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 ca re hospital inpatient stays under Medicare Part A (Hospital Insurance) ba sed on prospectively set rates. Section 1886(g) of the Act requires that, instead of paying for capital-rela ted costs of inpatient hospital services on a reasonable cost basis, the Secretary us e a prospective payment system (PPS).

• Section 1886(d)(1)(B) of the Act, which specifies th at certain hospitals and hospital units are excluded from the IPPS. Th ese 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 Sa moa. Religious nonmedical health care institutions (RNHCIs) are al so excluded from the IPPS.

• Sections 123(a) and (c) of P ub. 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 adde d 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, wh ich addresses certain hospital-acquired conditions (HACs), including infections. Sec tion 1886(d)(4)(D) of th e 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 th at: (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 unde r the MS-DRG system that are CCs or MCCs); and (c) could reasonably have been prevented through the application of evidence-based guidelines. Sect ion 1886(d)(4)(D) of the Act also specifies that the list of conditions may be revised, agai n 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 Octobe r 1, 2008, Medicare no longer as signs 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, wh ich specifies that costs of approved

educational activities are excl uded 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 se ction 1886(h) of the Act. A payment for

indirect medical education (IME) is made under secti on 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 paymen ts to a subsection (d) hospital for a fiscal year if the hospital does not submit data on meas ures in a form and manner, and at a time, specified by the Secretary.

• Section 1886(o) of the Act, which requi res the Secretary to establish a Hospital Value-Based Purchasing (VBP) Program unde r which value-based incentive payments are made in a fiscal year to hospitals m eeting performance standards established for a performance period for such fiscal year.

• Section 1886(p) of the Act, as adde d by section 3008 of the Affordable Care Act, which establishes an adjustment to hospital payments for hospital-acquired conditions (HACs), or a Hospital-Acquire d 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 adde d by section 3025 of the Affordable Care Act and amended by section 10309 of the Afford able Care Act, which establishes the “Hospital Readmissions Reduction Program” eff ective for discharges from an “applicable hospital” beginning on or after October 1, 2012, under which payments to those hospitals62 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 disp roportionate share payments under section 1886(d)(5)(F) of the Act and for a new uncompens ated care payment to eligible hospitals. Specifically, section 1886(r) of the Act now re quires 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 em pirically justified amount”), and (2) an additional payment for the DSH hospital’s propo rtion of uncompensated care, determined as the product of three factors. These three factors are: (1) 75 pe rcent of the payments

that would otherwise be made under subsecti on (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 fo r SGR Reform Act of 2013, which further amended section 114(c) of the MMSEA, as amended by section 4302(a) of the ARRA63 and sections 3106(c) and 10312(a) of the A ffordable Care Act, by retroactively reestablishing and extending the statutory moratorium on the full implementation of the 25-percent threshold payment adjustment po licy 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 s ection 1206(b)(2) (as amended by section 112(b) of the Protecti ng Access to Medicare Act of 2014 (Pub. L. 113-93)), which together further amended se ction 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 define d exceptions) on the development of new LTCHs and LTCH sate llite facilities and a new moratorium on

increases in the number of beds in exis ting 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 pa yments to LTCHs classified under section 1886(b)(1)(C)(iv)(II) of the Ac t 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 Ac t, 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 st atutory requirements of the Provider Reimbursement Review Board (Board) appeal s based on untimely determinations of the Medicare Administrative Contractor (MAC), in this proposed rule, we are proposing to64 amend the regulations to eliminate the provi der dissatisfaction requi rement as a condition for Board jurisdiction over such appeals. We are proposing a similar amendment to the regulations for appeals to MAC hearing offi cers, to maintain consistency between the regulations for MAC and Board appeals. We also are proposing to codify in the cost reporting regulations our exis ting policy, implemented in section 115 of the Provider Reimbursement Manual, requiring providers to include an ap propriate claim for an item in its cost report. In add ition, we are proposing that provid ers’ 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 a ny decision or order i ssued by a reviewing entity in an administrative appeal filed by the provider. We are proposing to align the reporti ng and submission timelines for clinical quality measures for the Medicare EHR In centive Program for eligible hospitals and critical access hospitals (CAHs) with the reporting and submission timelines for the Hospital IQR Program. In addition, we provi de guidance and clarif ication of certain policies for eligible hospitals and CAHs such as our policy for reporting zero denominators on clinical quality measures a nd our policy for case threshold exemptions. In addition, this proposed rule contains several proposals that are not directly related to these Medicare payment systems, su ch 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 transpla nt 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 Taxpaye r 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 am ount 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 comp leting the prospective adjustment authorized under section 7(b)(1)(A) of P ub. 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 m oderate 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 r ecoupment adjustment to the standardized amount in FY 2014. We are proposing to ma ke 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 302566 of the Affordable Care Act. The Hosp ital Readmissions Reduction Program requires a reduction to a hospital’s base operating DRG payment to account for excess readmissions of selected applicable co nditions. For FYs 2013 and 2014, these conditions are acute myocardial infarction, heart failure, a nd pneumonia. For FY 2014, we established

additional exclusions to the three existi ng readmission measures (that is, the excess readmission ratio) to account for additional pl anned readmissions. We also established additional readmissions measures, Chronic Ob structive Pulmonary Disease (COPD), and Total Hip Arthroplasty and Total Knee Arthroplasty (THA/TKA), to be used in the Hospital Readmissions Reduction Program fo r 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 read mission measures and related methodology for FY 2015 and subsequent years payment determ inations. In addition, we are proposing that the readmissions payment adjustment f actors 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 ex cess readmissions to include THA/TKA and

COPD readmissions measur es 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 unde r which value-based incentive payments are made in a fiscal year to hospitals m eeting performance standards established for a67 performance period for such fiscal year. Both the performance standards and the performance period for a fiscal year ar e to be established by the Secretary. In this proposed rule, we are proposin g 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 pol icies related to performance

standards and to revise the domain wei ghting 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 meas ure 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 hospita ls are adjusted to provide an incentive to reduce HACs, e ffective for discharges beginning on October 1, 2014 and for subsequent program y ears. This 1-percent payment reduction applies to a hospital whose ranki ng 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 th e amount of payment that would otherwise apply to such discharges unde r 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 fo rmula for Medicare DSH payments. The remaining amount, equal to 75 percent of wh at otherwise would have been paid as Medicare DSH payments, will be paid as addi tional payments after the amount is reduced for changes in the percentage of individua ls that are uninsure d. Each Medicare DSH hospital will receive its additional amount ba sed on its share of the total amount of uncompensated care for all Medicare DSH hos pitals 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 proposi ng changes to the methodology to calculate the uncompensated care payment amounts to be distributed such that we combine uncompensated care data for hospitals that ha ve 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)(vii i) of the Act, hospitals ar e required to report data on measures selected by the Secretary for th e 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 determin ation 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 additiona l 4 years, of the moratorium on the full implementation of the 25-percent thres hold 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 Medica re 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 statutor y moratorium on bed increases in existing LTCHs effective for the period beginni ng 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 adjust ment under the LTCH PPS to subclause (II)70 LTCHs beginning in FY 2015 that would resu lt in payments to this type of LTCH resembling reasonable cost payments unde r 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 a pplied 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 availabl e 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 Do cumentation and Coding Changes . We are proposing a –0.8 pe rcent recoupment adjustment to the standardized

amount for FY 2015 to implement, in part, the requirem ent of s ection 631 of the ATRA that the Secretary make an adjustment to taling $11 billion over a 4-year period of FYs 2014, 2015, 2016, and 2017. This recoupment ad justment 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 of ten 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 ad justment we made for FY 2014, we are71 proposing to make a –0.8 percent recoupment ad justment to the standardized amount in

FY 2015. We estimated that th is level of adjustment, comb ined with leaving the -0.8 percent adjustment made for FY 2014 in plac e, will recover up to $2 billion in FY 2015. Taking into account the approximately $1 bil lion recovered in FY 2014, this will leave approximately $8 billion remaining to be recovered by FY 2017.

● Reduction to Hospital Paym ents for Excess Readmissions . The provisions of section 1886(q) of the Act which establishe s the Hospital Readmissions Reduction Program ar e 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 estima te that the reduction to a hospital’s base opera ting DRG payment amount to ac count 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 w ill be no net financial impact to the Hospital VBP Progra m for FY 2015 in the aggregate because, by law, the

amount available for value-ba sed incentive payments under the program in a given fiscal year must be equal to the total amount of base operati ng DRG payment amount reductions for that y ear, as estimated by the Secretary. The estimated amount of base operating DRG paymen t amount reductions for FY 2015, and ther efore the estimated72

amount available for value-ba sed incentive payments fo r FY 2015 discharges, is approximately $1.4 bill ion. We believe that the program’s benefits will be seen in improved patient outcom es, safety, and in the patient’s experience of care. However,

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

● Proposed Payment Adjustment un der 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 s ection 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 eligib le hospitals is made beginning in FY 2014. Hospitals that receive Medicare DSH paym ents 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 pe rcent 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 indivi duals that are uninsured and additional statutory adjustments. Each hos pital that receives Medicare DSH payments73 will receive an additional payment based on it s 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 percen t of the amount for changes in the percentage of individuals that are uninsured an d additional statutory adjustments. In other words, Medicare DSH pa yments 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 unc ompensated 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 additi onal payments have redistributive effects based on a hospital’s uncompensated care am ount 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 Qualit y Reporting (IQR) Program . In this proposed rule, we are proposing to add nine new measures for the FY 2017payment determination and subsequent years. We ar e proposing to remove five measures from the hospital IQR Program fo r the FY 2016 payment dete rmination and subsequent years. We also are propo sing to remove 15 chart-abstracted from the FY 201674 payment determination’s measur e set, but we are proposing to retain an electronic clinical quality measure versio n of 10 of those measures fo r the program. We estimate that our proposals fo r the adoption and re moval of measures wi ll 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 pa yment rates and factors we are presenting in the preamb le and Addendum of this pr oposed rule, including the proposed update to the standard Federal rate for FY 2015, the pr oposed changes to the area wage adjustment for FY 2015, and the expected cha nges to short-stay outliers and high-cost outliers, woul d result in an increase in esti mated payments from FY 2014 of approximately $44 millio n (or 0.8 percent). In addition, we estimate that net effect of the projected impact of certain other propos ed LTCH PPS policy changes (that is, the

reinstatement of the moratorium on the full im plementation of the “25 percent threshold” payment adjustment; the reinstatement of the moratorium on the development of new

LTCHs and LTCH satellite facilities and additi onal LTCH beds; the proposed revision of the “greater than 3-day inte rruption 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 paym ent rates and factors presented in this proposed rule under the LTCH PPS, in conjunc tion with the estimated payment impacts75 of certain other proposed LTCH PPS policy changes would result in a net increase of $30 million to LTCH providers. Additionally, we es timate 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 ca re hospital inpatient stays under Medicare Part A (Hospital Insurance) ba sed on prospectively set rates. Section 1886(g) of the Act requires the Secretary to us e a prospective payment system (PPS) to pay for the capital-related costs of inpatie nt hospital services for these “subsection (d) hospitals.” Under these PPSs, Medicare payment for hospita l 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 shar e. 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-rel ated 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 shar e hospital (DSH) adjustment, provides for a76 percentage increase in Medica re payments to hospitals th at qualify under either of two statutory formulas designed to identify hosp itals that serve a disp roportionate share of low-income patients. For qualifying hospitals, the amount of this adju stment varies based on the outcome of the statutory calculations . The Affordable Care Act revised the Medicare DSH payment methodology and pr ovides for a new additional Medicare payment that considers the amount of uncom pensated 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 demonstr ate 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 hos pital for a case are evaluated to determine whether the hospital is eligible for an additional pa yment as an outlier case. This additional payment is designed to protect the hospital fr om large financial losses due to unusually expensive cases. Any eligible outlier pa yment 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 unde r the IPPS are made on the basis of the standardized amounts, some categories of hospita ls are paid in whole or in part based on77 their hospital-specific rate, which is determin ed from their costs in a base year. For example, sole community hospitals (SCHs) recei ve the higher of a hospital-specific rate based on their costs in a base year (t he 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 ho spital (MDH) received the higher of the Federal rate or the Federal ra te 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 occu rring 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. Sp ecifically, 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, w eather conditions, travel conditions, or absence of other like hospitals (as determined by the Secretary), is the sole source of hospital inpatient serv ices reasonably available to Me dicare beneficiaries. In addition, certain rural ho spitals 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 rura l 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 its78 inpatient days or discharges in its cost re porting 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 paymen t 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 se rvices “in accordance with a prospective payment system established by the Secretary.” The ba sic 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 paymen ts 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 cas es that have unusually high costs. The existing regulations governing paym ents 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 Ac t, as amended, certain hospitals and hospital units are excluded from the IPPS. Th ese hospitals and units are: rehabilitation hospitals and units; long-term care hospitals (LTCHs); psychiatric hospitals and units; children’s hospitals; certain cancer hospitals; an d short-tern acute care hospitals located in Guam, the U.S. Virgin Islands, the Northe rn Mariana Islands, a nd American Samoa. Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS.

Various sections of the Balanced B udget Act of 1997 (BBA, Pub. L. 105-33), the79 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 Prot ection Act of 2000 (BIPA, Pub. L. 106-554) provide for the implementation of PPSs for reha bilitation hospitals a nd units (referred to as inpatient rehabilitation facilities (IRFs )), LTCHs, and psychiatric hospitals and units (referred to as inpatient psychi atric facilities (IPFs)). (We note that the annual updates to the LTCH PPS are now included as part of th e 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 syst em subject to a rate-of-increase ceiling on inpatient operating costs, as updated annua lly by the percentage increase in the IPPS operating market basket. The existing regulations governing paym ents 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 sec tion 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 incr easing proportion of the LTCH Federal rate80 with a corresponding decreasing proportion based on reasonable cost principles. Effective for cost reporting periods begi nning on or after October 1, 2006, all LTCHs are paid 100 percent of the Federa l rate. The existing regula tions governing payment under

the LTCH PPS are located in 42 CFR Part412, 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 se rvices are generally based on 101 percent of

reasonable cost. Reasonable cost is de termined 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, cost s of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs ar e 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 Legi slation 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 Edu cation 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 pr ovisions of the Afford able 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 a pplicable 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 ch anges that affect the IPPS. We announced changes related to certain IPPS provisions fo r 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 cha nges 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 accordan ce 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 Ca re 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 proposin g 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 Ca re Act that are applicable to the IPPS, the LTCH PPS, and PPS-exempt can cer hospitals for FY 2015:

● Section 3001(a) of Pub. L. 111-148, whic h 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, whic h establishes the Hospital-Acquired Condition (HAC) Reduction Program and require s the Secretary to make an adjustment to hospital payments for applicable hosp itals, effective for discharges beginning on October 1, 2014, and for subsequent program years.83

● Section 3025 of Pub. L. 111-148, whic h establishes a hospital readmissions reduction program and requires the Secretary to reduce payments to applicable hospitals

with excess readmissions effective for disc harges 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 discha rges 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 ba sket 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, whic h added a provision to the Act that instructs the Secretary to establish a pro cess by regulation under which, in the event a teaching hospital closes, the Secretary will pe rmanently increase the FTE resident caps for hospitals that meet cert ain 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 proposin g policy changes to implement section 631 of the American Taxpayer Relief Act of 2012 th at 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 unde r section 1886(d) of the Act based upon the Secretary’s estimates for discharges occu rring 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 ad justment was not pr eviously applied). 3. Pathway for SGR Reform Act of 2013 (Pub. L. 113-67) In this proposed rule, we are proposing po licy changes to implement, or the need for future policy changes, to carry out pr ovisions under section 1206 of the Pathway for

SGR Reform Act of 2013. These include:

● Section 1206(a), which provides the esta blishment 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), wh ich further amended secti on 114(c) of the MMSEA, as amended by section 4302(a) of the ARRA a nd sections 3106(c) and 10312(a) of the Affordable Care Act by retroactively r eestablishing, and extending, the statutory moratorium on the full implementation of th e 25-percent threshold payment adjustment policy under the LTCH PPS so that the policy wi ll be in effect for 9 years (except for grandfathered HwHs, which are perman ently exempt from this policy).85

● Section 1206(b)(2), which amende d section 114(d) of the MMSEA, as amended by section 4302(a) of the ARRA a nd sections 3106(c) and 10312(a) of the

Affordable Care Act to establish new morato ria (subject to certai n defined exceptions) on the development of new LTCHs and LTCH satellite facilities and a new moratorium on

increases in the number of beds in exis ting LTCHs and LTCH satellite facilities.

● Section 1206(d), which in structs the Secretary to ev aluate 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 a ppropriate, based upon the evaluation findings. 4. Protecting Access to Medica re 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 acco rdance with, the following provisions (or portions of the following pr ovisions) 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 tempor ary changes to the Medicare inpatient hospital payment adjustment for low- volume subsection (d) hospitals through March 31, 2015.

● Section 106, which extends th e MDH program through March 31, 2015.

● Section 112, which makes certain ch anges to Medicare LTCH provisions, including modifications to th e 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 Secr etary from requiring implementation of ICD-10 code sets before October 1, 2015. D. Summary of the Provisi ons of this Proposed Rule In this proposed rule, we are setting fo rth proposed changes to the Medicare IPPS for operating costs and for capital-related co sts of acute care hospitals for FY 2015. We also are setting forth proposed changes rela ting 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, a nd 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 Classificati ons and Recalibrations of Relative Weights In section II. of the preamble of this proposed rule, we include--

● Proposed changes to MS-DRG classi fications based on ou r 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 implementati on 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 wo uld 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 analys is of the FY 2015 applicants for add-on payments for high-co st new medical services and technologies (including public input, as di rected 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 th e annual update of the wage data. Specific issues addressed include the following:

● Proposed changes in CBSAs as a re sult of new OMB labor market area delineations and proposed policies relate d 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 th e 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 hospita l employees who reside in a county and work in a different area with a higher wage index.

● The timetable for reviewing and verify ing the wage data used to compute the proposed FY 2015 hospital wage index and pr oposed revisions to that timetable.88

● Determination of the labor-related sh are 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 provisi ons of the regulations in 42 CFR Parts 412 and 413, including the following:

● Proposed changes in postacute care tr ansfer policies as a result of proposed

new MS-DRGs.

● Proposed changes to the inpatient hospital updates for FY 2015, including incorporation of the adjustme nt for hospitals that are not meaningful EHR users under section 1886(b)(3)(B)( ix) of the Act.

● The proposed updated national and regi onal case-mix values and discharges for purposes of determining RRC status.

● Proposed payment adjustment fo r low-volume hospitals for FY 2015.

● The statutorily required IME adjustme nt factor for FY 2015 and proposed IME Medicare Part C payments to SCHs that are pa id according to their hospital-specific rates.

● Effect of expiration of the MDH program on April 1, 2015.

● Proposed changes to the methodologi es for determining Medicare DSH payments and the additional paym ents for uncompensated care.

● Proposed changes to the measures a nd 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 ad justments to hospitals under the HAC Reduction Program for FY 2015.

● Proposed IME and direct GME policy ch anges regarding the effective date of the FTE resident cap, 3-year rolling average, and IRB ra tio 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 e ffective date of provisions on counting resident time in nonprovider setti ngs; proposed changes to the process for reviewing applications for and awarding slots made avai lable 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 adju stment for the demonstration program.

● Discussion of the requirements for tr ansparency of hospita l charges under the

Affordable Care Act.

● Discussion of and solicitation of comments on an alternative payment methodology under the Medicare program for short inpatien t hospital stays.

● Discussion of the process for s ubmitting 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 th is proposed rule, we discuss the proposed payment policy requirements for capital-relate d costs and capital payments to hospitals

for FY 2015 and other relate d 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 cer tain excluded hospitals for FY 2015.

● Proposed updates to the RCE limits fo r services furnished by physicians to excluded hospitals.

● Proposed CAH related changes rega rding reclassifica tions as rural.

● Proposed changes to the physician cer tification 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 rein statement and extension, for an additional 4 years, of the statutory moratorium on the full implementation of th e 25-percent threshold91 payment adjustment established under secti on 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 ce rtain defined exceptions) on the establishment

of new LTCHs and LTCH satel lite facilities and a morato rium on bed increases in LTCHs effective for the period beginning April 1, 2014, and ending September 30, 2017.

● Proposed changes to the LTCH interr uption of stay policy by revising the fixed-day thresholds under the “greater than 3-day interruption of st ay 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 Transf erred to Onsite Providers and Readmitted to an LTCH” (the “5 percent paym ent 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 resu lt 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 Govern ing 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 govern ing 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 Hosp ital Inpatient Quality Reporting (IQR) Program as a condition for receiving the full applicable per centage increase.

● Proposed changes to the requirements for the quality reporting program for PPS-exempt cancer hospitals (PCHQR Program).

● Proposed changes to the require ments under the LTCH Quality Reporting (LTCHQR) Program. 9. Proposed Uses and Release of Medi care Advantage Risk Adjustment Data In section X. of the preamble of th is 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 Pr ovisions for Organ Tr ansplant 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 on93 mitigating factors for initial approval and re-a pproval, for participation in Medicare when

the centers have not met one or more of the conditions of participation. 11. Determining Prospective Payment Operat ing 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 propos ed FY 2015 prospective payment rates for operating costs and capital-relat ed costs for acute care hospita ls. 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 pr oposed FY 2015 LTCH PPS standard Federal rate. We are proposing to establish the adju stments for wage levels (including proposed changes to the LTCH PPS labor market area delineations based on the new OMB delineations), the labor-relat ed share, the cost-of-living adjustment, and high-cost outliers, including the fixed-loss amount, a nd the LTCH cost-to-charge ratios (CCRs)

under the LTCH PPS. 13. Impact Analysis In Appendix A of this proposed rule, we se t forth an analysis of the impact that the proposed changes would have on affect ed acute care hospitals, LTCHs, and PCHs.94 14. Recommendation of Update Factors fo r 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 pe rcentage changes for FY 2015 for the following:

● A single average stan dardized amount for all ar eas for hospital inpatient services paid under the IPPS for operati ng costs of acute care hospitals (and hospital-specific rates applicable to SCHs).

● Target rate-of-increase limits to th e allowable operating costs of hospital inpatient services furnished by certain hospitals excluded from the IPPS.

● The standard Federal rate for hospita l inpatient services furnished by LTCHs. 15. Discussion of Medicare Payment A dvisory Commission Recommendations Under section 1805(b) of the Act, MedP AC 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 inpatie nt payment policies address the update factor for hospital inpatient operating costs a nd capital-related cost s 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 re port 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 Sev erity 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 dia gnosis-related groups (D RGs)) for inpatient discharges and adjust payments under the IPPS based on appropriate weighting factors assigned to each DRG. Theref ore, 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 us ed to calculate paymen t 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, re lative to the average resources used to treat

cases in all DRGs. Congress recognized that it would be nece ssary to recalculate the DRG relative weights periodically to account for change s in resource consumption. Accordingly, section 1886(d)(4)(C) of the Act requires that the S ecretary adjust the DRG

classifications and relative we ights at least annually. These adjustments are made to reflect changes in treatment patterns, techno logy, and any other factors that may change

the relative use of hospital resources.

B. MS-DRG Reclassifications For general information about the MS-D RG system, including yearly reviews and changes to the MS-DRGs, we refer readers to the previous discussions in the FY 201096 IPPS/RY 2010 LTCH PPS final rule (74 FR 43764 through 43766), the FY 2011 IPPS/LTCH PPS final rule (75 FR 50053 th rough 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/LTC H 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 co mment period (72 FR 47140 through 47189). D. Proposed FY 2015 MS-DRG Documentation and Coding Adjustment 1. Background on the Prospective MS-DRG Do cumentation 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 classi fication 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 Medica re payment rates for acute care hospitals, MS-DRGs encourage hospitals to improve their documenta tion 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 th e MS-DRGs had the potential to lead to increases in aggregate payments without a corresponding increase in actual patient97 severity of illness due to th e incentives for additional docum entation 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 classifi cation that do not reflect real changes in case-mix. Our actuaries estimated that maintaining budge t neutrality required an adjustment of -4.8 percent to the national standardi zed amount. We provided for phasing in this -4.8 percent adjustment over 3 years. Specifically, we es tablished 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 th e 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 documenta tion 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 cu mulative. As a result, the -0.9 percent98 documentation and coding adjustment for FY 2009 was in addition to the -0.6 percent adjustment for FY 2008, yielding a co mbined effect of -1.5 percent. 2. Adjustment to the Average Standa rdized 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 requi res that, if the Secretary determines that implementation of the MS–DRG system resulted in changes in documentation and coding that did not reflect re al 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 sec tion 7(a) of Pub. L. 110-90, th e Secretary shall make an appropriate adjustment under sectio n 1886(d)(3)(A)(vi) of the Act. Section 1886(d)(3)(A )(vi) of the Act authorizes adjust ments 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 cl aims data, the Secretary determines that implementation of the MS–DRG system resu lted in changes in documentation and coding

that did not reflect real changes in case-mix for disc harges occurring during FY 2008 or FY 2009 that are different from the prosp ective documentation and coding adjustments99 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 additiona l adjustment to the standardized amounts under section 1886(d) of the Act. This adjustme nt must offset the estimated increase or decrease in aggregate payments for FY s 2008 and 2009 (including interest) resulting from the difference between the estimated actual documentation and coding effect and the documentation and coding adjustment app lied 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 requir ed by section 7(b)(1)(A) of Pub. L. 110-90. That is, these adjustments are intended to recoup (or re pay, in the case of underpayments) spending in excess of (or le ss 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 requireme nts of section 7 of Pub. L. 110-90, we performed a retrospective ev aluation 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 late r 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/LTCH100 PPS proposed and final rules, and subsequent evaluations in FY 2012, supported that the 5.4 percent estimate accurately reflected th e 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 reco mmended 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 indepe ndent 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/Resear ch-Statistics-Data-andSystems/Files-for-Order/LimitedDataSets/ by clicking on MedPAR Limited Data Set (LDS)-Hospital (National). This CMS We b 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 Protoc ol (refer to the Web site for further instructions), the LDS Form, and a check (ref er 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 implemen tation 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 fo r 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 disc ussed, 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 eff ect 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 sp ecify when we must apply the prospective adjustment, but merely require s 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 exte nsively 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 widesp read, disruptive effects of su ch 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. Acco rdingly, 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 requis ite adjustment) would be higher than they would have been if we had implemented an adjustment under sect ion 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 overpaymen ts, 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 adjustme nt 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 adju stment required under se ction 7(b)(1)(A) of Pub. L. 110-90 by finalizing a -1.9 percent adju stment to the standardized amount for

FY 2013. We stated that this adjustment would remove th e remaining effect of the documentation and coding changes that do not reflect real changes in case-mix that

occurred in FY 2008 and FY 2009. We believe d that it was imperative to implement the full remaining adjustment, as any further dela y 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 implem entation of the prosp ective 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 ov erstated. 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 require s 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 a ggregate payments for FY 2008 a nd FY 2009 (including interest) resulting from the difference between the estimated actual documentation and coding effect and the documentation and coding adju stments applied under se ction 7(a) of Pub.

L. 110-90. This determination must be base d on a retrospective evaluation of claims

data. Our actuaries estimated that there was a 5.8 percentage point difference resulting in104 an increase in aggregate payments of approxi mately $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 per cent 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 occu rring in FYs 2010, 2011, and/or 2012 to offset

the estimated amount of the increase in aggregate paymen ts (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 ad justment to the standardized amount of -2.9 percent, representing approximately ha lf 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 implem ent 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 fort h by section 7(b)(1)(B) of Pub. L. 110-90, and consistent with the disc ussion in the FY 2011 IPPS/LTCH PPS final rule, we completed the recoupment adjust ment by implementing the remaining -2.9 percent adjustment, in addition to removing the effect of th e -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 wa s no year-to-year change in the standardized105 amount due to this recoupment adjustme nt 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 recoupmen t portion of section 7(b)(1)(B) of Pub. L. 110-90. We note that with this positive ad justment, 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 Au thorized by Section 631 of the American Taxpayer Relief Act of 2012 (ATRA)

Section 631 of the ATRA amended s ection 7(b)(1)(B) of Pub. L. 110-90 to require the Secretary to make a recoupme nt adjustment or adjustments totaling $11 billion by FY 2017. This adjustment repr esents the amount of the increase in aggregate payments as a result of not comp leting the prospective adjustment authorized under section 7(b)(1)(A) of P ub. L. 110-90 until FY 2013. As discussed earlier, this delay in implementation resulted in ov erstated 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 unde r section 631 of the ATRA is a one-time recoupment of a prior overpayment, not a permanent reducti on 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 th at 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 pha se 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 statut ory 4-year timeline. As estimates of any future adjustments are subject to slight variat ions 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, wi ll be eventually offset by an equivalent positive adjustment once the full $11 billion recoupment requirement has been realized. Consistent with the approach discus sed in the FY 2014 rulemaking for recouping the $11 billion required by secti on 631 of the ATRA, we are proposing an additional -0.8 percent recoupment adjustment to the standardized amount for FY 2015. We estimated107 that this level of adjustment , combined with leaving the - 0.8 percent adjustment made for FY 2014 in place, will recover up to $2 bill ion 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 beli eve that if adjustments of approximately -0.8 percent are implemented in FYs 2014, 2015, 2016, and 2017, using standard inflation factors, the entire $11 b illion will be accounted for by the end of the statutory 4-year timeline. As we explaine d in the FY 2014 rulemaking, estimates of any future adjustments are subject to slight variat ions 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 satis fy the requirements of the st atute while mitigating extreme annual fluctuations in payment rates. In addition, we agai n note that this -0.8 percent recoupment adjustment, and future adjustment s 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 prospec tive adjustment to account for

the cumulative MS-DRG documentation and codi ng effect through FY 2010. In that final rule, we stated that if we were to appl y such an adjustment, we believe the most appropriate additional adjustme nt is -0.55 percent. Howeve r, we decided not to apply108 such an adjustment in FY 2014, in light of th e need to make the retrospective adjustments required by the ATRA. We continue to believ e that if we were to apply an additional prospective adjustment for the cumulativ e 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 rela tive 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 discussi on 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 char ge markup over costs to lower cost items and services, and a lower perc entage charge markup over costs to higher cost items and services. As a result, the cost-based we ights 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 c oncern, in August 2006, we awarded a contract to109 the Research Triangle Institute, Internati onal (RTI) to study the effects of charge compression in calculating the relative weight s and to consider methods to reduce the variation in the cost-to-charge ratios (CCRs) across se rvices 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 Ratio s for Calculating APC and MS-DRG Relative Payment Weights” ( http://www.rti.org/repo rts/cms/HHSM-500-2005- 0029I/PDF/Refining_Cost_to_C harge_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 th e cost center for Medica l 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 RT I 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’ recommen dations that hospitals should use revenue codes established by the AHA’s National Un iform Billing Committee to determine the items that should be reported in the “Med ical Supplies Charged to Patients” and the110 “Implantable Devices Charged to Patients” co st centers. Accordingly, a new subscripted line for “Implantable Devices Charged to Pati ents” was created in July 2009. This new subscripted cost center has been available fo r 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 comme nt period (73 FR 68519 through 68527), in addition to the findings regard ing implantable devices, RTI al so found that the costs and charges of computed tomography (CT) scan s, magnetic resonance imaging (MRI), and cardiac catheterization differ significantly from the costs and charges of other services

included in the standard associated cost cente r. RTI also conclude d that both the IPPS and the OPPS relative weights w ould better estimate the costs of those services if CMS

were to add standard cost centers for CT s cans, MRIs, and cardiac ca theterization in order for hospitals to report separately the costs a nd 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 fo r these services under new cost centers on the revised Medicare cost report Form CMS-2552-10. (We re fer 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, and111

cardiac catheterization are effective for co st reporting periods be ginning 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 Pa tients” 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 cardi ac 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 checke d 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 sufficien t amount of data from which to generate a meaningful analysis in this pa rticular situation. Therefore, we did not propose to use data from the “Implantable Devices Charged to Patie nts” cost center to create a distinct CCR for “Implantable Devices Charged to Patie nts” for use in calculating the MS-DRG relative weights for FY 2012. We indicated that we would r eassess the availability of data for the “Implantable Devices Charge d to Patients” cost center for the FY 2013112 IPPS/LTCH PPS rulemaking cycle and, if appr opriate, 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 ch arges 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 impl antable devices to corre spond 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 curr ent 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 Me dPAR file to create distinct CCRs for the respective cost centers for supplies and implan table devices, we hoped that we would also have data for an analysis of creating di stinct CCRs for CT scans, MRIs, and cardiac catheterization, which could then be fina lized through rulemaking. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53281), we stat ed that prior to proposing to create113 these CCRs, we would first thoroughly analy ze and determine the impacts of the data,

and that distinct CCRs for these new cost cente rs 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 substant ial number of hospitals completing all, or some, of these new cost centers on the FY 2011 Medicare cost re ports, 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 or iginal 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. Ther efore, beginning in FY 2014, we proposed to calculate the MS–DRG relative weights usi ng 19 CCRs, creating distinct CCRs from cost report data for implantable devices, MRIs , CT scans, and ca rdiac catheterization (78 FR 27509).

We refer readers to the FY 2014 I PPS/LTCH PPS proposed rule (78 FR 27507 through 27509) and final rule (78 FR 50518 th rough 50523) in which we presented data analyses using distinct CCRs for implantable devices, MRIs, CT scans, and cardiac

catheterization. The FY 2014 I PPS/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 fina l rule, we finalized our proposal to use

19 CCRs to calculate MS-DRG relative wei ghts beginning in FY 2014 --the then existing

15 cost centers and the 4 new CCRs for im plantable devices, MRIs, CT scans, and114

cardiac catheterizati on. Therefore, beginning in FY 2014, we calculated the IPPS MS-DRG relative weights using 19 CCRs, cr eating distinct CCRs for implantable devices, MRIs, CT scans, and cardiac catheterization.

2. Discussion for FY 2015 To calculate the proposed MS–DRG re lative weights for FY 2015, we use two

data sources: the MedPAR file as the clai ms 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 th e 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 arra y 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 de livery of care. In some cases, conditions acquired in the hospital do not generate higher payments than the hospital would

otherwise receive for cases wit hout these conditions. To this extent, the IPPS encourages hospitals to avoid complications. However, the treatment of certain co nditions can generate higher Medicare payments in two ways. First, if a hosp ital incurs exceptionally high costs treating a patient, the hospital stay may generate an out lier payment. Because the outlier payment methodology requires that hospitals experience larg e losses on outlier cases before outlier payments are made, hospitals have an incen tive to prevent outli ers. Second, under the MS-DRG system that took effect in FY 2008 and that has been refined through rulemaking in subsequent years, certain condi tions can generate highe r payments even if the outlier payment requirements are not met. Under the MS-DRG system, there are currently 261 sets of MS-DRG s that are split into 2 or 3 subgroups based on the presence or absence of a complication or comorb idity (CC) or a major complication or116 comorbidity (MCC). The presence of a CC or an MCC generally results in a higher payment. Section 1886(d)(4)(D) of th e Act specifies that, by October 1, 2007, the Secretary was required to select, in consultation w ith 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 sec ondary diagnosis (that is, conditions under the MS-DRG system th at 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 Oct ober 1, 2008, under the authority of section 1886(d)(4)(D) of th e Act, Medicare no longer as signs an inpatient hospital discharge to a higher paying MS-DRG if a se lected 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 manifest s 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 di scharge 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.2

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a n i n i n

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. HAC Sel e Begi n

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H PPS118 proposed rule (76 FR 25810 through 25816) a nd final rule (76 FR 51504 through 51522); the FY 2013 IPPS/LTCH PPS proposed rule (7 7 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/Hosp ital-Acquired_Conditions.html

. 3. Present on Admission (POA) Indicator Reporting

Collection of POA indicator data is necessary to iden tify 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 assist ance in this reporting effort. For detailed information regardi ng 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 th e prior rulemaking cited under section II.I.2. of the preamble of this proposed rule, th e POA indicator repor ting requirement only applies to IPPS hospitals because they ar e subject to this HAC provision. Non-IPPS hospitals, including CAHs, LTCHs, IRFs, IPFs , cancer hospitals, children’s hospitals, RNHCIs, and the Department of Veterans A ffairs/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 secti on 1814(b)(3) of the Act and therefore exempt from reporting POA indicators. However, we be lieved it was appropria te 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 aut horized under section 1886(p) of the Act. Therefore, in the FY 2014 IPPS/LTCH PPS fina l 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 re porting requirement beginning with claims submitted on or after October 1, 2013, includi ng all claims for discharges on or after October 1, 2013. We note that, while th is 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, th e 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 innovativ e payment and service delivery models,120 including models that allow States to “tes t 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 so lely for purposes of carrying out section 1115A of the Act with resp ect 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 se ction 1814(b)(3) of the Act. Maryland also represented that it is no l onger in continuous operation of a demonstration project reimbursement system since July 1, 1977, as specified under sect ion 1814(b)(3) of the Act. Because Maryland hospitals are no longe r 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) hospita ls. 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 Ma ryland’s compliance with the terms of the agreement, CMS has not waived the POA i ndicator reporting requirement. In other words, the changes to the status of Maryla nd hospitals under sec tion 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. We121 note that prior to January 1, 2011, we also us ed a POA indicator re porting 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 instru ctions 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 loca ted 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 conditi on 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 conditi on 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 allo w 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 re porting: the FY 2009 IPPS proposed rule122 (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 proce dure codes. As such, it is necessary to report a valid POA indicator for each diagnos is code, including th e 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 th e use of the POA indicator with the

ICD-10-CM/ICD-10-PCS classifications as th ey pertain to the HAC policy would be discussed in future rulemaking. At the March 5, 2012 and the Septembe r 19, 2012 meetings of the ICD-9-CM Coordination and Maintenance Committee, an announcement was made with regard to123 the availability of the ICD-9-CM HAC lis t 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 cl assification 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 (HAC s).” This CMS Web site regarding the

ICD-10-MS-DRG Conversion Pr oject 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 throu gh 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 IC D-10-CM/ICD-10-PCS would be subject to formal rulemaking. We encouraged readers to review the educationa l materials and draft

code sets available for ICD-10-CM/I CD-10-PCS on the CMS Web site at: http://www.cms.gov/ICD10/ . In addition, we st ated that the draft ICD-10-CM/ICD-10-PCS Coding Guidelines coul d 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 th e 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 Prot ecting Access to Medi care Act of 2014 (Pub. L. 113-93), enacted on April 1, 2014, delayed th e 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 wr itten stakeholder comments about both previously selected and potenti al candidate HACs. We refer readers to sect ion 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 regard ing 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 I PPS/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) a nd the FY 2014 IPPS/LTCH PPS final rule (78 FR 50523 through 50527) for the HAC policy for FY 2014. 6. RTI Program Evaluation125 On September 30, 2009, a contract was awarde d 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 c onsequences, and infection and event rates. This was an intra-agency project with funding and technical suppor t from CMS, OPHS, AHRQ, and CDC. The evaluation also examined the implementation of the program and evaluated

additional conditions for future selec tion. 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 pr ogram 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 effect s 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 Ca ndidate HACs—RTI Report on Evidence-Based

Guidelines The RTI program evaluation includes a re port that provides references for all evidence-based guidelines avai lable for each of the selected and previously considered candidate HACs that provide recommendations for the prevention of the corresponding conditions. Guidelines were primarily id entified using the AHRQ National Guidelines Clearing House (NGCH) and the CDC, along wi th relevant professional societies. Guidelines published in the United States were used, if available. In the absence of U.S. guidelines for a specific condition, inte rnational guidelines were included. Evidence-based guidelines that includ ed specific recommendations for the prevention of the condition were identified fo r each of the selected conditions. In addition, evidence-based guidelines also we re 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/Download s/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 provi de a summary report of all evidence-based guidelines available for each of the selected and previously considered candidate HACs that provide recommendations for the prev ention 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.127 G. Proposed Changes to Speci fic MS-DRG Classifications 1. Discussion of Changes to Coding Syst em and Basis for Proposed MS-DRG Updates

a. Conversion of MS-DRGs to the Internati onal Classification of Diseases, 10th Revision (ICD-10)

Providers use the code sets under th e ICD-9-CM coding system to report diagnoses and procedures for Medicare hos pital inpatient services under the MS-DRG system. The ICD-10 coding system includes th e International Classi fication of Diseases, 10th Revision, Clinical Modification (IC D-10-CM) for diagnosis coding and the

International Classification of Diseases , 10th Revision, Procedure Coding System (ICD-10-PCS) for inpatient hospital pro cedure 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 Insu rance Portability and Account ability Act of 1996 (HIPAA) Administrative Simplification: Modifications to Medical Data C ode 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) (herei nafter 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 comp liance date for ICD-10 from October 1, 2013, to October 1, 2014. That final rule, entitled “Adm inistrative Simplifica tion: Adoption of a Standard for a Unique Health Plan Identifier; Addition to the National Provider Identifier Requirements; and a Change to the Comp liance Date for ICD-10-CM and ICD-10-PCS Medical Data Code Sets,” CMS-0040-F, was published in the Federal Register on128 September 5, 2012 (77 FR 54664) and is availa ble for viewing on th e 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 H ealth 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 s ection 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-DRG s. CMS began a project to convert the

ICD-9-CM-based MS-DRGs to ICD-10 MS-D RGs. In response to the FY 2011 IPPS/LTCH PPS proposed rule, we received pub lic 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 th rough 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 completing129 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/C oding/ICD10/ICD-10-MS-DRGConversion-Project.html . We have continued to keep the public updated on our

maintenance efforts for ICD-10-CM and IC D-10-PCS coding systems, as well as the General Equivalence Mappings that assist in conversion through th e 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/ ICD9ProviderDiagnostic Codes/index.html

. During FY 2011, we developed and post ed 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 th e ICD-10 version of the hospital-acquired conditions (HACs), which was not posted w ith Version 26.0. We also discussed this update at the September 15-16, 2010 and th e 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/ ICD9ProviderDiagnostic Codes/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 update d 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 Convers ion Project Web site. To make the130 review of Version 28-R1 updates easier for th e 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 (dis tributed on CD ROM), the public would be able to more easily review and provide f eedback 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 provid e 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 fi nalized 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 discusse d 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-DRG s 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-10131 MS-DRG Conversion Project Web site. We al so 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 Vers ion 30.0, which was made available to the public in February 2013. Information on orde ring 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 com puter 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 st udy is summarized in a paper entitled “Impact of the Transition to ICD-10 on Medica re Inpatient Hospital Payments.” This paper was posted on the CMS ICD-10 MS-DRG s Conversion Project Web site and was distributed and discussed at the Sept ember 15, 2010 ICD-9-CM Coordination and Maintenance Committee meeting. The paper de scribed 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 esti mated the impact on aggregate payment to hospitals and the distribution of paymen ts 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. This132 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/ ICD9ProviderDiagnostic Codes/index.html

. At this March 2012 meeting, CMS announced th at 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 Ma rch 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 sh ifted, 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 imp act across all MS-DRGs was a reduction by 4/10000 or minus 4 pennies per $100. The upda ted 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/I CD9ProviderDiagnosticCodes/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 addi tional information to the public who were evaluating the conversion of th e MS-DRGs to ICD-10 MS-DRGs.133 CMS prepared the ICD-10 MS-DRG s 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 Convers ion Project Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD 10/ICD-10-MS-DRG-Conversion-Project.html

. We also prepared a document that describe d changes made from Version 30.0 to Version 31.0 to facilitate a review. We produced main frame and computer software for Version 31.0, which was made available to the pub lic in December 2013. Information on ordering the mainframe and computer soft ware 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 ac curately reflect grouping lo gic 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-D RGs Version 31.0-R. We have posted a

Definitions Manual of the ICD-10 MS-DRG s 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 f acilitate 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 stake holders 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 proposi ng 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-D RG 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 ex isting 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 th rough 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 fi nal 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 hosp ital bills received through D ecember 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 th e MS-DRGs for particular circumstances brought to our attention, we considered whet her the resource consumption and clinical characteristics of the patients with a given set of conditions are si gnificantly different than the remaining patients in the MS-DRG . We evaluated patient care costs using average costs and length s of stay and relied on the judgmen t 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 consider ed variation in costs within these groups; that is, whether observed average differences were consistent ac ross 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 woul d include a substan tial 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 PP S 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 referred136

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 thr ough 48971); and the FY 2008 IPPS/LTCH PPS final rule (72 FR 47252 through 47253). We refe r readers to these pr ior 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 iden tify and describe insertion of the Gliadel ® Wafer. This procedure code is assign ed to MS-DRG 023 (Craniotomy with Major Device Implant/Acute Complex Central Ne rvous System (CNS) PDX with MCC or Chemo Implant) in MDC 1. According to the commenter, this current MS-DRG assignment does not compensate providers ad equately 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 acquisiti on 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 $36,982137

MS-DRG Number of cases Average Length of Stay Average Costs MS-DRG 023 - Cases with pr ocedure code 00.10 158 7.0 $34,027

As shown in the table above, there we re a total of 5,383 cas es 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 report ing procedure code

00.10 within MS-DRG 023 have a shorter average lengt h of stay and are lower in average costs in comparison to all the cases in th e MS-DRG. Given the low volume of cases, shorter average length of stay, and lower average costs, the da ta 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-D RG in recognition of the comp lexity and costs associated with the implantation. Our clinic al advisors continue to supp ort this assignment for these138 same reasons. Therefore, we are not proposi ng 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 emboliza tion or occlusion procedures of the head and neck:

● 39.72 (Endovascular (total) embolizati on or occlusion of head and neck vessels);

● 39.75 (Endovascular embolization or occlus ion of vessel(s) of head or neck using bare coils); and

● 39.76 (Endovascular embolization or occlus ion of vessel(s) of head or neck using bioactive coils). These three procedure codes are curr ently assigned to the following eight MS-DRGs under MDC 1. Cases assigne d 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 ne rvous system (CNS) principal diagnosis. Cases assigned to MS-DRG s 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 Pr ocedures with Principal Diagnosis of Hemorrhage with MCC)139

● MS-DRG 021 (Intracranial Vascular Pro cedures with Principal Diagnosis of Hemorrhage with CC)

● MS-DRG 022 (Intracranial Vascular Pr ocedures with Principal Diagnosis of Hemorrhage without CC/MCC)

● MS-DRG 023 (Craniotomy with Majo r Device Implant/Acute Complex CNS Principal Diagnosis with MCC or Chemo Implant)

● MS-DRG 024 (Craniotomy with Majo r Device Implant/Acute Complex CNS Principal Diagnosis without MCC)

● MS-DRG 025 (Craniotomy & Endovascul ar Intracranial Procedures with MCC)

● MS-DRG 026 (Craniotomy & Endovascular Intracranial Procedures with CC)

● MS-DRG 027 (Craniotomy & Endovascul ar Intracranial Procedures without CC/MCC) The requestor recommended that ca ses 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 CN S principal diagnosis or a major device implant. The requestor stated that unruptur ed aneurysms can be treated by a minimally invasive technique utilizing endovascular coiling. Th e 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 mi crocatheter into the aneurysm in order to occlude (fill) the aneu rysm from inside the blood vessel. Once the coils are implanted, the blood flow pattern within the aneurysm is altered. The requestor140 stated that these cases do not have a pr incipal diagnosis of hemorrhage because the treatment is for an unruptured aneurysm wh ich 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 highe r 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 ma jor device implant reported. We examined claims data from the December 2013 update of the FY 2013

MedPAR file for cases of endovascular emboli zation 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 (endovas cular 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 n eck procedures cases in MS-DRG 027 ($26,250 versus $22,201). The findings also show th at 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. La stly, we found that the 721 endovascular141

embolization or occlusion of head and n eck 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 occlusi on 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 averag e 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 aver age costs that are closer to those in MS-DRGs 024 and 025. However, these cases are 1,245 of the to tal 2,976 cases that woul d be involved if we moved all MS-DRGs 025, 026, and 027 cases with procedure code 39.72, 39.75, or 39.76142 to MS-DRGs 024 and 025, even if they did not have an acute complex CNS principal diagnosis or a major device implant. Ba sed 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. Th erefore, we are proposing to maintain the current MS-DRG assignments for endovasc ular embolization or occlusion of head and neck procedures. We are inv iting 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 di aphragmatic pacemaker is indicated for adult and pediatric patients with chronic respirat ory insufficiency that would otherwise be dependent on ventilator suppor t. 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 su perior to mechanical

ventilators that force air into the chest. Th e requestor also stated that the system is expensive; the device cost is approximate ly $57,000. According to the requestor, given143 the cost of the device, hospitals are reluctan t to use it. The requestor did not make a specific MS-DRG reassignment request. When used for a respiratory failure patie nt, procedure code 34.85 is assigned to MS-DRGs 163, 164, and 165 (Major Chest Proce dures 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 pacemake r 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 diaphrag matic 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 al l 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 for144 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 diaphragma tic pacemaker cases that we found, we do not believe that there is justification fo r 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 clin ical 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 th is 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 cas es in the CC or MCC subgroup. While this

criterion is used to evaluate whether to cr eate a severity subgr oup 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 ca ses in MS-DRGs 163 and 164, we believe the current MS-DRG assignment is appropriate a nd that the data do not support creating an

MS-DRG because there are so few cases.

Our clinical advisors reviewed this is sue and determined that the diaphragmatic pacemaker cases are appropriately classi fied within MS-DRGs 163, 164, and 165 because they are clinically similar to other cases of patients with major chest procedures within145 MS-DRGs 163, 164, and 165. Our clinical a dvisors 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 nu mber 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 cu rrent MS-DRG assignmen ts for diaphragmatic pacemaker cases. We are inviting public comments on our proposal. 4. MDC 5 (Diseases and Disorder s of the Circulatory System) a. Exclusion of Left Atrial Appendage We received a request to move the ex clusion 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 wi thout Coronary Artery Stent with MCC) and 251 (Percutaneous Cardiovascular without Coronary Artery Stent without MCC) to MS-DRGs 237 (Major Cardiovascular Pr ocedures with MCC) and 238 (Major

Cardiovascular Procedures wit hout MCC). The requestor stated that the exclusion of the left atrial appendage proce dure code 37.36 is not clinically coherent with the other procedures in MS-DRGs 250 and 251 and that this current assignm ent to MS-DRGs 250 and 251 does not compensate providers adequate ly for the expenses incurred to perform this procedure and place ment of the device. The exclusion of the left atrial appe ndage procedure involves a percutaneous placement of a snare/suture around the left atrial appendage to close it off. The exclusion146 of the left atrial appendage procedure takes place in the cardiac catheterization laboratory under general anesthesia and is a catheter ba sed closed-chest procedure instead of an open heart surgical technique to treat the sa me clinical condition, with the same intended results. The procedure can be performed by either an interventiona l 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 procedur es 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 thos e in MS-DRGs 237 ($35,642) and 238 ($24,511).

Our clinical advisors reviewed this issu e and recommended not moving these stand-alone percutaneous cases to MS-DRGs 237 and 238 b ecause they do not consider them to be major cardiovascular procedures. Our clinic al advisors stated that cases reporting ICD-9-CM procedure code 37.36 are appropr iately assigned within MS-DRG 250 and 251 because they are percutaneous cardiovascular procedures and are clinically similar to147 other procedures within th e 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 publi c comments on our proposal to maintain

the current MS-DRG structure for the ex clusion 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 ru le (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 re quests 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 th e application for MitraClip ® under the new technology add-on payment po licy. 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 re porting 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 Cardio thoracic Procedures

with Cardiac Catheterization with M CC), 217 (Cardiac Valve & Other Major

Cardiothoracic Procedures with Cardiac Ca theterization with CC), 218 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac Catheterization without CC/MCC), 219 (Cardiac Valve & Other Major Cardio thoracic Procedures without Cardiac Catheterization with MCC), 220 (Cardi ac Valve & Other Ma jor Cardiothoracic

Procedures without Cardiac Catheterizati on 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 fo r transcatheter valve therapies. Effective October 1, 2010, ICD-9-CM pro cedure 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 Decembe r 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 Costs149 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 aver age length of stay of 6.90 days and average costs of $21,319. The number of cases reporti ng 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 averag e 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 av erage 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 paym ent system that half of the procedures in a group will have above average costs. It is e xpected 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 thr ough 221. Our findings are shown in the

table below.

MS-DRG Number of cases Average Length of Stay Average Costs150

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 sign ificantly 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 cas es. 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 opera ting 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 proc edures by organ system represent groups that are reasonably clinically c oherent. More significantly, our clinical advisors state that postoperative resource ut ilization is significantly higher for open procedures with much greater morbidity and consequent recovery n eeds. Because the equipment, technique, staff, patient populations, and physician specia lty all tend to group by type of procedure (percutaneous or open), separately gr ouping percutaneous procedures and open151 procedures is more clinically consistent. Therefore, we are not proposing to modify the current MS-DRG assignment for cases re porting 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 m odifications to the current MS-DRG logic

for these cases. As indicated above, the second component of the manufacture r’s request involved

the creation of a new base MS-D RG for transcatheter valve ther apies. We also received a similar request from another manufacturer re commending 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 repl acement procedures is included in section II.G.4.c. of the preamble of this proposed rule and includes findings fr om the analysis and our proposals for each of these similar, but distinct requests. c. Endovascular Cardiac Valve Replacement Procedures As noted in the previous s ection 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 manu facturer and “endovascular cardiac valve replacement” procedures by another manuf acturer. 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 va lve therapies consiste d of creating a new MS-DRG that would include the MitraClip ® technology (ICD-9-CM procedure code152 35.97 (Percutaneous mitral valve repair with implant)), along with the following list of ICD-9-CM procedure codes that identify th e various types of valve replacements performed by an endovascular or transcatheter technique:

● 35.05 (Endovascular replacement of aortic valve);

● 35.06 (Transapical replacem ent of aortic valve);

● 35.07 (Endovascular replacement of pulmonary valve);

● 35.08 (Transapical replacemen t of pulmonary valve); and

● 35.09 (Endovascular replacement of unspecified valve). We performed analysis of claims da ta from the December 2013 update of the

FY 2013 MedPAR file for bot h 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 re placement procedure codes are currently assigned to MS-DRGs 216, 217, 218, 219, 220, a nd 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 $30,286153 Upon analysis of cases in MS-DRGs 216 through 221 reporting the cardiac valve replacement procedure codes, we found a tota l 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 –C ases 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 re placement procedures are much higher in comparison to the volume of cases for the pe rcutaneous mitral valve repair (MitraClip ®) procedure (7,287 compared to 194). In addition, the average costs of the transcatheter/endovascular cardiac valve replace ment 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 tec hnologies, identified by procedure codes 35.05 through 35.09, are utilized for transcatheter/e ndovascular cardiac

valve replacements . Consequently, the data analysis and our clinical advisors do not154 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 reporti ng the percutaneous mitral valve repair (MitraClip ® ) procedure with transcatheter/e ndovascular cardiac valve replacement procedures. We are inviting public comments on our proposal. Endovascular Cardiac Valve Replacement The similar but separate request re lating to endovascular cardiac valve replacement procedures consisted of creating a new MS-DRG that would only include the various types of cardiac valve replacem ents performed by an endovascular or transcatheter technique. In other wo rds, 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 repl acements performed by an endovascular or transcatheter technique (I CD-9-CM procedure codes 35.05 through 35.09) as described

earlier in this section. The human heart contains four major va lves--the aortic, mitral, pulmonary, and tricuspid valves. These valves function to keep blood flowing through the heart. When conditions such as stenosis or insufficiency/r egurgitation 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 pres ents a viable option for high-risk patients

who are not candidates for the tr aditional 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 th rough 221. Our findings are shown in the chart below. The data analysis shows that cardiac valve replacem ents performed by an endovascular or transcatheter technique repr esent 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 comparis on to all of the cas es 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 crea tion of a new base MS-DRG, based on our evaluation of resource consump tion, patient characteristics, volume, and costs between the cardiac valve replacem ents performed by an endovascular or transcatheter technique and th e open surgical technique, we then applied our established

criteria to determine if thes e cases would meet the requireme nts to create subgroups. We

use five criteria establishe d in the FY 2008 IPPS final rule (72 FR 47169) to reviewrequests 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 order156

to warrant creation of a CC or an MCC s ubgroup 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 differe nce in average costs between subgroups.

● There is a $2,000 difference in average costs between subgroups. In applying the five criteria, we found th at the data support the creation of a new

MS-DRG subdivided into two se verity levels. We also c onsulted with our clinical

advisors. Our clinical advisors stated th at patients receiving e ndovascular cardiac valve replacements are significantly different fr om those patients who undergo an open chest cardiac valve replacement. They noted that pa tients receiving endovascular cardiac valve replacements are not eligible for open chest ca rdiac valve procedures because of a variety of health constraints. This highlights the fact that peri-operati ve complications and post-operative morbidity have significantly di fferent profiles for open chest procedures compared with endovascular in terventions. This is also substantiated by the different average lengths of stay demons trated by the two cohorts. Ou r clinical advisors further noted that separately grouping these endovascul ar valve replacement procedures provides greater clinical cohesi on for this subset of high-risk patients. We are proposing to create the foll owing 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 Cardiothor acic Procedures with MCC, with CC, and without CC/MCC, respectivel y). 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 implantati on cases is closer to those in MS-DRGs 228, 229, and 230.158 The requestor stated that the goal of e ndovascular repair for abdominal aneurysm is to isolate the diseased, aneurismal porti on of the aorta and common iliac arteries from continued exposure to systemic blood pressure. The procedure involv es the delivery and deployment of endovascular prosth eses, also referred to as a gr aft, as required to isolate the aneurysm above and below the extent of th e disease. The request or stated that this significantly reduces patient morbidity a nd 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 a bdominal 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 abdo minal 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 abdom inal aorta graft implantation cases in MS-DRG 237 is $9,256 great er than that for all cases in MS-DRG 237 ($44,898 compared to $35,642). The average cost for endovascular abdominal aorta graft159 implantation cases in MS-DRG 238 is $3,973 highe r than that for all cases in MS-DRG 238 ($28,484 compared to $24,511). Cases in MS -DRG 228 have averag e 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-D RG 229, which contain a CC, have average costs that are $3,586 higher than average cost s 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 ne ither an MCC nor a CC, have average costs that are $797 higher than the endovascular abdominal ao rta graft implantation cases in MS-DRG 238 ($29,281 compared to $28,484). While the average costs were higher

for endovascular abdominal aort a graft implantation cases comp ared 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 th e entire MS-DRG. MS -DRGs were developed to capture cases that are clinically cons istent with similar overall average resource requirements. This results in some cases w ithin 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 type s of cases included with in 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 is sue and determined that the endovascular abdominal aorta graft implantation cases are appropriately classifi ed within MS-DRGs 237 and 238 because they are clinically simila r to the other proce dures in MS-DRGs 237 and 238, which include other procedures on the aorta. While the endovascular abdominal aorta graft implantation cases have higher av erage costs than the average for all cases within MS-DRGs 237 and 238, our clinical advi sors 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 r eclassify endovascular abdominal aorta graft implantation cases fr om MS-DRGs 237 and 238 is warranted. We are proposing to maintain the current MS-D RG assignments for endovascular abdominal aorta graft implantation cases. We are inviting public comments on our proposal. 5. MDC 8 (Diseases and Disorders of th e 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 i nvolved the following two procedure codes:

● 81.88 (Reverse total s houlder replacement); and

● 81.97 (Revision of joint re placement of upper extremity). With respect to procedure code 81.88, the requestor asked that reve rse total shoulder replacements be reassigned from MS-DRGs 483 and 484 (Major Joint/Limb161 Reattachment Procedure of Upper Extr emities with CC/MCC and without CC/MCC, respectively) to MS-DRG 483 only. The r eassignment of procedure code 81.88 from MS-DRGs 483 and 484 was discussed previ ously in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50534 through 50536). The resu lt 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 revers e shoulder replacement procedures are more clinically cohesive with hi gher 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 an y 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 wh ether or not the case had a CC or an MCC. If CMS did not support this recomm endation for moving procedure code 81.97 to MS-DRG 483, the requestor recommended an alternative reassignm ent to MS-DRG 515162 (Other Musculoskeletal System and Connectiv e Tissue O.R. procedures with MCC) even

if the case had no MCC. We point out that, while the requesto r refers to procedure code 81.97 as a shoulder procedure, the code de scription actually includes revi sions of joint replacements of a variety of upper extremity joints, incl uding 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. Th e 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 shoulde r 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 M CC subgroup within a base MS-DRG. As outlined in the FY 2012 IPPS/LTCH PPS propos ed 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 diffe rence 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 th ere is a $2,453 difference in average costs

between MS-DRG 483 and MS-DRG 484. The diffe rence in average costs would need to be $3,761 to meet the fourth cr iterion. Therefore, our clai ms data support collapsing MS-DRGs 483 and 484 into a sing le MS-DRG. Our clinical a dvisors reviewed this issue and agree that there is no longer enough diffe rence between the two severity levels to justify separate severity subgroups for MS -DRGs 483 and 484, which include a variety of164 upper joint replacements. Therefore, our clin ical advisors support our recommendation to collapse MS-DRGs 483 a nd 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 revisi ng 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 upda te 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 th an 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 averag e 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 515165 ($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 movi ng all procedure code 81.97 cases to MS-DRG 515 or MS-DRG 483, whet her 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 ca ptures 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 act ually shoulder procedures as opposed to procedures on the elbow, hand, or wrist.

Our clinical advisors reviewed this is sue and determined that the revisions of upper joint replacement procedures are appr opriately classified within MS-DRGs 515, 516, and 517, which include other joint revisi on 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 classificat ion, 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, whet her or not there is a CC or an MCC, because these revisions are not joint re placements. Based on the results of our

examination and the advice of our clini cal advisors, we ar e not proposing moving166 revisions of upper joint replacement pro cedures to MS-DRG 515 or MS-DRG 483,

whether or not there is a CC or an MCC. In summation, we are proposing to co llapse MS-DRGs 483 and 484 into a single MS-DRG by deleting MS-DRG 484 and revisi ng 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 i nvolved 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 Lo wer Extremity with CC and without MCC, respectively) to a new MS-DRG or, alternat ively, 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 re placement procedures. The requestor also asked that we reassign what it referred to as another ankle replacement revision procedure captured by procedure code 81.59 (R evision of joint re placement of lower167 extremity, not elsewhere cl assified), which is assigned to MS-DRGs 515, 516, and 517 (Other Musculoskeletal System and Connectiv e Tissue O.R. Procedures with MCC, with CC, and without CC/MCC, respectively). The requestor asked that we reassi gn procedure code 81.56 from MS-DRGs 469 and 470 to MS-DRG 483 (Major Joint/Lim b Reattachment Procedure of Upper Extremities with CC/MCC) and rename the MS-DRG to better capture the additional lower extremity cases. The requestor stated th at the result would be assignment of lower joint procedures to an MS-DRG that curre ntly 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 request or 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 pr ocedure 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 addi tional 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 a nd 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 suggeste d two additional recommendations. One involves moving procedure code 81.59 to MS-DRG 515 even when the case had no168

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 re fers to procedure code 81.59 as a revision of an ankle replacement, the code actually in cludes 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 Decembe r 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 followi ng 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 av erage cost for all cases in MS-DRG169 469, we point out that there were only 32 cas es. The relatively small number of cases may have been impacted by other factors su ch as complications or comorbidities. Several expensive cases could impact the av erage costs for a very small number of patients. The average cost of cases re porting 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 w ould 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 curr ent MS-DRG assignment in MS-DRG 469. Furthermore, as noted earlier, moving tota l ankle replacement cases to MS-DRG 483 would result in a lower extremity procedur e being added to what is now an upper extremity MS-DRG. This would significantl y 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 c ode 81.56 in MS-DRG 470 ($22,548 compared to $19,332) The data do not support moving proc edure code 81.56 cases to MS-DRG 483 or 469 because it would not result in payments that more accurately reflect their current170 average costs. Our clinical advisors review ed this issue and determined that the ankle replacement cases are appropriately classi fied within MS-DRGs 469 and 470 with the severity level leading to the MS-DRG a ssignment. They do not support moving these cases to MS-DRG 483 because ankle replacemen ts, which are lower joint procedures, are not clinically similar to upper joint replacem ent 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 propos ing 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 re placement 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 Me dPAR 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 av erage 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 $22,548171

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 ther e 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 w ith 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 men tioned earlier, MS-DRG 483 is currently composed of only upper extremity procedures. Moving lower extremity procedures into this MS-DRG would disrupt the clin ical 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 M CC. We also point out that moving cases with procedure code 81.59 to MS-DRG 469 woul d disrupt the clinical cohesiveness of MS-DRG 469, which currently captures majo r joint replacement or reattachment172 procedures of the lower extremity. Pro cedure 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 consider ed 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 issu e and determined that the revision of joint replacement of lower extremity cases are ap propriately classified within MS-DRGs 515, 516, and 517 where revisions of other joint repl acements 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 leve l assignment. They do not support moving these cases to MS-DRG 483, which is applie d to upper extremity procedures because these procedures are not clinically consistent with revisions of lo wer 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 repla cement procedures. Based on the findings of our examination of the claims data, th e 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 ca ses to MS-DRGs 483 or 469, whether or not there is an MCC. We are proposing to ma intain the current MS-DRG assignments for revision of joint replacement of lower extremity cases. In summary, we are proposing to main tain 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-DRG s 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 & Ne ck 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/Neurostimulato r” and the “without MCC” (and no device)

criteria. For the FY 2008 rulemaking cycle, we perf ormed 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 seve rity, complexity of service, and utilization of re sources. This was primarily attributed to the new structure for the severity level designa tions of “with MCC,” “with CC,” and “non-CC” (or without CC/MCC). Another contributing fa ctor was that we incorporat ed specific procedures and technologies into the GROUPER logic for some of those spinal MS-DRGs. Specifically, as noted above, in the title of MS-D RG 490, we accounted for disc devices and

neurostimulators because the data demonstr ated that the procedures utilizing those technologies were more complex and requi red greater utilization of resources. According to the requester, since that tim e, concerns have been expressed in the provider community regarding inadequate payment for MS-DRG 490 when these technologies are utilized. An analysis conduc ted by the requester alleged that the subset174 of patients identified in th e “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 we re a total of 16,930 cases in MS-DRG 490 with an average length of stay of 4.53 da ys 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/Neurost imulator” and the “without MCC” (and no device) criteria. We found a total of 3,379 cases with an av erage length of stay of 6.6 days and average costs of $21,493 in the “w ith MCC or Disc De vice/Neurostimulator” group and a total of 39,329 cases with an averag e length of stay of 2.8 days and average costs of $9,405 in the “without MCC” and no de vice group. Due to the wide range in the volume of cases, length of stay, and aver age 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 usi ng a three-way severity level split that consisted of the three subgroups shown in the table below.

Additional Analysis for Back & N eck 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 av erage 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 anal ysis 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 establishe d 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 thr ee new MS-DRGs and to delete MS-DRGs 490176 and 491. These proposed new MS-DRGs woul d 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 Metabo lic Diseases and Diso rders): 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 cons ider this issue in future rulemaking as part of our annual review process. The reque st 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 fo r these patients, to ensure appropriate payment for these cases, and to preserve pa tient 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 part icularly interfere with the f unctioning of the nervous system and the skin. Treatment for patients suffe ring from disorders of porphyrin metabolism consists of an intravenous injection of Pa nhematin® (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) describe s these cases, which ar e 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 fo und 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 diagnos is code 277.1 as the principal diagnosis in178

this same MS–DRG. We found a total of 299 cas es, 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 hi gher than the average costs fo r 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 crea ting 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 la rger 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 a pply 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, applyi ng 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 is sue and recommended no MS-DRG change for porphyria cases because they fit clinically within MS-DRG 642. In summary, we are not proposing to cr eate a new MS–DRG for porphyria cases. We are inviting public comments on our pr oposal 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 th e 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 code s have no bearing on the infant, and are not representative of a neonate with a significant problem. Th e requestor recommended that we change the MS-DRG logic so that th e following seven ICD-9-CM codes would not lead to assignment of MS–D RG 794. The requestor recommended that the diagnoses be added to the “only secondary diagnosis” li st 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 ot her cardiovascular diseases)

● V18.0 (Family history of diabetes mellitus)

● V18.19 (Family history of other endocrine and metabolic diseases)

● V18.8 (Family history of inf ectious and para sitic 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, s hould be assigned to MS–DRG 795 instead of

MS–DRG 794.180

Our clinical advisors reviewed this re quest and concur with the commenter that the seven ICD-9-CM diagnosis codes noted a bove should not continue to be assigned to MS–DRG 794, as there is no clinically us able information reported in those codes identifying significant problems. Therefor e, for FY 2015, we are proposing to reassign these following seven diagnoses to the “onl y 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 ot her cardiovascular diseases)

● V18.0 (Family history of diabetes mellitus)

● V18.19 (Family history of other endocrine and metabolic diseases)

● V18.8 (Family history of inf ectious and para sitic 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 so ftware program that detects and reports errors in the coding of Medi care claims data. Patient diagnoses, procedure(s), and demographic information are entered into th e Medicare claims processing systems and are subjected to a series of automated screen s. The MCE screens are designed to identify cases that require further review be fore classification into an MS-DRG.

As discussed in section II.G.1.a. of th e preamble of this proposed rule, we developed an ICD-10 version of the current MS-DRGs, which are based on ICD-9-CM181

codes. We refer to this version of th e MS-DRGs as the ICD- 10 MS-DRGs Version 31.0-R. In November 2013, we also posted a De finitions 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 ma inframe and computer software through NTIS was posted on the CMS Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD 10/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 MC E 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 vers ion of the MCE as the ICD-10 MCE Version 31.0-R. Both of these documents are poste d on our ICD-10 MS-DRG Conversion Project Web site at: http://www.cms.hhs.gov/M edicare/Coding/ICD10/ICD-10-MS-DRGConversion-Project.html. We will continue to shar e 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 the182 MCE. This procedure is identified by ICD-9-CM procedure c ode 39.28 (Extracranialintracranial (EC-IC) vascular bypass). Because of the complexity of appropria tely 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 fr om 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 su rgical procedures, each one of which, occurring by itself, could result in assignmen t of the case to a diffe rent MS-DRG within the MDC to which the principal diagnosis is a ssigned. Therefore, it is necessary to have a decision rule within the GROUPER by wh ich these cases are assigned to a single MS-DRG. The surgical hierarchy, an or dering of surgical classes from most

resource-intensive to least re source-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 re source-intensive surgical class.

Because the relative resource intensity of surgical cla sses can shift as a function

of MS-DRG reclassification and recalibratio ns, 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 cl asses 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 “k idney transplant” consists of a single MS-DRG (MS-DRG183 652) and the class “major bladder procedur es” consists of thr ee 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 me thodology for determining the most resource-intensive surgical class involves weighting the average resources for each MS-DRG by frequency to determine the wei ghted 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, a nd 005. Assume also that the average costs of MS-DRG 001 are higher than that of MS-DRG 003, but th e average costs of MS-DRGs 004 and 005 are higher than the aver age costs of MS-DRG 002. To determine whether surgical class A should be higher or lower than surgi cal 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 surg ical classes would then be ordered from the class with the highest average resource utiliz ation 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 ava ilable alternatives. However, given that the logic underlying the surgical hierarchy pr ovides that the GROUPER search for the procedure in the most resource-intensive su rgical class, in cases involving multiple procedures, this result is sometimes unavoidable.184 We note that, notwithstanding the foregoi ng discussion, there are a few instances when a surgical class with a lower average co st 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 hi erarchy of each MDC in which it occurs, regardless of the fact that the average co sts for the MS-DRG or MS-DRGs in that surgical class may be higher than those for othe r surgical classes in the MDC. The “other O.R. procedures” class is a group of procedures that are only infreque ntly related to the diagnoses in the MDC, but are still occas ionally 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 clos ely 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 hier archy 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 cost s than the class ordered below it. Based on the changes that we are proposi ng 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 revi se the surgical hierarchy for MDC 5 (Diseases and Disorders of the Circulatory System) and MDC 8 (Diseases and Disorders of the Musculoskeletal System a nd Connective Tissue) as follows:185 In MDC 5, we are proposing to sequence proposed new MS-DRG 266 (Endovascular Cardiac Valve Replacement w ith MCC) and proposed new MS-DRG 267 (Endovascular Cardiac Valve Replacement w ithout MCC) above MS-DRG 222 (Cardiac Defibrillator Implant with Cardiac Cathet erization 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/Neurostimula tor) and MS-DRG 491 (Back & Neck Procedures Except Spin al Fusion without CC/MCC or Disc Device/Neurostimulator) from the surgical hierarchy. We are proposing to sequence proposed new MS-DRG 518 (Back & Neck Pro cedure Except Spinal Fusion with MCC or Disc Device/Neurostimulator), proposed new MS-DRG 519 (Back & Neck Procedure Except Spinal Fusion with CC), and pr oposed new MS-DRG 520 (Back & Neck Procedure Except Spinal Fusion without CC/MCC) above MS-DRG 492 (Lower Extremity and Humerus Procedure Ex cept Hip, Foot, Femur with MCC). We are inviting public co mments 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); and186

● 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 disc ussed 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 c ode 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 sec ondary diagnoses that are non-CCs. The C2 value reflects a patient with at least one othe r secondary diagnosis that is a CC, but none

that is an MCC. The C3 value reflects a patient with at leas t 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 value187 close to 2.0 suggests the condition is more lik e a CC than a non-CC, but not as significant in resource usage as an MCC. A value clos e 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 c ondition is more like a CC than a non-CC, but not as significant in res ource 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 su pport reclassification to an MCC. As stated earlier, a value close to 3.0 suggest s the condition is e xpected 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 evalua ted this condition. They reco mmended that we not change the severity level of diagnosis code 4 14.4 from a non-CC to an MCC. They do not believe that this diagnosis would increase the se verity level of patients. They pointed out that a similar code, diagnosis code 414.2 (Chronic total occlusi on of coronary artery), is a

non-CC. Our clinical advisors believe that diagnosis code 414.4 repr esents 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 pr oposing to maintain diagnosis code 414.4 as a non-CC. We are inviting public comments on our proposal. 11. Complications or Comorbid ity (CC) Exclusions List a. Background of the CC List and the CC Exclusions List188 Under the IPPS MS-DRG classification syst em, we have developed a standard list of diagnoses that are considered CCs. Histor ically, we developed th is list using physician panels that classified each diagnosis code based on whethe r 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 princi pal diagnosis, would cause an in crease 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 dia gnoses on the basic list of complications and comorbidities may be excluded if they are clos ely 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 disc ussion of the refinement of CCs in relation to the MS-DRGs we adopted for FY 2008 (72 FR 47152 through 47171). b. Proposed CC Exclusi ons 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 precl ude coding of CCs for closel y related conditions; (2) to preclude duplicative or inconsis tent coding from be ing treated as CCs; and (3) to ensure that cases are appropriately classified betw een the complicated and uncomplicated DRGs189 in a pair. As we indicated above, we de veloped a list of diagnoses, using physician panels, to include those diagnoses that, when present as a secondary condition, would be considered a substantial compli cation or comorbidity. In prev ious years, we have made changes to the list of CCs, either by adding new CCs or de leting 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 th at the excluded secondary diagnoses were established using the foll owing five principles:

● Chronic and acute manifestations of the same condition should not be considered CCs for one another;

● Specific and nonspecific (that is, no t otherwise specified (NOS)) diagnosis

codes for the same condition should not be considered CCs for one another;

● Codes for the same condition that ca nnot coexist, such as partial/total,

unilateral/bilater al, obstructed/unobstructed, and benign/malignant, should not be considered CCs for one another;

● Codes for the same condition in anat omically proximal sites should not be considered CCs for one another; and

● Closely related conditions should not be consider ed 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 re maining CCs to identify additional exclusions190 and to remove diagnoses from the master li st 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 deve loping 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 thes e principal diagnosis

codes for which there is a CC exclusion is show n 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 rec ognized by the GROUPER as valid CCs for the asterisked principal diagnoses.

1 We refer readers to the FY 1989 final rule (53 FR 38485, Septembe r 30, 1988) for the revision made for the discharges occurrin g in FY 1989; the FY 1990 final rule (54 FR 36552, September 1, 1989) for the FY 1990 revi sion; the FY 1991 final rule (55 FR 36126, September 4, 1990) for the FY 1991 revision; the FY 1992 final rule (56 FR 43209, Augu st 30, 1991) for the FY 1992 revision; th e FY 1993 final rule (57 FR 39753, September 1, 1992) for th e 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; th e 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, Augus t 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 ru le (71 FR 47870) for the FY 2007 revisions; the FY 2008 final r ule (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 201 1 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 rul e (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 Tabl e 6A (New Diagnosis Codes), Table 6B (New Procedure Codes), Table 6C (Invalid Diagnosis Codes), Table 6D (Invalid Procedure Codes), Table 6E (Revised Diagnos is Code Titles), and Table 6F (Revised Procedure Codes) to this proposed rule and th ey are not published as part of this proposed

rule. We are proposing no additions or de letions 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), a nd 6J.2 (Deletions to the CC List), and they are not published as part of this proposed rule. Alternatively, the complete documentati on of the GROUPER l ogic, including the current CC Exclusions List, is available from 3M/Health Information Systems (HIS), which, under contract with CMS, is res ponsible 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 or der form at the Web site: http://www.3MHIS.com

. Please specify the revision or revisions reque sted. Version 32.0 of this manual, which192

will include the final FY 2015 MS -DRG changes, will be avai lable 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 determin e whether it would be appropriate to change the procedures assigned among these CMS DR Gs. Under the MS-DRGs that we adopted for FY 2008, CMS DRG 468 was split thr ee 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 Pr incipal 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 Pr incipal Diagnosis with MCC, with CC, and without CC/MCC, respectively). MS-DRGs 981 through 983, 984 thro ugh 986, and 987 through 989 (formerly CMS DRGs 468, 476, and 477, respectively) are re served for those cases in which none of the O.R. procedures performed are relate d to the principal diagnosis. These MS-DRGs193 are intended to capture atypical cases, that is, those cases not occurring with sufficient frequency to represent a di stinct, 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 pe rformed and are unrelated to the principal diagnosis:

● 60.0 (Incision of prostate);

● 60.12 (Open biopsy of prostate);

● 60.15 (Biopsy of pe riprostatic 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 peri prostatic tissue);

● 60.82 (Excision of pe riprostatic tissue);

● 60.93 (Repair of prostate);

● 60.94 (Control of (postoperativ e) hemorrhage of prostate);

● 60.95 (Transurethral balloon dila tion of the prostatic urethra);

● 60.96 (Transurethral destruction of prosta te tissue by microwave thermotherapy);

● 60.97 (Other transurethral destru ction of prostate tissue by other thermotherapy); and194

● 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 a ssigned to those discharges in which the only procedures performed are nonextensive procedures that are unrelated to the principal diagnosis. 2

Our review of MedPAR clai ms 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-D RGs 981 through 983 or MS-DRGs 987 through

989 into MDCs We annually conduct a review of proce dures producing assignment to MS-DRGs 981 through 983 (Extensive O.R. procedure unrel ated 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 di agnosis, 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 fr om 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 code s 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 comm ent 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, resp ectively) or MS-DRGs 987 through 989 (Nonextensive O.R. procedure unrelated to pr incipal 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 l ook at a frequency count of each major operative procedure code. We also comp are procedures across MDCs by volume of procedure codes within each MDC. We identify those procedur es occurring in conjuncti on 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 pr oposing 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 am ong 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 assign ment to MS-DRGs 981 through 983, 984 through 986 (Prostatic O.R. pr ocedure unrelated to principal diagnosis with MCC, with CC, or without CC/MCC, respectively), and 987 through 989, to ascertain whether any of thos e procedures should be reassi gned from one of these three196

MS-DRGs to another of the three MS-DRGs based on averag e 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 k eep 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 assignm ent 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 a ny procedure codes among these MS-DRGs. c. Adding Diagnosis or Procedure Codes to MDCs

Based on the review of cases in the MDCs as describe d 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 c odes 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 Coor dination and Maintenance Committee was formed. This is a Federal interdepartmental committee, co-chaired by the National Center for Health Statistics (NCHS), the Ce nters for Disease Control and Prevention, and CMS, charged with maintaining and updating th e ICD-9-CM system. The final update to

ICD-9-CM codes was to be made on Octobe r 1, 2013. Thereafter, the name of the Committee was changed to the ICD-10 C oordination and Maintenance Committee,197 effective with the March 19-20, 2014 m eeting. The ICD-10 Coordination and Maintenance Committee will address update s 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, a nd other modifications to the coding systems to reflect newly developed procedures and te chnologies and newly identified diseases. The Committee is also responsible for prom oting the use of Federal and non-Federal educational programs and other communica tion techniques with a view toward standardizing coding ap plications and upgrading the quality of the classification system.

The official list of ICD-9- CM diagnosis and procedure c odes by fiscal year can be

found on the CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD 9ProviderDiagnosticCodes/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 Al phabetic 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 participati on in the above pro cess by health-related organizations. In this regard, the Committ ee holds public meetings for discussion of educational issues and proposed coding change s. These meetings provide an opportunity for representatives of recognized organizations in the coding field, such as the American Health Information Management Associ ation (AHIMA), the American Hospital198 Association (AHA), and various physician specialty groups, as well as individual physicians, health information management professionals, and other members of the public, to contribute id eas on coding matters. After consid ering the opinions expressed at the public meetings and in writing, the Co mmittee 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 Sept ember 18–19, 2013, and finalized the coding changes after consideration of comments re ceived 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 c onsensus 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 proced ure 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/ICD9Pr oviderDiagnosticCodes/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 detailed199 information about the Committee, includi ng information on requesting a new code, attending a Committee meeting, and time line requirements and meeting dates. We encourage commenters to addres s 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 pr ocedure 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 re visions 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 si ngle update on October 1 of each year. This requirement was included as part of the amen dments to the Act rela ting 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 pr ovide for the addition of new diagnosis and procedure codes on Apr il 1 of each year, but the addition of such codes shall not require the Secretary to ad just the payment (or diagnosis-related group200 classification) . . . until the fi scal year that begins after such date.” This requirement improves the recognition of new technologi es under the IPPS system by providing information on these new technologies at an earl ier date. Data will be available 6 months earlier than would be possible with update s 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 requ ire the Secretary to adjust the payment, or DRG classificati on, 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 th e new codes. We also publicize the code changes and the need for a mid-year system s 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 a nd fall in order to update the codes and the applicable payment and reporting systems by Oc tober 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 fo r staff to review and research the coding issues and prepare material for discussion at th e 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. Fi nal decisions on code title re visions are currently made by

March 1 so that these titles can be incl uded in the IPPS proposed rule. A complete201 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 pr oviders to update their systems.

A discussion of this timeline and th e need for changes are included in the December 4-5, 2005 ICD-9-CM Coordinati on 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 additiona l 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 Apr il 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 P ub. L. 108-173, by developing a mechanism for approving, in time for the April update, diagnosi s and procedure code revisions needed to describe new technologies and medical se rvices for purposes of the new technology add-on payment process. We also establ ished the following process for making these determinations. Topics considered duri ng the Fall ICD-10 (previously ICD-9-CM)

Coordination and Maintenance Committee mee ting 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 reas on why a new code is needed in April for purposes of the new technology process. Th e participants at the meeting and those202 reviewing the Committee meeting summary report are provided the opportunity to comment on this expedited request. All othe r 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 fo r an expedited April l, 2014 implementation of a code at the September 18-19, 2013 Comm ittee meeting. Therefore, there were no new codes implemented on April 1, 2014.

ICD-9-CM addendum and code title in formation is published on the CMS Web

site at: http://www.cms.hhs.gov/Medicare/Coding/IC D9ProviderDiagnosticCodes/index.html?re direct=/icd9ProviderDiagnostic Codes/01overview.asp#TopofPage . ICD-10-CM and

ICD-10-PCS addendum and code title informa tion 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 IC D-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 upda ting their systems and providi ng education to providers. The code titles are adopted as part of the ICD-10 (previously ICD-9-CM) Coordination and Maintenance Committee proc ess. Therefore, although we publish the203 code titles in the IPPS proposed and final rules, they are no t 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 par tial 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 co mmenters 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, necessita ting 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. Theref ore, HHS indicated that the issue of consideration of a moratorium on upda tes to the ICD-9-CM, ICD-10-CM, and

ICD-10-PCS code sets in an ticipation of the adoption of ICD-10-CM and ICD-10-PCS would be addressed through the Comm ittee 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 fr om 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 an204 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 onl y limited code updates to ICD-10 code sets to capture new technology and dia gnoses 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) C oordination and Maintenance Committee

announced that it would conti nue to meet twice a year dur ing 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 cr eated based on the need to capture new technology and new diseases. A ny code requests that do not m eet 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 Maintenance205

Committee Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9 ProviderDiagnosticCodes/meetings.html. A summary of the September 19, 2012 Committ ee meeting, along with both written and audio transcripts of this meeti ng, is posted on the Web site at: http://www.cms.hhs.gov/Medicare/Coding/IC D9ProviderDiagnosticCodes/ICD-9-CM-Cand-M-Meeting-Materials-Item s/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 -1206 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 pr ovided the opportunity to comment on any requests for new diagnosis or procedure code s 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 code s each year to creating only a limited

number of new ICD-9-CM and ICD-10 codes. At the September 18-19, 2013 and Ma rch 19-20, 2014 Committee meetings, we discussed any requests we had received fo r new ICD-10-CM diagnosis and ICD-10-PCS procedure codes that were to be implemen ted 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 wh ether 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 crea ted after the partial code free ze ends one year after the implementation of ICD-10-CM/PCS. We inv ited public comments on any code requests discussed at the September 18-19, 2013 a nd March 19-20, 2014 Committee meetings for207 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 syst em 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 diagnosti c and procedure data for all Medicare inpatient hospital bill s. The FY 2013 MedPAR data used in this proposed rule include discharges occurring on Octobe r 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 Maryla nd (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 weight s 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 managed208 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.” Clai m type “60” indicates that the claim was an inpatient claim paid as fee-for-service. Clai m types “61,” “62,” “63,” and “64” relate to encounter claims, Medicare Advantage IME cl aims, and HMO no-pay claims. Therefore, the calculation of the proposed relative wei ghts for FY 2015 also excludes claims with claim type values not equal to “60.” The data exclude C AHs, including hospitals that subsequently became CAHs after the period fr om 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 co st report data file s 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 fr om 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 th e preamble of this proposed rule, we are calculating the proposed FY 2015 relative we ights based on 19 CCRs, as we did for FY 2014. The methodology we used to cal culate 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 cl aims were regrouped using the proposed

FY 2015 MS-DRG classifications discussed in s ections 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 inte stinal, and lung transp lants (MS-DRGs 001, 002, 005, 006, and 007, respectively) were limited to those Medicare-approved transplant

centers that have cases in the FY 2012 MedP AR file. (Medicare coverage for heart, heart-lung, liver and/or intestin al, and lung transplants is lim ited to those facilities that have received approval from CMS as transplant centers.)

● Organ acquisition costs for kidney, hear t, heart-lung, liver, lung, pancreas, and intestinal (or multivisceral organs) transplant s continue to be paid on a reasonable cost basis. Because these acquisition costs are pa id separately from th e prospective payment rate, it is necessary to subt ract the acquisition charges fr om the total charges on each transplant bill that showed acquisition charges before computing the average cost for

each MS-DRG and before elimin ating 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 to tal charge field that differed by more than $10.00 from the sum of the routine day char ges, intensive care charges, pharmacy charges, special equipment charges, therapy services charges, ope rating 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 per cent of the providers in the MedPAR file had charges for 14 of the 19 cost centers. All claims of providers that did not have char ges greater than zero

for at least 14 of the 19 cost centers were dele ted. In other words, a provider must have no more than five blank cost centers. If a pr ovider did not have char ges 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 th reshold 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 m ean of the log distribution of both the total charges per case and the total ch arges 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 re set to “Y” for “Yes” for all claims that otherwise have an “N” (No) or a “U” (doc umentation 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 pa yment 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 th e hospital is paid for the higher severity (and, therefore, the higher weighted MS-DRG). If the particular cond ition is not present on admission (that is, an “N” indi cator is associated with the diagnosis on the claim) and there are no other complicating conditions, the DRG GROUPER assigns the claim to a211 lower severity (and, therefore, the lower weighted MS-DRG) as a penalty for allowing a Medicare inpatient to contra ct 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 iden tified as HACs, the charges associated with HAC cases are likely to be hi gher as well. Therefore, if the higher charges of these HAC claims are grouped into lower severity MS -DRGs prior to the re lative weight-setting process, the relative weights of these particular MS-DRG s would become artificially inflated, potentially skewing the relative wei ghts. 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 a nd 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 P OA 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 co stly 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 a nd the statistical out liers 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 hospitals212 located in Alaska and Hawaii, the applicable cost-of-living adjustment. Because hospital charges include charges for both operating a nd capital costs, we standardized total charges to remove the effects of differe nces in geographic adjustment factors, cost-of-living adjustments, and DSH paymen ts 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 th e proposed relative weight calculation are shown in the following table. The table s hows the lines on the co st report and the corresponding revenue codes that we used to create the 19 national cost center CCRs.213Cost CenterGroup Name(19 total)MedPARCharge FieldRevenueCodescontained inMedPARCharge FieldCost ReportLineDescriptionCost fromHCRIS(WorksheetC, Part 1,Column 5and linenumber)Form CMS2552-10ChargesfromHCRIS(WorksheetC, Part 1,Column 6 &7 and linenumber)Form CMS2552-10MedicareCharges fromHCRIS(Worksheet D-3,Column & linenumber)Form CMS2552-10Routine DaysPrivate RoomCharges011X and014XAdults &Pediatrics(GeneralRoutine Care) C_1_C5_30 C_1_C6_30 D3_HOS_C2_30Semi-PrivateRoomCharges012X, 013Xand016X-019XWardCharges 015XIntensiveDaysIntensiveCare Charges 020XIntensive CareUnit C_1_C5_31 C_1_C6_31 D3_HOS_C2_31214Cost CenterGroup Name(19 total)MedPARCharge FieldRevenueCodescontained inMedPARCharge FieldCost ReportLineDescriptionCost fromHCRIS(WorksheetC, Part 1,Column 5and linenumber)Form CMS2552-10ChargesfromHCRIS(WorksheetC, Part 1,Column 6 &7 and linenumber)Form CMS2552-10MedicareCharges fromHCRIS(Worksheet D-3,Column & linenumber)Form CMS2552-10CoronaryCare Charges 021XCoronary CareUnit C_1_C5_32 C_1_C6_32 D3_HOS_C2_32Burn IntensiveCare Unit C_1_C5_33 C_1_C6_33 D3_HOS_C2_33SurgicalIntensive CareUnit C_1_C5_34 C_1_C6_34 D3_HOS_C2_34Other SpecialCare Unit C_1_C5_35 C_1_C6_35 D3_HOS_C2_35215Cost CenterGroup Name(19 total)MedPARCharge FieldRevenueCodescontained inMedPARCharge FieldCost ReportLineDescriptionCost fromHCRIS(WorksheetC, Part 1,Column 5and linenumber)Form CMS2552-10ChargesfromHCRIS(WorksheetC, Part 1,Column 6 &7 and linenumber)Form CMS2552-10MedicareCharges fromHCRIS(Worksheet D-3,Column & linenumber)Form CMS2552-10DrugsPharmacyCharges025X, 026Xand 063XIntravenousTherapy C_1_C5_64 C_1_C6_64 D3_HOS_C2_64C_1_C7_64Drugs ChargedTo Patient C_1_C5_73 C_1_C6_73 D3_HOS_C2_73C_1_C7_73216Cost CenterGroup Name(19 total)MedPARCharge FieldRevenueCodescontained inMedPARCharge FieldCost ReportLineDescriptionCost fromHCRIS(WorksheetC, Part 1,Column 5and linenumber)Form CMS2552-10ChargesfromHCRIS(WorksheetC, Part 1,Column 6 &7 and linenumber)Form CMS2552-10MedicareCharges fromHCRIS(Worksheet D-3,Column & linenumber)Form CMS2552-10Supplies andEquipmentMedical/Surgical SupplyCharges0270, 0271,0272, 0273,0274, 0277,0279, and0621, 0622,0623MedicalSuppliesCharged toPatients C_1_C5_71 C_1_C6_71 D3_HOS_C2_71C_1_C7_71DurableMedicalEquipmentCharges0290, 0291,0292 and0294-0299DME-Rented C_1_C5_96 C_1_C6_96 D3_HOS_C2_96C_1_C7_96Used DurableMedicalCharges 0293DME-Sold C_1_C5_67 C_1_C6_97 D3_HOS_C2_97217Cost CenterGroup Name(19 total)MedPARCharge FieldRevenueCodescontained inMedPARCharge FieldCost ReportLineDescriptionCost fromHCRIS(WorksheetC, Part 1,Column 5and linenumber)Form CMS2552-10ChargesfromHCRIS(WorksheetC, Part 1,Column 6 &7 and linenumber)Form CMS2552-10MedicareCharges fromHCRIS(Worksheet D-3,Column & linenumber)Form CMS2552-10C_1_C7_97ImplantableDevices0275, 0276,0278, 0624ImplantableDevicesCharged toPatients C_1_C5_72 C_1_C6_72 D3_HOS_C2_72C_1_C7_72TherapyServicesPhysicalTherapyCharges 042XPhysicalTherapy C_1_C5_66 C_1_C6_66 D3_HOS_C2_66C_1_C7_66218Cost CenterGroup Name(19 total)MedPARCharge FieldRevenueCodescontained inMedPARCharge FieldCost ReportLineDescriptionCost fromHCRIS(WorksheetC, Part 1,Column 5and linenumber)Form CMS2552-10ChargesfromHCRIS(WorksheetC, Part 1,Column 6 &7 and linenumber)Form CMS2552-10MedicareCharges fromHCRIS(Worksheet D-3,Column & linenumber)Form CMS2552-10OccupationalTherapyCharges 043XOccupationalTherapy C_1_C5_67 C_1_C6_67 D3_HOS_C2_67C_1_C7_67SpeechPathologyCharges044X and047XSpeechPathology C_1_C5_68 C_1_C6_68 D3_HOS_C2_68C_1_C7_68InhalationTherapyInhalationTherapyCharges041X and046XRespiratoryTherapy C_1_C5_65 C_1_C6_65 D3_HOS_C2_65C_1_C7_65219Cost CenterGroup Name(19 total)MedPARCharge FieldRevenueCodescontained inMedPARCharge FieldCost ReportLineDescriptionCost fromHCRIS(WorksheetC, Part 1,Column 5and linenumber)Form CMS2552-10ChargesfromHCRIS(WorksheetC, Part 1,Column 6 &7 and linenumber)Form CMS2552-10MedicareCharges fromHCRIS(Worksheet D-3,Column & linenumber)Form CMS2552-10OperatingRoomOperatingRoomCharges 036XOperatingRoom C_1_C5_50 C_1_C6_50 D3_HOS_C2_50C_1_C7_50071XRecoveryRoom C_1_C5_51 C_1_C6_51 D3_HOS_C2_51C_1_C7_51Labor &DeliveryOperatingRoomCharges 072XDelivery Roomand LaborRoom C_1_C5_52 C_1_C6_52 D3_HOS_C2_52220Cost CenterGroup Name(19 total)MedPARCharge FieldRevenueCodescontained inMedPARCharge FieldCost ReportLineDescriptionCost fromHCRIS(WorksheetC, Part 1,Column 5and linenumber)Form CMS2552-10ChargesfromHCRIS(WorksheetC, Part 1,Column 6 &7 and linenumber)Form CMS2552-10MedicareCharges fromHCRIS(Worksheet D-3,Column & linenumber)Form CMS2552-10C_1_C7_52AnesthesiaAnesthesiaCharges 037XAnesthesiology C_1_C5_53 C_1_C6_53 D3_HOS_C2_53C_1_C7_53CardiologyCardiologyCharges048X and073XElectrocardiology C_1_C5_69 C_1_C6_69 D3_HOS_C2_69C_1_C7_69CardiacCatheteri- 0481CardiacCatheterization C_1_C5_59C_1_C6_59 D3_HOS_C2_59221Cost CenterGroup Name(19 total)MedPARCharge FieldRevenueCodescontained inMedPARCharge FieldCost ReportLineDescriptionCost fromHCRIS(WorksheetC, Part 1,Column 5and linenumber)Form CMS2552-10ChargesfromHCRIS(WorksheetC, Part 1,Column 6 &7 and linenumber)Form CMS2552-10MedicareCharges fromHCRIS(Worksheet D-3,Column & linenumber)Form CMS2552-10zationC_1_C7_59LaboratoryLaboratoryCharges030X, 031X,and 075XLaboratory C_1_C5_60C_1_C6_60 D3_HOS_C2_60C_1_C7_60PBP ClinicLaboratoryServices C_1_C5_61 C_1_C6_61 D3_HOS_C2_61C_1_C7_61222Cost CenterGroup Name(19 total)MedPARCharge FieldRevenueCodescontained inMedPARCharge FieldCost ReportLineDescriptionCost fromHCRIS(WorksheetC, Part 1,Column 5and linenumber)Form CMS2552-10ChargesfromHCRIS(WorksheetC, Part 1,Column 6 &7 and linenumber)Form CMS2552-10MedicareCharges fromHCRIS(Worksheet D-3,Column & linenumber)Form CMS2552-10074X, 086XElectroEncephalography C_1_C5_70 C_1_C6_70 D3_HOS_C2_70C_1_C7_70RadiologyRadiologyCharges 032X, 040XRadiology –Diagnostic C_1_C5_54 C_1_C6_54 D3_HOS_C2_54C_1_C7_54028x, 0331,0332, 0333,0335, 0339,0342Radiology –Therapeutic C_1_C5_55 C_1_C6_55 D3_HOS_C2_550343 and344Radioisotope C_1_C5_56 C_1_C6_56 D3_HOS_C2_56223Cost CenterGroup Name(19 total)MedPARCharge FieldRevenueCodescontained inMedPARCharge FieldCost ReportLineDescriptionCost fromHCRIS(WorksheetC, Part 1,Column 5and linenumber)Form CMS2552-10ChargesfromHCRIS(WorksheetC, Part 1,Column 6 &7 and linenumber)Form CMS2552-10MedicareCharges fromHCRIS(Worksheet D-3,Column & linenumber)Form CMS2552-10C_1_C7_56ComputedTomography(CT) ScanCT ScanCharges 035XComputedTomography(CT) Scan C_1_C5_57 C_1_C6_57 D3_HOS_C2_57C_1_C7_57MagneticResonanceImaging(MRI) MRI Charges 061XMagneticResonanceImaging (MRI) C_1_C5_58 C_1_C6_58 D3_HOS_C2_58C_1_C7_58EmergencyRoomEmergencyRoom 045xEmergency C_1_C5_91 C_1_C6_91 D3_HOS_C2_91224Cost CenterGroup Name(19 total)MedPARCharge FieldRevenueCodescontained inMedPARCharge FieldCost ReportLineDescriptionCost fromHCRIS(WorksheetC, Part 1,Column 5and linenumber)Form CMS2552-10ChargesfromHCRIS(WorksheetC, Part 1,Column 6 &7 and linenumber)Form CMS2552-10MedicareCharges fromHCRIS(Worksheet D-3,Column & linenumber)Form CMS2552-10ChargesC_1_C7_91Blood andBloodProductsBloodCharges 038xWhole Blood& Packed RedBlood Cells C_1_C5_62 C_1_C6_62 D3_HOS_C2_62C_1_C7_62BloodStorage /Processing 039xBlood Storing,Processing, &Transfusing C_1_C5_63 C_1_C6_63 D3_HOS_C2_63C_1_C7_63225Cost CenterGroup Name(19 total)MedPARCharge FieldRevenueCodescontained inMedPARCharge FieldCost ReportLineDescriptionCost fromHCRIS(WorksheetC, Part 1,Column 5and linenumber)Form CMS2552-10ChargesfromHCRIS(WorksheetC, Part 1,Column 6 &7 and linenumber)Form CMS2552-10MedicareCharges fromHCRIS(Worksheet D-3,Column & linenumber)Form CMS2552-10OtherServicesOther ServiceCharge0002-0099,022X, 023X,024X,052X,053X055X-060X,064X-070X,076X-078X,090X-095Xand 099XRenalDialysis 0800XRenal Dialysis C_1_C5_74 C_1_C6_74 D3_HOS_C2_74ESRDRevenueSettingCharges080X and082X-088XC_1_C7_74226Cost CenterGroup Name(19 total)MedPARCharge FieldRevenueCodescontained inMedPARCharge FieldCost ReportLineDescriptionCost fromHCRIS(WorksheetC, Part 1,Column 5and linenumber)Form CMS2552-10ChargesfromHCRIS(WorksheetC, Part 1,Column 6 &7 and linenumber)Form CMS2552-10MedicareCharges fromHCRIS(Worksheet D-3,Column & linenumber)Form CMS2552-10Home ProgramDialysis C_1_C5_94 C_1_C6_94 D3_HOS_C2_94C_1_C7_94OutpatientServiceCharges 049XASC (NonDistinct Part) C_1_C5_75 C_1_C6_75 D3_HOS_C2_75LithotripsyCharge 079XC_1_C7_75OtherAncillary C_1_C5_76 C_1_C6_76 D3_HOS_C2_76C_1_C7_76Clinic VisitCharges 051XClinic C_1_C5_90C_1_C6_90 D3_HOS_C2_90227Cost CenterGroup Name(19 total)MedPARCharge FieldRevenueCodescontained inMedPARCharge FieldCost ReportLineDescriptionCost fromHCRIS(WorksheetC, Part 1,Column 5and linenumber)Form CMS2552-10ChargesfromHCRIS(WorksheetC, Part 1,Column 6 &7 and linenumber)Form CMS2552-10MedicareCharges fromHCRIS(Worksheet D-3,Column & linenumber)Form CMS2552-10C_1_C7_90ObservationbedsC_1_C5_92.01C_1_C6_92.01D3_HOS_C2_92.01C_1_C7_92.01ProfessionalFees Charges096X, 097X,and 098XOtherOutpatientServices C_1_C5_93 C_1_C6_93 D3_HOS_C2_93C_1_C7_93AmbulanceCharges 054XAmbulance C_1_C5_95 C_1_C6_95 D3_HOS_C2_95C_1_C7_95228Cost CenterGroup Name(19 total)MedPARCharge FieldRevenueCodescontained inMedPARCharge FieldCost ReportLineDescriptionCost fromHCRIS(WorksheetC, Part 1,Column 5and linenumber)Form CMS2552-10ChargesfromHCRIS(WorksheetC, Part 1,Column 6 &7 and linenumber)Form CMS2552-10MedicareCharges fromHCRIS(Worksheet D-3,Column & linenumber)Form CMS2552-10Rural HealthClinic C_1_C5_88 C_1_C6_88 D3_HOS_C2_88C_1_C7_88FQHC C_1_C5_89 C_1_C6_89 D3_HOS_C2_89C_1_C7_89229

We refer readers to the FY 2009 IPPS/LTC H 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 co st 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 item s 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 th e logs of the normalized cost center CCRs and removed any cost center CCRs where the log of the cost cente r 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 calculate d a Medicare-specific CCR. The Medicare-specific CCR was determin ed by taking the Medicare charges for

each line item from Worksheet D-3 and deri ving the Medicare-specific costs by applying the hospital-specific departmental CCRs to th e Medicare-specific charges for each line

item from Worksheet D-3. Once each hos pital’s Medicare-specific costs were established, we summed the total Medicare-sp ecific 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 fo r 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 standardiz ed cost for the MS-DRG. The average

standardized cost for each MS-DRG was then co mputed as the total standardized cost for the MS-DRG divided by the transfer-adjuste d case count for the MS-DRG. The average cost for each MS-DRG was then divided by th e national average sta ndardized cost per case to determine the relative weight. The proposed FY 2015 cost-based relativ e weights were then normalized by an adjustment factor of 1.642112 so that the average case weight af ter recalibration was equal to the average case weight before re calibration. The normalization adjustment is

intended to ensure that r ecalibration by itself neither in creases nor decreases total payments under the IPPS, as required by section 1886(d)(4)(C)(i ii) 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 0.393231 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 requ ired 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 weight s 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 previous ly separated some DRGs based on whether the patient was age 0 to 17 years or age 17 y ears 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 childr en 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 thei r relative weights. Although we have always encouraged non-Medicare payers to develop weights applicable to their own patient populations, we have received frequent compla ints from providers about the use of the Medicare relative weights in the pediatric popul ation. 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 ar e not mirrored in the adult population. Therefore, it remains necessary to retain separate MS -DRGs for newborns.

All of the low-volume MS-DRG s listed below are for newborns. In FY 2015, because

we do not have sufficient MedPAR data to set accurate and stable co st relative weights for these low-volume MS-DRGs, we are proposing to comput e 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-D RGs. 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 weightof 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 weightof 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 Pr oblems Final FY 2014 relative weight (adjusted by percent change in average weightof 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 weightof 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 Improve ment (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 define d models of care, which link payments for multiple services beneficiaries receive duri ng an episode of care. Under the BPCI initiative, organizations ente r into payment arrangements that include financial and performance accountability for episodes of care. On January 31, 2013, CMS announced the health care organizations se lected to participate in the BP CI initiative. For additional information on the BPCI initiative, we refer r eaders 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 paym ent modeling and ratesetting process without regard to a hospital’s participation within th ese bundled payment mode ls (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 includ e 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 fo r 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 tec hnologies (sometimes collectively referred to in th is section as “new technologi es”) 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 esta blished by the Secretary after notice and opportunity for public comment. Section 1886(d) (5)(K)(ii)(I) of the Ac t specifies that a new medical service or technology may be considered for new technology add-on payment if, “based on the estima ted costs incurred with respect to discharges involving such service or technology, the DRG prospect ive payment rate othe rwise applicable to such discharges under this subsection is in adequate.” We note that beginning with discharges occurring in FY 2008, CMS tran sitioned from CMS-DRGs to MS-DRGs. The regulations at 42 CFR 412.87 implemen t these provisions and specify three

criteria for a new medical service or technology to receive the additional payment: (1) the medical service or tec hnology must be new; (2) th e medical servic e or technology must be costly such that the DRG rate othe rwise applicable to di scharges involving the medical service or technology is determined to be inadequate; a nd (3) the service or technology must demonstrate a substantial clin ical 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 cr iteria as well as other information. For236 a complete discussion on the new technology ad d-on payment criteria, we refer readers to

the FY 2012 IPPS/LTCH PPS final ru le (76 FR 51572 through 51574). Under the first criterion, as reflected in § 412.87(b)(2), a spec ific 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 consid ered “new” for purposes of new technology add-on payments if it is “substantially sim ilar” 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 substantia l similarity in detail. Under the second criterion, § 412.87(b)(3) furt her 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 disc harge 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 technol ogy paid under the ap plicable MS-DRG prospective payment rate, we evaluate whet her 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 the237

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 th at established the new technology add-on payment regulations (66 FR 46917), we disc ussed the issue of whether the Health Insurance Portability and Acc ountability 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 r eaders 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 re gulations provides that a new technology is an appropriate candidate fo r 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 improveme nt when it reduces mortality, decreases the number of hospitalizations or physician visits, or reduces reco very time compared to the technologies previously availa ble. (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 techno logy add-on payment policy under the IPPS provides additional payments for cases with relatively high costs involving eligible new medical services or technologi es 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 serv ice or technology. Unde r § 412.88, if the costs238 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 ma ke an add-on payment equal to the lesser of: (1) 50 percent of the estimat ed costs of the new technolog y (if the estimated costs for the case including the new technology exceed Me dicare’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 th e estimated costs of the new technology. Section 503(d)(2) of Pub. L. 108-173 provide s 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. Therefor e, 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 longsta nding practice of how CMS evaluates the eligibility criteria fo r new medical service or technol ogy add-on payment applications. That is, we first determine whether a medi cal 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 s ubstantial clinical imp rovement over existing medical services or technologies. We al so amended § 412.87(c) to specify that all applicants for new technology add-on payments must have FDA approval or clearance239 for their new medical service or technology by Ju ly 1 of each year prior to the beginning of the fiscal year that the a pplication 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 info rmation on new technologies between CMS and other entities. The CTI, composed of seni or CMS staff and clinicians, was established under section 942(a) of Pub. L. 108-173. The C ouncil 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 cont ractors (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 pr ocesses 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 pa yment process, improve the qu ality of medical decisions, and speed patient access to effective new trea tments. It is also dedicated to supporting better decisions by patients and doctors in using Medicare-covered services through the promotion of better evidence de velopment, 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 ha s 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 pub lished 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 fi nal rule (73 FR 48554), we invite any product developers or manufactur ers of new medical technologi es 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 de velopment process for th e agency's coverage

decisions for Medicare. The CTI aims to provide useful inform ation on its activities and initiatives to stakeholders, including Me dicare beneficiaries, a dvocates, medical product manufacturers, providers, and h ealth policy experts. Stakehol ders with further questions about Medicare's coverage, coding, and payment processes, or who want further guidance about how they can navigate these processe s, can contact the CTI at CTI@cms.hhs.gov. We note that applicants for add-on pa yments 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 demonstra ting that the new medical serv ice or technology represents a substantial clinical improveme nt, along with a significant sample of data to demonstrate241 that the medical service or technology meets the high-cost threshold. Complete application information, along with final d eadlines 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 tec hnologies under review before th e publication of the proposed rule for FY 2016, the CMS Web site also wi ll 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 ame nded by section 503(b)(2) of Pub. L. 108-173, provides for a mechanism for pu blic input before publication of a notice of proposed rulemaking regarding whether a me dical service or tec hnology represents a substantial clinical improvement or adva ncement. The process for evaluating new medical service and technology applica tions requires the Secretary to--

● Provide, before publication of a pr oposed rule, for public input regarding whether a new service or technology represen ts 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; and242

● 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, recommendati ons, and data regarding whether a new medical service or technology represents a substantial cl inical 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 t echnologies 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), a nd 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 indivi duals listened over an open telephone line. We also live-streamed the town hall meeting and pos ted 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 by243 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 th e 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 discussi on 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 “substa ntial clinical improve ment” 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 propos ed rule. Commenters are welcome to resubmit these comments in response to proposals presented in this proposed rule. 3. FY 2015 Status of Technologies A pproved 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 Vora xaze®) 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 reductio n of toxic MTX concentrations.244

Voraxaze ® was approved by the FDA on January 17, 2012. Beginning in 1993, certain patients could obtain expande d access for treatment use to Voraxaze ® as an investigational drug. Since 2007, the applicant has been author ized to recover the costs of making Voraxaze ® available through its expanded access program. We describe expanded access for treatment us e of investigational drugs an d 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 commerci al 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 th e 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 th e FY 2013 IPPS/ LTCH PPS proposed rule, we approved Voraxaze ® for new technology add-on paym ents for FY 2013. Cases of

Voraxaze ® are identified with ICD-9-CM procedur e 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 be neficiary. 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 pe rcent of the average cost of the technology245 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 consider ed new within 2 or 3 years after the point at which data begin to become available re flecting 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 fis cal 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 technol ogy 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 mark et occurs in the latte r 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 3 0, 2015), we are proposing to continue new technology add-on payments for this technol ogy for FY 2015. We are inviting public comments on this proposal. b. DIFICIDTM (Fidaxomicin) TabletsOptimer Pharmaceuticals, Inc. submitted an application for new technology addon payments for FY 2013 for the use of DIFICI DTM tablets. As i ndicated on the labeling submitted to the FDA, the applicant noted th at Fidaxomicin is taken twice a day as a246 daily dosage (200 mg tablet twice daily = 400 mg per day) as an oral antibiotic. The applicant asserted that Fidaxomicin provi des potent bactericid al activity against C. Diff., and moderate bactericidal activity against certain other gram-positive organisms, such as enterococcus and staphylococcus. Unlike ot her antibiotics used to treat CDAD, the applicant noted that the eff ects of Fidaxomicin preserve bacteroides organisms in the

fecal flora. These are markers of normal an aerobic microflora. The applicant asserted that this helps prevent pathogen introduction or persistence, which pot entially inhibits the re-emergence of C. Diff. , and reduces the likelihood of overgrowths as a result of vancomycin-resistant Enterococcus (VRE). B ecause of this narrow spectrum of activity, the applicant asserted that Fi daxomicin does not alter this na tive intestinal microflora. In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27939 through 27941), we expressed concern that DI FICIDTM may not be eligible for new technology add-on payments because eligibility is limited to new technologies associat ed with procedures described by ICD-9-CM codes. We further st ated 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 asso ciated with these drugs and, therefore, no ICD-9-CM code(s). In the FY 2013 I PPS/LTCH PPS final rule (77 FR 53350 through 53358), after consideration of the public comm ents 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 ne w technology add-on payments. The revised policy is effective for paymen ts for discharges occurring on or after October 1, 2012. We247

refer readers to the FY 2013 IPPS/LTCH PPS fina l 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 estab lished that the beginn ing of the newness period for this technology is it s 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 tec hnology 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 or der 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 typi cally incur an averag e 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 ar e limited to the lesse r of 50 percent of the average cost of the technology or 50 perc ent 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 consider ed new within 2 or 3 years after the point at which data begin to become available re flecting the ICD-9-CM code assigned to the

new service or techno logy” (§ 412.87(b)(2)). The manufacturer commented through a lett er to CMS, prior to the publication of this proposed rule, requesting that CMS exte nd 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 improveme nt criterion, the applicant stated that DIFICIDTM continues to remain the only FDA-approved treatment to demonstrate substantial clinical improveme nt over existing therapies. No new treatments for CDAD have been approved by the FDA since DIFICID TM. The applicant further stated that a third year of new technology add-on payments for DIFICIDTM would c ontinue to reduce

access barriers in the acute care hospital inpatient set ting, 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 descri bed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53350 thr ough 53358), and demonstrated that the average case-weighted standardized charge pe r case exceeded the average case-weighted thresholds under both analyses. The app licant stated that the new technology add-on249 payment is intended to offer additional payments to support patient access and appropriate use of new technologies for a pe riod 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 a ccommodate the cost associated with CDAD and new technologies to treat CDAD under th e IPPS within the allo tted timeframe of 2 years. According to the a pplicant, these payment amounts remain an obstacle for the appropriate use of new technol ogies for CDAD that demons trate substantial clinical improvement over existing treatments, such as DIFICIDTM. The applicant concluded that a third year of new technology add-on paymen ts 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 m eets the newness criterion for the following reason: § 412.87(b)(2) states that “A medical serv ice 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, Ni nth Revision, Clinical Modification (ICD-9- CM) code assigned to the new service or t echnology (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 se rvice or technology, the medical service or technology will no longer be considered ‘new’ under the criterion of this section.” The

manufacturer noted th at DIFICIDTM was not assigned an ICD-9-CM procedure code and250 DIFICIDTM is the first product for which no inpa tient procedure is asso ciated to receive a new technology add-on payment since the im plementation of the new technology add-on payment policy.

The manufacturer also cited th e 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 manu facturer contended that, as an oral therapy, neither

DIFICIDTM nor its administra tion was assigned an ICD- 9-CM procedure code and, therefore, the technology s hould still be eligible for th e 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 th e administration of an oral medication did not exist and hospitals had no other mechan ism to report the use of DIFICIDTM, for FY 2013, CMS instructed hospitals to repor t the DIFICIDTM NDC on hospital inpatient claims to receive the new technology a dd-on payment for DIFICIDTM. Prior to October 1, 2012, hospitals did not use NDC s 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, hos pitals’ use of the DIFICIDTM NDC would greatly lag behind the traditional use of IC D-9-CM procedure codes. As such, the251 manufacturer reasoned that any lag in hos pital 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 ma nufacturer 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 reporti ng instructions for

DIFICIDTM.

The manufacturer added that Tran smittal 2539 and a Medicare Learning

Network ® Matters (MLN) article were rescin ded and replaced by Transmittal 2627 on January 4, 2013. The manufacturer noted th at 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 inst ructions, 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 manu facturer 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 c oding processes. Th e 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 pa yment for DIFICIDTM. The manufacturer

was further concerned that the effects of a ny 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 manuf acturer further explained that, while DIFICIDTM was available to hospitals afte r 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 a nd ratesetting, the manuf acturer believed that this meant that 2 complete years of DIFICIDTM costs would not be fully reflected in the

Medicare claims data for th e FY 2015 MS-DRG recalibrations. The manufacturer also analyzed th e 100 percent sample of the Standard Analytical File (SAF) for cal endar year 2012, which contained first quarter claims data for FY 2013, the first 3 mont hs that DIFICIDTM was elig ible 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 manufactur er found 38 cases across 26 hospitals that reported new technology add-on payments for DIFICIDTM on submitted claims. The253

manufacturer stated that this preliminary data suggests that the number of cases available

for MS-DRG recalibrations for FY 2015 is limited. The manuf acturer stated that it is currently attempting to secure FY 2013 MedP AR claims data and that it will likely provide further insights on these issues. In addition, the manufacturer noted th at prior new technology add-on payment application approvals have involved t echnologies with much narrower patient populations compared to DIFICIDTM, allowi ng the costs of thos e technologies to influence the MS-DRG relative payment wei ghts for the small numbe r of MS-DRGs with which they are associated. The manufactur er explained that, un like other technologies approved for new technology add on payments , the DIFICIDTM therapeutic value, while limited to patients with CDAD, is used in pa tients 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 rela tively 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/MC C). 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 required254 for the costs to be adequately reflected in th e MS-DRG relative payment weights. In the unique case of DIFICIDTM for the treatment of CDAD, the manufactur er 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 impr ovement over existing therapies. With regard to the technology’s newne ss, as discussed in the FY 2005 IPPS final rule (69 FR 49003), the timefram e 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 tec hnology 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 t echnology (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 st ates, “[a]fter CMS has recalibrated the DRGs, based on available data, to reflect the costs of an otherwis e new medical service or technology, the medical service or technology will no longer be considered `new'

under the criterion of this sect ion.” Therefore, regardless of whether a technology can be individually identified by a se parate ICD-9-CM code or whet her 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 provis ion. We further stated in that final rule that the period of newness does not necessari ly start with the approval date for the medical service or technology, and does not necessarily start with the issuance of a255 distinct code. Instead, it begi ns with availability of the product on the U.S. market, which

is when data become available. We have c onsistently applied this standard, and believe

that it is most consistent with the purpose of new technology add-on payments. In addition, similar to our discus sion in the FY 2006 IPPS final rule (70 FR 47349), we do not believe that case volu me 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 th e Medicare population. Similarly, this same determination is applicable no matter how many MS-DRGs the t echnology is spread across. Therefore, if a product is more than 2 to 3 years old, we cons ider its costs to be

included in the MS-DRG relativ e weights whether its use in the Medicare population has been frequent or infrequent. We rec ognize 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 patie nt, including use of DIFICIDTM. Therefore, even though we may be not be able to identi fy 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 om itting the header referenced above, as noted above, CMS corrected this issue as soon as possible by resc inding 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 clearly256 described to MACs how hospitals were to re port the NDC on the inpatient claim in order to identify cases using DIFICIDTM for purpos es of new technology add-on payments. Additionally, the MLN ar ticle that the manufacturer refe rred to above (MLN articles are typically a summary of transmittals for th e general public) clearly indicated that

DIFICIDTM was new for FY 2013 new tec hnology 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. Th e MLN article can be downloaded from

the CMS Web site at: http://www.cms.gov/Outreach-and-Education/Medicare-LearningNetwork-MLN/MLNMattersAr ticles/downloads/MM8041.pdf

. After considering the manufacturer’s comments above, we still consider the beginning of the newness period to commen ce when DIFICIDTM wa s first approved by the FDA on May 27, 2011. Because the 3-year an niversary 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 fo r 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 fo r DIFICIDTM for FY 2015. We are inviting public comments on this proposal.

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

Cook ® Medical submitted an application fo r new technology add-on payments for

the Zenith ® Fenestrated Abdominal Aortic An eurysm (AAA) Endovascular Graft (Zenith ® F. Graft) for FY 2013. The applicant stated that the current treatment for257 patients who have had an AAA is an endovascular graft. The applican t explained that the

Zenith ® F. Graft is an implantable device desi gned to treat patie nts who have an AAA and who are anatomically unsuitable fo r 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 th rough an open surgical repair or medical management for those patients not eligible for currently approved AAA endovascular grafts. With respect to newness, the applicant st ated 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 a dd-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 graf t(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 a258

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 be lieve it is appropriate to

include these costs in our cal culation 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 consider ed new within 2 or 3 years after the point at which data begin to become available re flecting 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 consid er 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 sec ond 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 repl acement therapy for fresh frozen plasma259 (FFP) for patients with an acquired coagulation factor deficiency due to warfarin and who are experiencing a severe bleed. Kcentr aTM contains the Vitamin K dependent coagulation factors II, VII, IX and X, toge ther 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-treate d, non-activated, virus f iltered and lyophilized plasma protein concentrate made from pooled human plasma. KcentraTM is available as a lyophilized powder that needs to be rec onstituted with sterile water prior to

administration via intravenous infusion. The product is dosed based on Factor IX units.

Concurrent Vitamin K treatment is recommende d 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 ne w 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 ru le (78 FR 27538), we noted that we were concerned that KcentraTM may be subs tantially similar to FFP and/or Vitamin K therapy. In the FY 2014 IPPS/LTCH PPS final ru le, in response to comments submitted by the manufacturer, we stated that we agr ee that KcentraTM may be used in a patient population that is experiencing an acquired coag ulation factor deficiency due to Warfarin and who are experiencing a severe bleed curren tly 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 conditions260 while KcentraTM is stable for up to 36 m onths at room temperature thus allowing hospitals that otherwis e 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 an d other market limitations) thus making some hospitals unable to stor e 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 info rmation presented by the manufacturer that KcentraTM provides a simple and rapid repletio n 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 conc luded 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 c onsideration 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 th at are eligible fo r new technology add-on payments are identified by ICD-9-CM pro cedure code 00.96. In the application, the applicant estimated that the average Medica re 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 pa yments 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 w ould 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 nati onal adjusted DRG prospective payment rate is “the amount of the paymen t 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. S ection 1886(a)(4) of the Act excludes from the term “operating costs of inpatient hospital services” the costs wi th respect to administering blood clotting factors to indivi duals 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 Sect ion 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/Manua ls/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 pa yments when administered to Medicare262 beneficiaries with hemophilia. We make an add-on payment for KcentraTM for such discharges in accordance with our policy fo r payment of a blood clotting factor, and the costs would be excluded from the operating co sts 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 S ecretary to “establish a mechanism to recognize the costs of new me dical services and technologies under the payment system established under this subsectio n” beginning with discharges on or after October 1, 2001. We believe that it is reasona ble to interpret this requirement to mean that the payment mechanism established by th e Secretary recognizes only costs for those items that would otherwise be paid based on th e prospective payment system (that is, “the payment system established under this subs ection”). As noted above, under section 1886(d)(1)(A)(iii) of the Act, the national adjusted DRG pros pective payment rate is the amount of payment for the operating costs of inpatient hospital services, as defined in section 1886(a)(4) of th e Act, for discharges on or af ter 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 e ligible for the new technology add-on payment. We pointed out that new t echnology add-on payments are based on the operating costs per case relative to the prospective payment rate as desc ribed in § 412.88. Therefore, we believe that new technology add-on paymen ts 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 ne w technology add-on payments for discharges where KcentraTM is an operating cost of inpa tient 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 exclude d from the operating costs of inpatient hospital services in accordance with section 1886(a)(4) of th e Act and paid separately from the IPPS. However, when a hospita l 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 serv ices. 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 re fer 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/Manua ls/Downloads/clm104c03.pdf

. As stated above, the new technology add- on payment regulations provide that “a medical service or technology may be consider ed new within 2 or 3 years after the point at which data begin to become available re flecting 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 to264 commence when KcentraTM was approved by the FDA on April 29, 2013. Because

KcentraTM is still with in the 3-year newness period, we are proposing to continue new technology add-on payments for this technol ogy for FY 2015. We are inviting public comments on this proposal. e. Argus ® II Retinal Prosthesis System Second Sight Medical Products, Inc. s ubmitted 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 per ception in patients who are profoundly blind due to re tinitis pigmentosa (RP). These patients have bare or no light perception in both eyes. The system employs electrical si gnals to bypass dead photo-receptor cells and stimulate the overlyi ng 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, typica lly the worse-seeing eye. Currently, bilateral implants are not intended for this technology. According to the applicant, the surgical impla nt procedure takes approximate ly 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 compone nts worn by the user; and (3) a “fitting” system for the clinician that is periodically used to perform diagnostic tests with the265 system and to custom-program the external uni t for use by the patient. We describe these components more fully below.

● Implant: The retinal prosthesis implan t is responsible for receiving information from the external components of the system and electrically stimulating the retina to induce visual perception. The retinal impl ant consists of: (a) a receiving coil for receiving information and power from the external components of the Argus ® II System; (b) electronics to drive stimul ation of the electrodes; and (c) an electrode array. The receiving coil and electronics ar e 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, whic h passes through the ey e wall, connects the electronics to the electrode array. A perica rdial graft is placed over the extra-ocular portion on the outside of the eye.

● External Components: The implan t 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 pr ocess, which the applicant called “fitting”, occurs in the hospital/clinic shortly after the implant surgery and then periodically thereafter as needed. The clinician/physic ian also uses the “Fitting System” to run diagnostic tests (for example, to obt ain electrode and impedance waveform measurements or to check the radio-freque ncy link between the im plant and external unit). This “Fitting System” can also be c onnected 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 lig ht), 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 se nt to the VPU, which processes the video camera image and transforms it into electri cal stimulation patterns . The electrical

stimulation data are then sent to a tr ansmitter coil mounted on the glasses. The transmitter coil sends both data and power via radio-frequency (RF) telemetry to the implanted retinal prosthesis. The implan t 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 photorecepto r 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 re tina via the electrode array of the Argus ® II Retinal Prosthesis System are intended to mimic the function of these degenerated267 photoreceptors cells. These pulses induce cel lular responses in the remaining, viable

retinal nerve cells that travel through the optic nerv e to the visual cortex where they are perceived as phosphenes (spots of light). Patien ts 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 submitte d 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 Adviso ry Committee for review and recommendation. At the Panel’s meeting held on September 28, 2012, th e 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 rece ived the HDE approval from the FDA on February 14, 2013. Currently there are no ot her 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/ICD9Provi derDiagnosticCodes/ICD-9-CM-C-and-MMeeting-Materials-Items/2013- 03-05-MeetingMaterials.html

.268

After evaluation of the new technol ogy 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 polic y 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 S ecretary establish a mechanism to recognize the costs of new me dical services or technologies under the payment system established under that subs ection, which establishes the system for paying for the operating costs of inpatient hosp ital 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 servi ce or technology. Th erefore, 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 br eakdown 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 pa yments 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 resu lt, 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 consider ed new within 2 or 3 years after the point at which data begin to become available re flecting the ICD-9-CM code assigned to the269 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 with in 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 fo r 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 (sup erficial femoral arteries). According to the applicant, the stent is percutaneously in serted into the artery (s), usually by accessing the common femoral artery in the groin. The a pplicant stated that an introducer catheter is inserted over the wire guide and into th e 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 ri sk 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 used270 for superficial femoral arteries. The t echnology 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 paymen t application and c onsideration 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 I PPS/LTCH PPS final rule, to determine the amount of

Zilver ® PTX ® stents per case, instead of using th e 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 appl icant stated in its application that the anticipated cost per stent is appr oximately $1,795. Therefore, cases of the

Zilver ® PTX ® would incur an average cost pe r case of $3,410.50 ($1,795 x 1.9). Under § 412.88(a)(2), new technology add-on payments ar e limited to the lesse r of 50 percent of the average cost of the device or 50 percen t of the costs in ex cess of the MS-DRG payment for the case. As a result, the maxi mum 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 consider ed new within 2 or 3 years after the point at which data begin to become available re flecting 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 th e beginning of the newness period to271

commence when the Zilver ® PTX ® was approved by the FDA on November 15, 2012.

Because the Zilver ® PTX ® is still within the 3-year ne wness period, we are proposing to continue new technology add-on payments fo r this technology for FY 2015. We are inviting public comments on this proposal. 4. FY 2015 Applications for Ne w 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 applica tion 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 applica tion is being considered. A di scussion 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 Dalbavan cin. Dalbavancin is an intravenous (IV) lipoglycopeptide antibio tic administered as a once-w eekly 30-minute infusion via a peripheral line for the treatment of patients w ith acute bacterial skin and skin structure infections, or ABSSSI. According to the applicant, Dalbavancin’s unique pharmacokinetic profile demonstrates rapid ba ctericidal activity that is potent and sustained against serious gram-positive b acteria, 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 th e current standard of care (Vancomycin) of daily or multiple-times da ily intravenous dosing, allows for the discontinuation of IV

access with its attendant risks of line-related thrombosis a nd infection. The applicant submitted a New Drug Approval Applic ation (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 th e administration of Dalbavancin. The applicant applied for a new ICD-10-PCS code to describe the administration of Dalbavancin, which was presented at th e March 19-20, 2014 ICD-10 Coordination and Maintenance Committee meeting. If a pproved, the code will be effective on October 1, 2014. We are inviting public co mments 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 fo r evaluating whether a new technology is substantially similar to an existing technol ogy, 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 differe nt 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 th e 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 appli cant stated that Dalbavancin’s mechanism of action is unique compared to other antibiotics as it involves the interruption of cell wall synthe sis resulting in bacterial cell death. Furthermore, the applicant cited Dalbavancin’s l ong half-life as the factor th at differentiates itself from existing antibacterial agents active against MR SA. With respect to the second criterion,

we believe that cases of ABSSSI that use Da lbavancin or other antibiotics for treatment would be assigned to the same MS-DRGs. Fina lly, with respect to th e 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 outco me. 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 th e cost criterion, the a pplicant searched the FY 2012 MedPAR file (acro ss 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. Specifica lly, the applicant sear ched for cases with274 one of the following diagnosis codes: 035 (Ery sipelas); 681.00 (Cellulit is and abscess of finger, unspecified); 681.01 (Felon); 681.02 (O nychia and paronychia of finger); 681.10 (Cellulitis and abscess of toe, unspecifi ed); 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 a nd forearm, hand except fingers and thumb, buttock, leg except foot, foot except toes, specified sites, unspecified sites); 686.00 (Pyoderma, unspecified); 686.01 (Pyoderm a gangrenosum); 686.09 (Other pyoderma); 686.1 (Pyogenic granuloma of skin and subcutan eous 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 else where classified); 998.51 (Infected postoperative seroma); and 998. 59 (Other postoperativ e 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 w ould map to MS-DRGs 603 (Cellulitis without MCC), while the top 10 MS-DRGs accounted for al most 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 standard ized the charges fo r all 570,698 cases, which equated to an average case-weighted standa rdized charge per cas e 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 sta ndardized charge per case. The applicant calculated an average case-weighted threshold of $44,255 across all MS-DRGs. Therefore, the275 applicant asserted the average case-weighted standardized charge per case (without inflating and including charges for Dalbav ancin) exceeds the average case-weighted threshold of $44,255 (as indicated in Ta ble 10 of the FY 2014 IPPS/LTCH PPS final rule). Therefore, the appli cant maintained that Dalbavanci n meets the cost criterion. We are inviting public comments regarding whethe r Dalbavancin meets the cost criterion, particularly with regard to the assumpti ons and methodology used in the applicant’s analysis. With regard to substantial clinical improvement, as previously stated by the applicant, Dalbavancin is a new intr avenous (IV) lipoglyc opeptide antibiotic administered as a once-weekly 30 minute infu sion via a peripheral line for the treatment of patients with acute bacterial skin and sk in structure infecti ons, 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 re sistance. In addition, the applicant stated the FDA has also designated MRSA as a pat hogen of special intere st 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 havi ng a medicinal agent with clinical efficacy against gram-positive pathogens, includi ng MRSA and CA-MRSA, a favorable benefit/risk ratio, and a favorab le pharmacokinetics profile al lowing convenient dosing in

3 “Bad Bugs, No Drugs,” July 2004.276 inpatients and outpatients with the potent ial for minimizing patient noncompliance would

be a valuable addition to the antibacterial armamentarium for the treatment of ABSSSI. The applicant also noted that, when taki ng 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 bacteria l pathogens with th e concentration of Dalbavancin required to kill key target pathogens lower relative to other antibiotics commonly used to treat such pathogens;

● Retained activity against staphylococcu s aureus resistant to other antibiotics;

● Improved safety profile as Dalbavancin exhibits more favorable tolerability and safety than alternative approved antibacteri al 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 a voids pitfalls of patient noncompliance with an oral medication;

● Lack of drug interactions due to me tabolic profile which minimizes risk of unexpected adverse events when co-adminis tered with other com pounds as seen with linezolid and quinupris tin/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 avoida nce of admission to the hospital as Dalbavancin allows

the utilization of a week ly treatment regimen, thus potenti ally increasing the convenience of outpatient therapy for patients. The applicant conducted three phase thre e randomized, controlled, double blinded

clinical trials. The first wa s 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 clinic al response at test of 14 days with a plus or minus of 2 days after completion of thera py demonstrated comparable clinical efficacy to linezolid and met the requireme nt of statistical demonstrati on of noninferiority. In the clinically evaluable population, 88.9 percen t of patients who received Dalbavancin compared to 91.2 percent of patients who r eceived vancomycin/linezolid were clinical successes. The applicant also noted that Dalbavancin had an im proved safety profile compared to Linezolid as the overall incide nce and percentage of adverse events and deaths were lower in the Dalbavancin gr oup, which was statisti cally significant.

The second and third clini cal trials were the Discove r 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 Vancom ycin with possible switch to oral Vancomycin to IV Vancomycin with IV pl acebo to match IV Dalbavancin with possible278 switch to oral Linezolid. The applicant report ed 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 c linical status at the end of treatment visit (day 14) in the Intent to Treat (ITT) a nd clinically evaluable at E nd of Treatment populations.

Clinical status was also determined at th e 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 Da lbavancin were responders at 48 to 72

hours after the start of ther apy 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 pe rcent; 7.9 percent). The applicant further noted that the Discover 2 trial showed similar results to the Discover 1 trial. Specifically, the trial demons trated that 76.8 percen t of patients in the ITT population who received Dalbavancin we re responders at 48 to 72 hours after the start of therapy compared to 78.3 pe rcent of patients who received Vancomycin/Linezolid. The applicant again noted that Dalbavanci n was noninferior to Vancomycin/Linezolid (Absolute Difference in Success Rates (95 percent confidence interval): -7.4 pe rcent; 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 treate d 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 im provement from the trial data. The primary efficacy endpoint was defined as having no incr ease 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 point s in time. At neither endpoi nt is the patient oriented endpoint of resolution of infection increase d. With these limitations in using efficacy

data to establish substantia l clinical improvement, the a pplicant suggested that the outpatient treatment, elimination of central li nes and avoidance of hospitalization all may improve safety, avoid treatment-associated in fections and improve patient satisfaction,

and that these factors demons trate substantial clinical im provement. While the factors mentioned may be true, the applicant did not present any evidence to support its

assertions. We are inv iting public comments on whet her Dalbavancin meets the substantial clinical improveme nt 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 comme nts 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 trea tment of aortic aneu rysms have exhibited280 migrations or endoleaks, or in the treatmen t of patients who are at risk of such complications, and in whom augmented radial fi xation 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 endograf t 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 patients281 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 pa tients receiving treatment using the new technology under the second indication. Specifi cally, patients who have endovascular grafts implanted for the treatment of AAA map to MS-DRGs 237 (Maj or Cardiovascular Procedures with MCC) and 238 (Major Cardi ovascular Procedures without MCC), while patients who have endovascular grafts impl anted for the treatment of TAA map to MS-DRGs 219 (Cardiac Valve and Other Ma jor 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 Card iac Catheter without CC/MCC). Each indication/application must also meet the cost criterion and the substantial clinical improvement criterion in order to be e ligible 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 K 102333). 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 avai lable on the U.S. market until June 2012

. The applicant explained that the delay in the general market availability of the original282 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 confirme d that the Heli-FXTM EndoAnchor System was available on the U.S.

market as of November 2011. Further, the applic ant acknowledged that four implantations were performed on Medicare beneficiaries between November 201 1 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 th e 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 receiv e new technology add-on payments) only if the 3-year anniversary date of th e product’s entry on the market o ccurs in the latter half of283 the fiscal year. (We refer r eaders to 70 FR 47362.) With re gard to the newness criterion

for the Heli-FXTM EndoAnchor System , as stated above, we cons ider 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 previous ly stated, the appli cant acknowledged that four implantations were performed on Medi care beneficiaries be tween 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 an niversary 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-PC S code, and presented comments at the

March 2014 ICD-10 Coordination & Maintenance Committee meeting. To demonstrate that the technology m eets 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 vess els) in the first or second procedure position on the claim, in combination with one of the following primary di agnosis codes: 441.4 (Abdominal aneurysm without mention of r upture); 996.1 (Mechanic al complication of other vascular device, implant , and graft); or 996.74 (Other complications due to other vascular device, implant, and graft). The a pplicant believed that this combination of284

ICD-9-CM codes identifies cases treated fo r AAA. We note that the 2012 SAF dataset includes all claims submitted from hospitals paid under the I PPS 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 im plantation of endovascular grafts for AAAs would most likely map to. The applicant f ound 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 applican t standardized the charges for all 8,142 cases. Using the in flation factor of 1.47329 published in the FY 2014 IPPS/LTCH final rule (78 FR 50982), th e 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). Th e 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 i ndividual hospital sp ecific 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 opera ting room charges that relate

to the Heli-FXTM EndoAnchor System . Therefore, the applican t determined that it was necessary to add an additiona l $1,440 for operating room charges, which was based on an additional half hour of operating room tim e 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 bo th MS-DRGs 237 and 238. The applicant285 noted that the average case-weighted standa rdized charge per case, computed without including the additional ope rating room charges that relate to the Heli-FXTM EndoAnchor System, exceeded the average case-weighted threshold of $86,278. Therefore, the applicant maintained th at the technology meets the cost criterion. The applicant also submitted claims data from the ANCHOR (Aneurysm Treatment Using the Heli-FX Aortic Secure ment System Global Registry) study to demonstrate that the technology meets the co st criterion. A total of 51 cases were submitted with 11.76 percent of all th e cases mapping to MS-DRG 237, and 88.24 percent of all the cases ma pping to MS-DRG 238. The a pplicant 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 av erage 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 criteri on, particularly with regard to the assumptions and methodology used in the applicant’s an alyses. We discuss

whether the Heli-FXTM EndoAnchor System represents a substantial clinical improvement over other treatments used for the re pair of both abdominal and thoracic aortic aneurysms in one discussion below. (2) Heli-FXTM EndoAnchor System for the Treatm ent 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 on286 August 14, 2012 (reference K121168). The new system consists of a longer delivery device with additional tip conf igurations to allow the heli cal 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. Becau se the 3-year anniversary date of the product’s entry on the U.S. market w ould occur in the se cond 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 Ma rch 2014 ICD-10 Coordination & Maintenance Committee meeting.

To demonstrate that the Heli-FXTM Thor acic System meets the cost criterion, similar to the analysis performed for the Heli-FXTM EndoAnchor System for the treatment of AAA, the a pplicant researched claims data from the 100 percent sample of the 2012 SAF for cases reporting procedure c ode 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 pr imary diagnosis codes: 404.93 (Hypertensive heart and chronic kidney disease, unspecifi ed, with heart failure and chronic kidney disease stage V or end-stage renal disease); 441.01 (Dissection of ao rta, thoracic); 441.03287 (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 men tion of rupture); 996.1 (Mechanical complication of other vascular device, implant, and graft); or 996.74 (Other complications due to other vascular device, im plant, and graft). The applicant believed

that this combination of ICD-9-CM codes iden tifies cases treated for TAA. We note that

the 2012 SAF dataset includes all claims s ubmitted 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 app licant 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 applican t standardized the charges for all 642 cases. Using the infl ation factor of 1.47329 published in the FY 2014 IPPS/LTCH final rule (78 FR 50982), the applican t inflated the standa rdized 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 indivi dual hospital specific CCR from the FY 2012 impact file. This equated to an average cas e-weighted inflated standardized charge per case of $156,625. The applicant noted that the average case-weighted inflated288 standardized charge per case did not contain additional opera ting room charges related to the use of this technology. Th erefore, the applicant determin ed that it was necessary to add an additional $2,160 for operating room ch arges, 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, a nd 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, part icularly with regard to the assumptions and methodology used in the applicant’s analysis.289 (3) Evaluation of the Substantial Clini cal 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 improve ment for the following reas ons: the technology improves overall rates of aneurysm exclusion and l ong-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 inte rventions and readmissions due to aneurysmrelated complications (for example, endoleaks, migration, aneurysm enlargement) caused by failure of the proximal seal; the tec hnology improves the general applicability of EVAR to patients with a broader spectrum of aortoiliac anatomy, including those with hostile proximal neck anatomy; and the tec hnology reduces the rigor of life-long imaging follow-up for EVAR patients by reducing the ra te of late failure and increasing the post-EVAR rates of aneurysm sac regressi on 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, anatomi cally applicable, or complication-free as open surgery. 4,5,6,7 Several critical and life-threatening limitations

4 Abbruzzese, T.A., Kwolek, C.J., Br ewster, D.C., et al, “Outcomes fo llowing endovascular abdominal aortic aneurysm repair (EVAR): An anatomic and devi ce-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, “Lon g-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 de vices and procedures, including the need to reduce serious early and late device and proced ure-related complications, such as loss of stability, and integrity and ro bustness of the clinical prox imal aortic landing zone, and to

offer an alternative method of EVAR to a broader segment of th e patient population. The applicant provided literature, analyses of data from the “STAPLE-2” clinical trial and the ANCHOR Registry, and a meta-ana lysis 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 result s 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 app licant, 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-u p. 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 ra diographic 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 a pplicable 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” clin ical 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 interven tion was required to address the Type I endoleak in a patient wi th a circumferentially incomplete proximal neck within the 1-year follow-up period. The applicant further noted that no a dditional Type I endoleaks have been observed beyond the 1-year follow-up in any pa tient enrolled in the trial. In addition, there were no reported instances of aneu rysm rupture, vessel perforation, vessel dissection, catheter embolization, enteric fistul a, infection, Type III endoleak, conversion, allergic reactions, renal emboli, or patient de ath associated with the use of the Heli-FXTM292 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 case s 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 becau se this timeframe is what is reported in a standard fashion from IDE trials of endograf ts. The applicant noted that the Heli-FXTM EndoAnchor System data compares favorably against the data obtai ned in U.S. pivotal trials of devices that did not employ discre te independent fixation means, particularly when viewed in light of the shorter average neck lengths treated in the “STAPLE-2” clinical trial versus those involving th e 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 signif icant differences when compared to the anchored endografts used in the “STAPLE-2” c linical 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 EndoAnc hor System endografts analyzed under the

“STAPLE-2” clinical trial versus the Me dtronic, AneuRx, and Talent manufactured endografts (p=0.026 versus AneuRx and p=0.015 versus Talent). The applicant stated293 that the applicability of post-h oc statistical analyses is l imited. However, the applicant believed that because the data being compar ed under the anal yses 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 Syst em 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-ce nter, international, dual-arm study designed to capture real-world data on the usage pattern s and clinical results associated with the use of the Heli-FXTM EndoAnchor System as a method of treatment fo r 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. Th e applicant noted that to its knowledge, the anatomical challenges present in the registry are greater than those in any large scale published series. The applican t further noted that, although lo ng-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 compos ite of acute technical success and freedom from Type Ia endoleaks and endograft migrations through 1-year follow-up. Inclusion294 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 enrolle d 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 EndoAnc hor Systems implanted at a secondary procedure to arrest migration, or address endoleaks discovered on follow-up in previously implanted endografts. The applicant noted that physician s 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 th e revision arm, 57 of 63 procedures were

successful. All technical failure s were persistence of Type Ia endoleaks. There has been a single re-intervention at 69 days post-Endoanchor implantation for a persistent Type Ia295 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-a nalysis 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 applican t, 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, whic h 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, “T he 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 endograf t 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 we re 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 Syst em effectively reduces well-documented problems with endografts. By providing the endograft with better apposition to the native artery, the applicant noted that th e Heli-FXTM EndoAnchor System reduces the rates of enlargement and endoleaks requiring trea tment. The applicant further noted that

these results were consistent in the All-Stud ies’ and IDE Studies’ meta-analyses. The applicant believed that lower rates of leak s 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 EndoAncho r 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 en dografts implanted without the Heli-FXTM EndoAnchor System provides for this hypothesi s. 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 applican t 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 benef its associated with th e use of the Heli-FXTM EndoAnchor System. The applicant believed that the technol ogy may be especially helpful in patients with diffic ult 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 repres ent 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 scient ific literature is considered meaningful and growing for this early stage of market in troduction. 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 fo r, or at greatest risk with, EVAR.

We are concerned that the th ree sources of data, the “STA PLE-2” clinical trial, the Anchor registry, and the liter ature review that the appli cant submitted to support their application are not high quali ty evidence. The ‘STAPLE-2” study was a single-arm study and only used one endograft, the registry is an observational st udy, and the literature298 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 cl inical 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 submitt ed data demonstrate that the Heli-FXTM EndoAnchor System represents a substantial clinical improvement in the treatment of Medicare beneficiaries, partic ularly in regard to the c oncerns 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 suppor ting 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 in creases 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 fu rther 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 benefici al for patients who have medical problems or advanced age as contraindications to open surgery because endovascular repair can be made possibl e with the Heli-FXTM EndoAnchor System.

The commenter further stated that patients with endoleak s identified during follow-up are frequently not candidates for extension prostheses and would otherwise require open explantation of the graft and an eurysm repair. The commenter explained299 that these are far more challenging and ri sky operations than primary open aneurysm repairs, and are routinely asso ciated with blood loss of severa l liters as well as prolonged lower extremity, renal, and visceral ischemia . The commenter noted that many of these often elderly patients can be successfully tr eated in a minimally invasive manner using the Heli-FXTM EndoAnchor System, reestabl ishing proximal fixation and seal while avoiding the morbidity and mort ality associated with graft explantation and open repair.

The commenter concluded that if new tec hnology add-on payments are approved for the Heli-FXTM EndoAnchor System, many patients w ould realize the advantages of this unique and necessary device, improving th eir care and reducing overall cost.

Another commenter stated that the He li-FXTM EndoAnchor System provides an opportunity to extend a less mortal proce dure (EVAR) to patients whose anatomy may predispose them to late failure, including pa tients with large proximal neck diameters, increased iliac diameters, or abnormal neck anatomy. In primary repair, the applicant

stated that endoanchors have been demonstrat ed 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 re al impact in the overall cost of EVAR in this patient population. Response: We appreciate the commente rs’ 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 additi onal public comments on whether the Heli-FXTM300 EndoAnchor System represents a substantial clinical improvement in the treatment of Medicare beneficiaries, partic ularly in regard to the c oncerns we have identified.

c. WATCHMAN ® Left Atrial Appenda ge Closure Technology Boston Scientific Corporation submitted an application for new technology add-- on payments for the WATCHMAN ® Left Atrial Appenda ge Closure Technology (Watchman ® System) for FY 2015. When a patient has an arrhythmia known as atrial fibrillation (AF), the left atrium does not e xpand and contract normally. As a result, the left atrium is not capable of complete ly emptying itself of blood. Blood may pool, particularly in the part of th e 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 pe ripheral arterial blockage.

The WATCHMAN ® Left Atrial Appendage (LAA) Closure Device is an implant that acts as a physical barrie r, 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 elig ible for Warfarin therapy. The applicant anticipates FDA pr emarket approval of the WATCHMAN ® System

in the first half of 2014. Accordi ng to the applicant, the WATCHMAN ® System is the first LAA closure device that would be appr oved by the FDA. Therefore, the applicant believes that the technology meets the newn ess criterion. The device is currently identified by ICD

‐ 9

‐ CM procedure code 37.90 (Inserti on of Left Atrial Appendage301 Device), which was issued on October 1, 2004. We are inviting publ ic comments on if, and how, the WATCHMAN ® System meets the newness criterion. With regard to the cost criterion, th e applicant used the FY 2012 MedPAR file

and searched the claims data for cases re porting with ICD-9-CM procedure code 37.90. The applicant provided two analyses. The first an alysis 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 retu rned 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 belo w post-FDA approval pricing. Therefore, the applicant removed the premar ket device related charges. The applicant then standardized the charge s, applied an inflation fact or 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 charge s for the WATCHMAN® System. This resulted in an average case-weighted st andardized charge per case of $176,943. The applicant calculated an average case -weighted threshold of $107,345 across all MS-DRGs. Therefore, the appl icant asserted that the averag e case-weighted standardized charge per case exceeds the average case-we ighted 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 Procedure302 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 per cent 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 th e provider repo rting charges for actual cases

from clinical trials that used the WATCHMAN ® System that were well below post-FDA approval pricing. Therefore, the applicant re moved 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 li sted in the FY 2014 IPPS/LTCH final rule (78 FR 50982), and then added post F DA-approval charges for the WATCHMAN ® System. This resulted in an average case -weighted standardized charge per case of $113,210. The applicant calculated an averag e case-weighted threshold of $68,093. The applicant asserted that the average case-wei ghted standardized charge per case exceeds the average case-weighted threshold. Ther efore, the applicant maintained that the technology meets the cost criterion. We ar e inviting public comments on whether the

WATCHMAN ® System meets the cost criterion, pa rticularly 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 crit erion. The applicant believed that the

WATCHMAN ® System provides a permanent soluti on proven to reduce the risk of303 thromboembolic stroke in patients diagnos ed with high-risk, nonva lvular AF, and who are eligible for Warfarin therapy. Ther efore, the applican t 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 fo llow-up data suggested superiority compared to Warfarin therapy by demonstrating 40 per cent 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 afte r the procedure. The applicant submitted multiple clinical trial studies to demonstrate that the technology represents a subs tantial clinical improve ment. Specifically, the

WATCHMAN ® System United States clinical pr ogram included five studies with approximately 2000 patients. There were two prospective, randomized-controlled trials (PROTECT AF 9,10,11,12 and PREVAIL 13,14 ), two continued access re gistries 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 lef t atrial appendage system for embolic protection in patients With AF (PROTECT AF) clinical trial and the Continued Access Registr y. 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 wi th 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 S troke 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 atr ial 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 comp aring the outcomes of patient s who received care for LAA closure using the WATCHMAN ® System (463 patients) with those of patients who were anticoagulated with Wa rfarin 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 usi ng a “two-fold non-inferiority margin.” Because patients could be randomized to Warfar in therapy, all patients were eligible to continue Warfarin, and did not have an excessive risk of bl eeding. By design, all patients in PROTECT AF continued Warfarin therapy for 45 days after the device implantation procedure.

Outcome data from PROTECT AF have b een reported after mean follow-ups of 1.5 years, 2.3 years, and 3.7 years. The pr imary efficacy endpoint was the composite of stroke, systemic embolism, cardiovascular death, or unexplained death. This primary endpoint occurred in the contro l 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 a ssigned to receive the WATCHMAN ® System device in the

PROTECT AF trial had numerical ly lower rates of the primar y 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 statisti cally significant be cause the upper 95 pe rcent confidence305 intervals are all above 1.0. However, the s econdary endpoint of car diovascular death was reduced significantly, as was all-cause mort ality with a rate ra tio 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 pr obability is >99 percen t that device-treated patients have no more than twice the rate of stroke, embolism, or death than Warfarintreated patients. Also, the incidence of procedural-relat ed complications in this trial was 8.7 percent. The applicant noted that complicat ions 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 complica tion rate subsequently decreased. The applicant stated in its applicatio n that the Circulatory System Devices Advisory Panel to the Division of Cardiovasc ular Devices (DCD) within the Center for Devices and Radiological Hea lth (CDRH) of the FDA revi ewed 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 proc edural 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 de signed in a similar fashion to PROTECT AF, but with modifications to trial entr y criteria and a minimum number of new operators. According to the applicant, in the interi m, FDA also recognized the effectiveness

of the WATCHMAN ® System and the need for a new therapeutic option for patients306 receiving Warfarin therapy, a nd a continued access program (C AP) was authorized. With 460 patients enrolled, according to the applic ant, 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 PR EVAIL trial enrolled a total of 407 patients, 269 of whom received treatm ent for LAA closure with the WATCHMAN ® System, and 138 who received Warfarin therapy. The applicant noted that the procedural complication rate was 4.4 percen t, confirming the rate seen in the second half of the PROTECT AF trial study and the CAP trial st udy. 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 concer ning patients diagnosed with AF who are not on an oral anticoagulant. These patient s are not protected from stroke by an oral anticoagulant. There may be increased pe riprocedural 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). Spec ifically, 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 bl eeding. There was no control group. Device implantation led to a serious adverse event in 13 patients (8.7 per cent), including one case of device thrombus leading to ischemic stroke . Five other patients had a device-related307

thrombus that did not lead to stroke (four of these pati ents were treated with low molecular weight heparin), resulting in an ove rall 4.0 percent inciden ce (6 out of 150) of

device-associated thrombus. In the PROTEC T 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 th e two studies (4.0 percen t 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 ye ar, which was said to be “lower than expected” based on prior data for patients diag nosed with AF who were not treated with Warfarin (there was no concurrent control gr oup). 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 progra m 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 str okes caused by thromboe mboli originating in the LAA in patients diagnosed with nonvalvular AF. The applicant further stated that,

the data demonstrate that L AA closure using the WATCHMAN ® System is a substantial308 improvement in care as compared to curren tly 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 anticoagula nt), 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 unacceptabl e 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 indi cation be for “high risk patients with

nonvalvular atrial fibr illation who are eligible for warf arin 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 de signed to demonstrat e that the WATCHMAN ® is noninferior to Warfarin therapy. Speci fically, in the PREVAIL AF trial study, the primary endpoint was not significantly impr oved in the conventional hypothesis testing statistical analysis at any time point. Th e 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 remain s weak as the only data comes from the ASAP Registry (5) observati onal 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 compro mising the implementation of procedural309 approaches for stroke prevention in AF are discussed herein and in clude: (1) lack of multiple randomized clinical trials; (2) lack of consensus regarding the appropriate target population to study; and (3) ability to obtain ap proval 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 tec hnology meets the substantial clinical improvement criterion, particularly rega rding our concerns discussed

above. We did not receive any public comme nts 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 ar tery hemodynamic monitoring is used in the management of heart failure. The Ca rdioMEMSTM 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 Cathet er, an External Electronics Unit, and a

15 Holmes, D.R., et. al., “L eft Atrial Occlusion,” Journal of American College of Cardiology , 2014, Vol. 63, p. 291–8.310 Pulmonary Artery Pressure Database. Th e system provides the physician with the patient’s PA pressure waveform (including sy stolic, diastolic, and mean pressures) as well as heart rate. The sensor is permanently implanted in the dist al pulmonary artery using transcatheter techniques in the catheterization laborato ry 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, pushi ng 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 Pulm onary Artery Pressure Database, so that information regarding PA pressure is availabl e to the physician or nur se 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 major ity 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 ar e not currently hospita lized, but who have311 been hospitalized in the past few months for whom the treating physician believes that regular pulmonary artery pressure read ings 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 approva l and commercial launch in the second quarter of 2014. The CardioMEMSTM HF Syst em is currently described by ICD-9-CM procedure code 38.26 (Insertion of implantab le pressure sensor without lead for intracardiac or great vessel hemodynamic mon itoring). We are inviting public comments regarding how the CardioMEMSTM HF Sy stem meets the newness criterion. With respect to cost criterion, the ap plicant submitted actual claims from the

CHAMPION 16 clinical trial. Of the 550 patients enrolled in the tr ial, the applicant received 310 hospital bills. The applicant excluded the following claims: incomplete or missing procedure codes, incomplete charge in formation and bills that were statistical outliers (three standard deviations away from the geometric mean). This resulted in a final cohort of 138 claims. The applican t 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 charge s for the CardioMEMSTM HF System (because

the clinical trial claims di d 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 sta ndardized charge per case exceeded the threshold amount, the applicant maintained that the CardioMEMSTM HF System would

meet the cost criterion. We are inviti ng public comments on whether or not the CardioMEMSTM HF System m eets the cost criterion. With regard to substantial clinical improvement, the applicant asserted that elevated PA pressures occur prior to signs a nd symptoms of heart fa ilure and changes in PA pressures provide a sound phys iologic basis for its manage ment. The applicant also contended that, until the creation of the Card ioMEMS wireless PA implant, knowledge of PA pressure was only feasible in the hosp ital with the performance of a right heart catheterization. According to the applicant, the Cardio MEMS HF System provides physicians knowledge of PA pressure while the patient is at home, allowing proactive management to prevent heart failur e decompensation and hospitalization. The applicant cited clinical data from the CHAMPION trial. The trial is a prospective, multicenter, randomized, single-blin ded clinical trial conducted in the United States, designed to evaluate the safety and efficacy of the CardioMEMSTM HF System in reducing heart failure-related ho spitalizations 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 failure313 hospitalizations in th e 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 tr eatment group versus 0.44 hospitalizations per patient in the control group, p = 0.0002). Although not a primar y end point, the rate of HF hospitalizations after 18 months was 33 pe rcent lower in the tr eatment group than in the control group. According to the applicant, seconda ry endpoints of the CHAMPION trial are changes in pulmonary artery pressures, pr oportion of subjects hosp italized, days alive outside of the hospital, quality of life ( QOL), and heart failure management which demonstrated the following results:

● Pulmonary Artery Pressures: At ba seline, 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 significan tly 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 patie nts) than in the c ontrol 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 no t meaningful increase in days alive outside of the hospital314 (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 speci fic quality of life was assessed with the MLHFQ total score at 6 months. The averag e total score in the treatment group was 45.2 ± 26.4 which was significantly better than th e average total score in the control group 50.6 ± 24.8 (p=0.0236). The difference in total qua lity of life was primarily due to the physical domain. The average physical scor e 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 wa s made in response to PA pressures or standard of care information. During th e 6-month follow-up period, physicians made approximately one additional HF medicati on 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 co mpared to control patients having 0.65 medication changes per month (p<0.0001). Th e 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 endpoi nts: (1) freedom from device/system related complications (DSRC); and (2) free dom from sensor failure. The protocol pre-specified objective performa nce criterion (OPC) were that at least 80 percent of patients were to be free from DSRC and at l east 90 percent were to be free from pressure sensor failure. Of the 575 patients in the sa fety population, 567 (98.6 percent) were free from DSRC at 6 months (lower confiden ce limit 97.3 percent, p<0.0001). This lower limit of 97.3 percent is greater than the pre-sp ecified OPC of 80 perc ent. There were no sensor explants or repeat implants and a ll sensors were operational at 6 months for a freedom from sensor failure of 100 per cent (lower confidence limit 99.3 percent, p<0.0001). This lower limit of 99.3 percent is greater than th e pre-specified OPC of 90 percent. The applicant also noted that the CardioMEMSTM HF System reduces the occurrence of HF hospitalizations in NYHA Cla ss III heart failure patients. According to the applicant, the device had very few devi ce and system related complications occurring

over the course of the clinical trial. A ll primary and secondary study endpoints were successfully achieved. In addition, the C HAMPION trial suggests the safety and

effectiveness of the device was main tained during longer term follow-up. After reviewing the information provided by the applicant, we have the following concerns. The applicant did not discuss l ong-term outcomes, specifically death. We believe additional long-term outcome info rmation and how the technology changes long-term outcomes would furt her assist in our determina tion of whether the technology represents a substantial clin ical 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 mean ingful. This is supported by total days alive out of the hospital being virtually identi cal 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 inv iting public comments on whether or not the CardioMEMSTM HF Monitoring System technol ogy represents a subs tantial 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 th e 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 provi des trend data. The commenter further explained that if there is a variation or in crease in a pati ent’s pressure, the physician can contact the patient over the phone and conduc t an evaluation to look for increased symptoms or to learn if the patient has ski pped their diuretics. The device prompts the clinician to ask questions such as what is di fferent today than yester day 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 c linician has concerns, th e primary investigator317 or the patient’s primary cardiologist can a ssess 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 asse ss clinical status before the patient recognizes symptoms fo r 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 medicatio ns before pressures get too high. The commenter also noted that, for patie nts 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 me dications should be given that day. The

commenter stated that extra informati on from the CardioMEMSTM HF System can change the way physicians treat the patient a nd has, in many instances , at its site. The commenter concluded the CardioMEMSTM HF Sy stem provides a substantial clinical

benefit versus current methods for managing heart failure. Another commenter stated that the imp lant procedure was very simple and straightforward for patients, especially comp ared to having a pacemaker or defibrillator implanted. The commenter further stated that the device is compatible with defibrillators and cardiac resynchronization th erapy, 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 intrac ardiac lead. Aside from regular pressure318 readings, the commenter noted that it found unexpected intake issues for some patients who were unknowingly consuming certain hi gh-sodium foods. Th e commenter noted that they were able to reduce sodium inta ke further to help reduce pressures. The commenter also noted that it presented a case re port of increasing pres sures in a patient in whom the primary investigator adjusted diuretic therapy and later the patient’s

ACE-Inhibitor and nitrates. The commenter st ated that it successfully lowered pressures and avoided a probable heart failure hospita lization. The commenter added that the CardioMEMSTM HF System allows hospitals to easily obtain pre ssures at home for transmission and the ability to check pr essures 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 equi pment, which allowed them to take it with them on long weekends or vacations. The commenter added that this information was advantageous as it further al lowed clinicians to implement changes in a timely manner. The commenter noted the following trial re sults in its clinic, which the commenter believed confirm the benefit of hemodynami c monitoring: a 28-percent reduction in heart failure hospitalization at 6 months a nd a 15-percent reducti on 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. The319 commenter did explain that inevitably, due to th e nature of heart failure, several patients eventually required advanced therapies with transplantation or vent ricular assist device support without any issue from the sensor. The commenter also noted some additional key points such as: a reduction in hospitaliz ation for patients with preserved ejection fraction; in addition to diuret ic adjustment, the study found n itrates 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 a bove, the CardioMEMSTM HF System provides a

substantial clinical benef it versus current methods for managing heart failure.

One commenter stated that the Cardio MEMSTM 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 co mmenter stated that the trial met all of its primary safety and efficacy endpoints; re ducing heart failure hospitalizations by 28 percent 6 months after impla nt (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 crit erion CMS uses to evaluate substantial clinical improvement is that the device offe rs the ability to diagnose a medical condition earlier in a patient population than allo wed 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 ther apy guided by CardioMEMSTM HF System allows physicians to titrate medications earli er and more effectively reduce heart failure hospitalizations. The commenter noted that th is 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 outcome s for a patient population as compared to currently available treatments, such as a de creased number of futu re hospitalizations. The commenter stated that evidence provi ded in the CHAMPION trial at 6 months showed a 28-percent reduction in heart fa ilure hospitalizations and even a larger reduction of 33 percent during long-term follow-up at 17 mont hs. Based on the criteria outlined by CMS and the evidence supporting the CardioMEMSTM HF System, the

commenter believed that the CardioMEMS TM HF System meets the criteria for substantial clinical improvement. Another commenter, the appli cant, reiterated the statements set forth above in the

substantial clinical im provement discussion. Response: We appreciate the commente rs’ support. We considered these comments in our evaluation of the CardioMEMSTM HF System for new technology321 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 subs tantial 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 Guid e Catheter, and a Clip Delivery System. It is designed to perform reconstr uction of the insufficient mitral valve for high-risk patients who are not candidates fo r conventional open mitral valve repair

surgery. Mitral regurgitation (MR), also referred to as mitral insufficiency or mitral incompetence, occurs when the mitral valve fa ils to close completely causing the blood to leak or flow backwards (regurgi tate) 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 grad e 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/sever e or severe MR (grade 3+ to 4+). The322 applicant stated that the MitraClip ® System is “indicated for percutaneous reduction of significant mitral regurgitation ... in patient s 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 surger y and a cardiologist experienced in mitral valve disease and in whom existing como rbidities 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 tech nique 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 porti on of the anterior leaflet is sutured to the corresponding porti on of the posterior leaflet using standard techniques and forceps and suture, creating a point of perm anent coaptation (“appr oximation”) of the two leaflets. When the suture is placed in th e middle of the valve, the valve will have a

functional double orific e 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 sy mptomatic mitral regurgitation (MR >= 3+) due to primary abnormality of the mitral a pparatus (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 como rbidities would not preclude the expected benefit from reducti on of the mitral re gurgitation.” The323 MitraClip ® System became immediately availabl e on the U.S. market following FDA approval. The MitraClip ® System is a Class III device, and has an inves tigational device exemption (IDE) for the EVEREST study (Endo vascular Valve Edge-to-Edge Repair Study) –IDE G030061, and for the COAPT study (Cardiovascular Outcomes Assessment of the MitraClip Percutaneous Therapy for Heal th Failure Patients with Functional Mitral Regurgitation) – IDE G120024. Effective Oc tober 1, 2010, ICD-9-CM procedure code 35.97 (Percutaneous mitral valv e repair with implant) wa s 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 refe r readers to the CMS Web

site at: http://www.cms.gov/medicare-coverage -database/details/nca-trackingsheet.aspx?NCAId=273&NcaName=Transcathe ter+Mitral+Valve+(TMV)+Procedures& TimeFrame=90&DocType=All&bc=AAAAIAAACAAAAA%3d%3d& for information related to this ongoing NCD. The tracking sh eet for this National Coverage Analysis (NCA) indicates an expected NCA completi on date of August 16, 2014, which is after the

FY 2015 IPPS/LTCH PPS final rule is schedu led to be published. The processes for evaluation and determination of an NCD, a nd 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’ c overage 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 pur poses of new technology add-on payments and324 the issues that may arise from concurre nt NCD requests and new technology add-on payment application review and approval processes. With regard to the cost criterion, th e applicant conducted two analyses. The applicant noted that, while ICD-9-CM pr ocedure 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-Elu ting Stent without MCC), 248 (Percutaneous Cardiovascular Procedure with Non-Drug-Elut ing Stent with MCC or 4+ Vessels/Stents), 249 (Percutaneous Cardiovascular Procedur e with Non-Drug-Eluting Stent without MCC), 250 (Percutaneous Cardiovascular Proc edure without Coronary Artery Stent or AMI with MCC), and 251 (Percutaneous Card iovascular Procedure without Coronary Artery Stent or AMI without MCC), clin ical experience with the MitraClip ® System

device has demonstrated that it is extremel y 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 fi nal rule (77 FR 53308) which stated, “According to the Food and Drug Administration' s (FDA's) terms of th e clinical trial for MitraClip TM , the device is to be implanted in pati ents 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 mo st likely MS-DRG assignments would be MS-DRGs 250 and 251.” As a result, the applic ant stated that it conducted its analyses solely for MS-DRGs 250 and 251 to demonstr ate 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 MedP AR file for claims for cases reporting ICD-9-CM procedure code 35.97. Under th e first analysis and methodology, the applicant noted that this search yielded actua l claims for cases in which the MitraClip® System device was used in procedures pe rformed 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 th at hospitals did not report the charges for the investigational device, or submitted claims fo r 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 pe rcent 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 char ge per case of $232,670. The applicant standardized the charges using the FY 2014 IPPS final rule impact file, and inflated the result usi ng three different inflation fact ors. We note that, since the applicant used FY 2012 MedPAR data, we beli eve it is appropriate to use comparable

data for standardization. Ther efore, we believe use of the FY 2012 final rule impact file is more appropriate rather than the FY 2014 fina l rule impact file. The first analysis and methodology used an inflation factor of 4.57 pe rcent, 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 an alysis used an inflation factor of326 9.92 percent, which was based on the 2-year char ge inflation factor listed in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50982). This resulted in an av erage 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 ba sket update between th e 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 withoutany adjustments to reflect the reduced investigational price, or inadequate hospital claim reporting and billing. Using the FY 2014 IPPS Table 10 thre sholds, the averag e case-weighted threshold for MS-DRGs 250 and 251 is$71,467 (all calculations above were performed using unrounded numbers). Because the averag e case-weighted standardized charge per case for the applicable MS-DRGs calcula ted under each methodology under the first analysis discussed above exceeds the aver age case-weighted threshold amount, the applicant maintained th at 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 ap plicant 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 then327 standardized the charges, infl ated the result using the thr ee inflation factors above, and added a fixed amount of commercial charges based on post-FDA approval pricing. This resulted in an average case weighted st andardized charge pe r case of $139,536 under the first inflation factor (4.5 7 percent), $142,364 under the seco nd inflation factor (9.2 percent), and $139,568 under the third in flation factor (4.63 percent). Using the FY 2014 IPPS Table 10 thre sholds, the averag e case-weighted threshold for MS-DRGs 250 and 251 is $71,467 (all calculations above were performed using unrounded numbers). Because the averag e case-weighted standardized charge per case for the applicable MS-DRGs calculate d under all three me thodologies discussed above exceeds the average case-weighted thre shold amount, the appli cant 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 associat ed 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 significan t proportion of patients are not eligible for mitral valve repair and/or replacement surger y because of risk factors, including reduced left ventricular function, significant comorbidities, and advanced age. As a result, the328 applicant stated that there is a significant unm et clinical need for patients diagnosed with severe MR who are too high- risk for surgery, who are r eceiving palliative medical management. The applicant also stated that the MitraClip ® System meets the substantial clinical improvement criterion base d on clinical studies 17,18,19,20,21,22,23,24,25 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) functi onal 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 fr om 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 Journa l of Medicine, 2011, Vol. 364, p p. 1395-1406. 18 Foster, et al., “Percutaneous Mitral Valve Repair in th e 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 betw een the Magnitude of Reduction in Mitral Re gurgitation Severity and Left Ventricular a nd Left Atrial Reverse Remodeling after MitraClip Therapy,” Circula tion in Cardiovascular Imaging, September 2013, epub, September 6, 2013. 20 Lim, et al., “Improved Functional Status and Quality of Life in Prohibitive Surgical Risk Pati ents With Degenerative Mitral Regurgitation Following Transcatheter Mitral Valve Repair with the MitraClip® Syst em,” Journal of American College of Cardiology, 2013, In Press, Accepted Manuscr ipt, Available online, October 31, 2013. 21 Maisano, F., et al., “Percutaneous Mitral Valve Interventions in the Real World: Early and On e 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 Tria l 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 M itral 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 Resu lts With Catheter-Based M itral Valve Leaflet Repair: The EVEREST II (Endovascular Valve Edge-to-Edge Repair) High Risk St udy,” 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 fo llowing: (1) patients within the EVEREST II High-Risk Study who met eligibil ity 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 (D MR) Cohort, which is an analysis of retrospectively evaluated high-risk patients diagnosed with DMR enro lled 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 Europe an 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 ther apy using a multi-disci plinary “heart team” approach. The applicant stated that published re ports on the MitraClip® System device and the procedures in which the device was used ha ve consistently demons trated 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 St udy (an analysis of 78 patients diagnosed with degenerative or functional MR enrolled in the trial), which stated that “objective330 measures of MR grade improved in the MitraClipTM group, including MR grade of <=2+ in 78 percent of surviving patie nts at 1 year. These patients also experienced clinically significant improvements in left ventricula r volume measurements. The clinical significance of these improvements is reflect ed 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 signifi cantly 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 pr emarket approval. Major effectiveness endpoints evaluated at 12 mont hs demonstrated clinically important improvements in MR severity, with MR severity grades of 3+/4 + decreasing from 90.4 pe rcent at baseline to 16.7 percent at 1 year; NYHA Class III/IV decr easing from 86.6 percent at baseline to 13.1 percent at 1 year; and the SF-36 P hysical/Mental scale measuring 33.4/46.6 at baseline increasing to 39.4/52.2 at 1 year. The applicant stated in its new tech nology add-on payment application that, “Heart failure hospitalizations were redu ced by 73 percent in the 12 months post MitraClipTM procedure from the 12 month pre-MitraClipTM procedure...,” and “the primary safety analysis indicated low proce dural (30-day) mortality (6.3 percent) after MitraClipTM in comparison with the STS predicte d surgical mortality risk score for these patients (13.2 percent).”331 The applicant discussed published results 26 “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 prop ortionally to the de gree of MR reduction at one year.” In conclusion, the applicant cited da ta 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 an d 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 th e applicant revised its initia l FDA request for the use of the MitraClip ® System device in all patients diag nosed with significant MR, after learning that the FDA expressed concer n that the initial study, EVEREST II, demonstrated that, while the MitraClip ® System device had c linically meaningful improvements in LV volume and QOL, the su rgical option had bette r 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 be tween the Magnitude of Reductio n in Mitral Regurgitation Seve rity and Left Ventricular and Left Atrial Reverse Remodeling after MitraClip Therapy,” Ci rculation in Cardiovascular Imaging, September 2013, epub, September 6, 2013.332 presented by the applicant in its appli cation 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; en rollment 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 A ccess Study and compassionate use; enrollment 2009-2013; 49 patients. The applicant provided comparisons of va rious outcomes prior to the procedure using the MitraClip ® System device and outcomes 12 months later. MR severity, LV end diastolic volume, NYHA Class, SF36 Phys ical/Mental scale, and heart failure hospitalization rates all had clinically mean ingful improvements. For the EVEREST II HRS, the applicant provided analysis demonstrating a signi ficant 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 pool ed data sets retain all of the individual shortcomings of the individual data sets;

● Pooling does not enhance the utilit y and scientific value of uncontrolled single-arm registries wi th no comparators; and

● Inappropriate pooling introduces additional confounders.333 It is also unclear if the appropr iate target populati on 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 EVER EST II RCT, the authors concluded that, older patients and those patients diagnosed with FMR or a bnormal 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 in cidents of MR more than the procedures performed using the percutaneous MitraClip ® System device. However, both the surgical patients and the patients who we re treated using the MitraClip ® System device showed comparable results for improved left vent ricular function, NYHA f unctional class, and quality of life. We are inviting public comments on whether this tec hnology 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 comme nts 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 applica tion 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 FDA334 approval prior to the July 1 deadline.) Seizur es 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 seiz ures have not been ad equately controlled with antiepileptic medications. The a pplicant further stated that, the RNS ® System is the first closed-loop, responsive system to treat pa rtial onset seizures. Responsive electrical stimulation is delivered directly to the se izure focus in the brain when abnormal brain activity is detected. A cranially implante d 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 neuros timulator detects el ectrographic patterns previously identified by the physician as a bnormal, and then provi des brief pulses of electrical stimulation through the leads to interrupt those patterns. Stimulation is delivered only when abnormal electrocorticogr aphic 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. Th erefore, the applicant be lieved that there is335 an unmet clinical need for additional therapie s for partial ons et seizures. The applicant

further stated that the RNS ® System addresses this unmet clinical need by providing a novel treatment option for treating persons dia gnosed with medically intractable partial onset seizures. The applicant received F DA premarket approval in November 2013. The following ICD-9-CM procedure codes are us ed 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 l ead(s)). We are inviting public comments on whether the technology meet s the newness criterion. With regard to the cost criterion, the a pplicant stated that substantially all cases eligible for the RNS ® System would map to MS-DRG 024 (Craniotomy with Major Device Implant/Acute Complex Central Ner vous 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 Ch emotherapy Implant), it would be extremely rare because the applicant believed that th ese major complications and/or comorbidities would probably preclude a patient fr om 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 firs t analysis, the applicant used clinical trial claims data

collected in the RNS ® System Pivotal Clinical Investig ation to calculate the anticipated average case-weighted standardized charge per case. The applicant maintained that this336 analysis best represents the anticipated charges for the technology because it is based on

actual cases treated us ing this technology. The applican t analyzed 163 claims from 28 hospitals participating in the clinical trial. Five claims from one hospital were excluded because no hospital-specific information rega rding standardization was available. The resulting 158 claims included dates of service ranging from May 2006 through May 2009. The average case-weighted standard ized 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 char ges from these claims because the technology was provided at no charge in th e trial. After stan dardizing 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, becau se the publicly available FY 2012 MedPAR data do not identify the month of the discharg e on inpatient claims, but do identify the calendar quarter, the applicant used a mid-m onth 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 qua rter of the most re cently 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-13 261.915337 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 ap plicant estimated charges for the RNS ® System by multiplying the device cost to the hosp ital by an anticipated hospital markup of 100 percent, or conversely by dividing the devi ce cost by a CCR of 0.50. The applicant based its estimated CCR on four analyses. Firs t, 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, th e applicant queried hospitals participating in the RNS ® System Pivotal trial, and these queries yi elded 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 perfo rmed 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 neuros timulators of 0.50 and 0.44, respectively. The applicant then reviewed other discu ssions 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 de vices 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-weight ed standardized charge per case, and determined a final average case-weighted standardized charge per case of $128,723. The anticipated hospital char ge for the implantable RNS ® System is $73,900. Using the338 FY 2014 IPPS Table 10 thresholds, the thre shold for MS-DRG 024 is $91,197. Because the final average case-weighted standard ized charge per cas e of $128,723 for MS-DRG 024 exceeds the average case-weighted threshol d amount, the applicant maintained that

the RNS ® System meets the cost criterion. In the second analysis, which the app licant characterizes as supplementary, the applicant researched the FY 2012 MedPAR file for cas es reporting the following combinations of ICD-9-CM procedures c odes: 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 pr ocedures codes 02.93 and 01.20, and pointed out that these cases were coded with pr ocedure code 01.20 in error because no new

RNS ® System implantations occurred after Ma y 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 stimul ation (DBS). In a ddition, 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 th ese cases did not repr esent implantation of a full DBS system, but did represent the im plantation 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, a nd the hospitals confirmed that their claims represented lead implantations only. Theref ore, 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 024339 reporting a combination of ICD-9-CM pr ocedures codes 02.93 and 01.20 where the covered charges were greater than, or equa l to, the estimated charges of a full DBS system. The applicant maintained that 374 cl aims from 106 providers met this criterion, and data represented claims from the four th calendar quarter of 2011 through the third calendar quarter of 2012. Based on this assu mption, the applicant ca lculated 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 applican t estimated charges for a full DBS system, and maintained that the average cost for a fu ll 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 removi ng the DBS system charges, the applicant inflated the charge s 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 averag e case-weighted threshold for MS-DRG 024 is $91,197. Because the final average st andardized 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 applican t maintained that the final average case-weighted standardized charge per cas e would exceed the average case-weighted threshold. We are inviting public comments on whether the RNS ® System meets the cost340 criterion, particularly based on the assumpti ons 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 su rgical 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 el ect surgery. According to the applicant, the

RNS ® System clinical trials provide Class I evidence that treatment using the RNS ® System substantially reduces disabling seiz ures in patients diagnosed with severe epilepsy, who have tried and failed treatment with antiepileptic medications, and in many cases, VNS or epilepsy surgery. The applican t maintained that the results from their clinical trials demonstrate significant a nd 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 ade quate safety of its treatment, and provide evidence of effectiveness to support comme ncement 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 safe ty and effectiveness of the treatment on patients who have completed either the Feasibility trial, or the RNS® System Pivotal trial for an additiona l seven years. The LTT trial started in April 2006, and the final patient is expected to complete th e trial in 2018. The applicant341 noted that patients enrolled in the LTT tr ial continued to experience a reduction in seizures over several years of follow-up, furt her 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 signifi cant greater reduction in seizures in the treatment group compared to the control group (p = 0.012). Signifi cant 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 r eached 2 years post-implant experienced a 50 percent or greater redu ction in seizures; and

● Significant improvements in overall qua lity of life, as well as individual quality of life measures including memor y, language, attention, concentration and

medication effects. The applicant asserted that there was no negative effect of treatment using the

RNS ® System on neuropsychological functi on (including verbal functioning, visual spatial proces sing, and memory) or mood. The applicant concluded that the

RNS ® System Pivotal trial provides Class I evid ence that responsive cortical stimulation is effective in significantly re ducing seizure frequency in adu lts with one or two seizure foci who have failed two or more antiepilep tic medication trials. The applicant stated that experience across all of the RNS ® System trials demonstrates the reduction in seizure frequency of disabling partial onset seiz ures improves over time. In addition, the342 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 me dications, VNS, and epilepsy surgery. With regard to the subs tantial 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 percen t of the patients enrolled in the pivotal

trial were Medicare beneficiar ies, we are unsure of the exte nt 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 su bstantial 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 Clinic al Investigation, the primary effectiveness endpoint considered seiz ure frequency over the last 3 months of the blinded period of the trial. We note that th e 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 re gard 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 su mmarize these comments below. Comment: One commenter, a physician, st ated 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 uncontrolle d seizures can cause physical injury and even significantly increased ri sk of death. The commenter st ated 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 su stained 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 ab le 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 ch emicals 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 se izure 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 seiz ures. 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 benefi ciaries 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 re duction in the seizure frequency and severity, and for some patients, extended periods of seizure freedom. The commenter explained that this reduction in the seizur e frequency improves over time, is sustained over several years of follow-up, and can resu lt in improved cognition and a better quality

of life. The commenter further stated th at 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 em ployment. 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 per cent 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 achieve d the same positive improvements in health

outcomes from the RNS ® System as patients that had not previously tried a VNS.

● In the commenter’s experi ence, not only is the freque ncy of the seizure activity improved but also the severity of th e seizures can improve with the RNS ® System. The commenter further noted the “positiv e long-term results of RNS therapy.” The commenter stated that therapy is bei ng 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 ther apy is durable. Specifically, the commenter

noted that seizure reductions ar e 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 it s 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 commente rs’ 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 re gard 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 requir es that, as part of the methodology for determining prospective payments to hospita ls, the Secretary adjust the standardized amounts “for area differences in hospital wa ge 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 di scussion of the proposed FY 2015 hospital wage index based on the statistical areas appe ars 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 surv ey of wages and wage-related costs of short-term, acute care hosp itals. 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 pream ble of this proposed rule, we also take into account the geographic re classification 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, th e Secretary is requir ed to adjust the

standardized amounts so as to ensure that aggregate payments under the IPPS after348 implementation of the provisions of s ections 1886(d)(8)(B), 1886(d)(8)(C), and 1886(d)(10) of the Act are equa l to the aggregate prospectiv e payments that would have been made absent these provisions. Th e 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 pr ovides 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 un der 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 assigne d to hospitals on the basis of the labor market area in which the hospital is locate d. 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) esta blished 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 CBS As and our implementation of the CBSA definitions, we refer readers to the preambl e of the FY 2005 IPPS final rule (69 FR 49026 through 49032). We also discussed in the FY 2012 IPPS/LTCH PPS final rule349 (76 FR 51582) and the FY 2013 IPPS/LTCH PPS fi nal 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 Cens us of Population and Housing data. As stated in the FY 2014 IPPS/LTCH PPS propos ed 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 Metr opolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical Areas, and provided guidance on the use of

the delineations of these stat istical areas. A copy of this bulletin may be obtained at http://www.whitehouse.gov/sites/default/ files/omb/bulletin s/2013/b-13-01.pdf. According to OMB, “[t]his bulletin provide s the delineations of all Metropolitan Statistical Areas, Metropolit an Divisions, Micropolitan Statistical Areas, Combined Statistical Areas, and New England City and To wn 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 count y 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 bulleti n does contain a number of significant changes. For example, under the new OM B delineations, there would be new CBSAs,350 urban counties that would become rural, ru ral counties that would become urban, and existing CBSAs would be split apart. In addition, the effect of the new OMB delineations on various hospital reclassi fications, the out-mig ration adjustment (established by section 505 of Pub. L. 108-173), and treatmen t 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 th e new OMB labor market area delineations prior to proposi ng and establishing policies. However, because the bulletin was not issued until February 28, 2013, with supporting data not available unt il later, and because the changes made by the bulletin

and their ramifications needed to be extensively reviewed an d 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 ch anges 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 propos ed 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 is351 important for the IPPS to use th e latest labor market area delin eations available as soon as is reasonably possible in order to mainta in 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 refe r readers to the CMS Web site at: www.cms.gov/Medicare/Medicare-Fee-for-Ser vice-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 speci fically to define labor market areas, we believe they do represent a useful proxy for th is 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 represen tation of geographic variations in wage levels. We have reviewed our findings and impacts relati ng to the new OMB delineations, and find no compelling reason to further delay implemen tation. 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 I PPS 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 hosp itals that experience negative impacts due to the proposed implementation of the new OMB delineations. Th is transition is discussed in more detail

below.352 a. Micropolitan Statistical Areas

As discussed in the FY 2005 IPPS fi nal rule (69 FR 49029 through 49032), CMS considered whether to use Micropolitan Statistic al Areas to define the labor market areas for the purpose of the IPPS wage index. OM B defines a “Micropolitan Statistical Area”

as a CBSA “associated with at least one urba n 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 de termined the best course of action would be to treat all hospitals locat ed in Micropolitan Areas as “r ural” and include them in the calculation of each State’s rural wage i ndex. Because Micropolitan areas tend to encompass smaller population centers and c ontain fewer hospitals than MSAs, we determined that if Micropolitan Areas were to be treated as separa te labor market areas, the IPPS wage index would have included dras tically more single-provider labor market areas. This larger number of labor market areas with fewer hos pitals could create instability in year-to-year wage index va lues for a large numbe r of hospitals; could reduce the averaging effect of the wage inde x, thus lessening some of the efficiency incentive inherent in a system based on th e 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 acro ss 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 cour se of action would be to continue the policy

established in the FY 2005 IPPS final rule a nd include hospitals lo cated in Micropolitan Areas in each State’s rural wage index. Th ese 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 fo rth in the FY 2005 IPPS/LTCH PPS final rule, as discussed above. Therefore, in conjunc tion with our proposal to implement the new OMB labor market area delineations beginning in FY 2015, we are pr oposing 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 prop osing 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. The354 following chart lists the 37 urba n counties that would be rura l 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 Cinc innati-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 Gra nd 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 Hous ton-Sugar Land-Baytown, TX Franklin County KS 28140 Kansas City, MO-KS Tipton County IN 29020 Kokomo, IN Nelson County KY 31140 Louisvil le/Jefferson County, KY-IN Geary County KS 31740 Manhattan, KS Washington County OH 37620 Parker sburg-Marietta-Vienna, WV-OH Pleasants County WV 37620 Parker sburg-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, UT355

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 cal culating their respective State’s rural wage index. We recognize that rural areas typically have lower ar ea wage index values than urban areas, and hospitals located in these c ounties 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 prop osing 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 hosp itals that were located in rural areas

would be located in urban areas under the new OMB delineations. The following chart356

lists the 105 rural counties that would be urba n 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-Ch ristiansburg-Radford, VA De Witt County IL 14010 Bloomington, IL Columbia County PA 14100 Bloomsburg-Berwick, PA Montour County PA 14100 Bl oomsburg-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 Charlo tte-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, OH357

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-Fo rt Worth-Arlington, TX Somervell County TX 23104 Dalla s-Fort Worth-Arlington, TX Baldwin County AL 19300 Da phne-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 Gr and 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 Kahul ui-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-AR358

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 Minneapo lis-St. Paul-Bloomington, MN-WI Mille Lacs County MN 33460 Minneapo lis-St. Paul-Bloomington, MN-WI Sibley County MN 33460 Minneapo lis-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 Ne w 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 Shre veport-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 St aunton-Waynesboro, VA Staunton City VA 44420 St aunton-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, WA359

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 Wate rtown-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 ur ban area would receive a higher wage index value than hospitals located in their State’s ru ral area. However, with regard to the wage index applicable to individua l 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 delineatio ns. 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 experien ce both a change to its number and its name, and become CBSA 29200 (Lafayette-West Lafayette, IN), wh ile 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 IN361

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 furthe r in this section these proposed changes because they are inconsequential changes w ith 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 CBS A would be subsumed by another CBSA. For example, CBSA 37380 (Palm Coast, FL) cu rrently is a single county (Flagler, FL) CBSA. Flagler County would become a pa rt 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) curren tly is comprised of five Pennsylvania counties (Bucks, Chester, Delaware, Montgom ery, and Philadelphia). If we adopt the new OMB delineations, Montgomery, Bucks, and Chester counties would split off and form the new CBSA 33874 (Montgomery C ounty-Bucks County-Chester County, PA362 Metropolitan Division), while Delaware a nd 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 ex ample, Lincoln County and Putnam County, WV would move from CBSA 16620 (Charl eston, 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 w ould 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 NJ363

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 their364 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 proposal s to moderate the im pact of our proposed adoption of the new OMB delineations. e. Proposed Transition Period (1) Background Overall, we believe implementing the ne w 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 th at some hospitals would experience decreases in wage index values as a result of our pr oposed implementation of the new labor market

area delineations. We also realize that so me 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 tran sition periods when adopting changes that have significant payment implications, particul arly 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 rural365 under new definitions to maintain their assignm ent to the labor market area where they were located for FY 2004. This adjustment wa s 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 th eir previous rural or urban labor market area), we implemented a 1-year blended adju stment. 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 i ndex 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 con cerns 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 cu rrently located in an urban county that would become rural under the new OMB delineations, a nd would have no form of wage index reclassification or redesignation in place fo r FY 2015 (that is, MGCRB reclassifications under section 1886(d)(10) of the Act, redesi gnations under section 1886(d)(8)(B) of the Act, or rural reclassifications under section 1886(d)(8)(E) of the Ac t), we are proposing a366 policy to assign them the urban wage inde x 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 I PPS proposed rule (69 FR 28252), we have in the past provided transitions when adopti ng changes that have significant payment implications, particularly large negative impacts. We believe it is appropriate to apply a 3-year transition period for hos pitals located in urban count ies that would become rural under the new OMB delineations, given the pot entially significant payment impacts for these hospitals. This is consistent with the transition policy adopt ed 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 l onger transition period is approp riate 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 revisi ons compared to othe r 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 act ual payment wage index that these hospitals received in FY 2014, thereby minimizing the negative impact of adopting the new OMB delineations for these hospitals. Acco rdingly, for FYs 2015, 2016, and 2017, assuming no other form of wage index re classification or redesignation is granted, we are proposing to assign these hospitals the area wage inde x value of the urban CBSA to which they geographically were located in FY 2014 (with the rural a nd imputed floors applied and367 with the rural floor budget neut rality 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 th at hospitals in County X would be assigned the FY 2015 wa ge index of CBSA 12345, computed using the remaining two counties, w ith the rural and imputed floor s 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 relativel y 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 cau se significant negative payment impacts, we believe that these hospitals s hould be granted a longer transiti on 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 wher e a hospital cannot be assigned the wage index value of the CBSA to which it geogr aphically 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 mark et 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 th at CBSA would be split apart and no longer368 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 hos pitals located in

such counties that would become rural under the new OMB delineations would be assigned the wage index of th e 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 appro ach 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 minimi zing the negative effects of the proposed change in the OMB delineations. For exam ple, George County, MS and Jackson County, MS, together, in FY 2014, comprise the ur ban CBSA 37700 (Pascagoula, MS). Under the new OMB delineations, George County w ould be considered rural and Jackson County, MS would become part of the urba n labor market area of Gulfport-BiloxiPascagoula, MS (CBSA 25060). In this instan ce, 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 fo r FY 2015 under the new OMB delineations, but also has a reclassification or redesignati on in effect for FY 2015 (from a pre-existing369 reclassification or redesignation granted prior to FY 2015), would not be eligible for the 3-year transition wage index. This is b ecause if the hospital is reclassified or redesignated in some manner, it would instea d receive a wage index that reflects its own

choice to obtain its reclassifi ed 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 s eeks and is granted a ny reclassification or redesignation for FY 2016 or FY 2017, we are proposing that the hospital would permanently lose its 3-year transitional as signed wage index stat us, 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 re ceived 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 obt ain a different area wage index in FY 2016, the hospital would not be eligible to reinstat e the transition wage index, even if it opts to cancel its recla ssification for FY 2017. We are proposing the transition adjustment to assi st hospitals if they experi ence 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 reclassificati on or redesignation, we do not be lieve 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 delineatio ns. By obtaining a reclassification or370 redesignation, we believe that the hospital has made the determination that the transition adjustment is not necessary because it has ot her viable options for mitigating the impact

of the transition to the new OMB delineations. With respect to the wage index comp utation, 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 refe r 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 adjustme nt would be included in the statewide rural area in which they are geographically lo cated under the new OMB

labor market area delineations of FY 2015. Af ter the 3-year transition period, beginning in FY 2018, we are proposing that these form erly urban hospitals discussed above would receive their statewide rural wage index, ab sent any reclassifica tion or redesignation. In addition, we are proposing that the hospitals receiving this 3-year transition because they are in counties that were ur ban under the current CBSA definitions, but

would be rural under the new OMB delinea tions, 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 policie s that may be impacted by the proposed adoption of the new CBSA delineations. However, we will continue to apply the existing371 regulations at § 412.102 with respect to determ ining DSH payments in the first year after a hospital loses urban status (we refer reader s to section II.B.2.e.(7 ) of the preamble of this proposed rule). (3) Proposed Transition for Hospitals Deem ed 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 propos ed 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 ar eas 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 rede signation is grante d, 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 i ndex) to which they were rede signated in FY 2014 (with the rural and imputed floors applied and with th e rural floor budget ne utrality adjustment applied). If the hospital cannot be assigned the reclassified wage index value of the372 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 cons tituent 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 th e urban county in thei r 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 hospita ls reclassified to a CBSA because hospitals deemed urban under section 1886(d)(8)(B) of th e 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 W ould Experience a Decrease in Wage Index

under the New OMB Delineations While we believe that instituting the la test OMB labor market area delineations would create a more accurate wage index sy stem, 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 transiti on adjustment for hospitals being transitioned

from urban to rural status as discussed a bove, 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 reclassi fication and redesignation) ex clusively 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 wage373 index with the rural and imput ed 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 th an the proposed FY 2015 wage index with FY 2014 CBSAs, we are proposing that a bl ended wage index would be computed, consisting of 50 percent of each of the tw o 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 mitigat e the short-term instability and negative payment impacts due to the proposed impl ementation of the new OMB delineations, providing hospitals with a transition period dur ing which they may adjust to their new geographic CBSA or may assess an y reclassification options th at 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 ar e significantly fewer aff ected urban-to-rural hospitals, and we believe the negative impacts to a hospital shifting from urban to rural status would typically be great er than other type s of transitions. We believe that a transition period longer than 1 year to address other impact s 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 and374 imputed floors applied and with the rural fl oor 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 (particul arly in States where the rural floor is historically very high). Th erefore, 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 wa ge index in our calculation of the FY 2015 portion of the 50/50 blended wage index for th at hospital. After FY 2015, such a hospital may revert to the second year of the 3-y ear transition. For ex ample, 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, th at 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 eligib le to receive the remaining 2 years of the 3-year transition wage index of CBSA 12345 (t hat is, in FY 2016, Hospital X would receive the FY 2016 wage index of CBSA 12345 (with the rural and imputed floors applied and w ith 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 neut rality adjustment applied).375 (5) Impact of Proposed Adoption of New OMB Labor Market Area Delineations To illustrate how the proposed adopti on 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 po st-reclassified wage indexes with rural floor budget neutrality applied under th e 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, th e 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 propos ed new OMB delineations to the wage data, the proposed wage index values for 2,362 ur ban hospitals (83.8 pe rcent) 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 w ould increase by at least 5 percen t but less than 10 percent. The wage index values of 12 (0.4 percent) ur ban hospitals would in crease by greater than or equal to 10 percent. The wage index values of 369 (59.6 per cent) rural hospitals would increase by less than 5 percent, 18 ru ral hospitals (2.9 per cent) 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 e qual to 10 percent. However, the wage index values for 451 urban hospitals (16.0 percent) and 223 (36.0 perc ent) rural hospitals would decrease. The wage index values of 396 (14.0 percent) ur ban hospitals would d ecrease by less than 5 percent, 40 urban hospitals (1.4 percent) w ould decrease by at le ast 5 percent but less than 10 percent, and 15 urban hospitals (0.5 pe rcent) would decrease by greater than or376 equal to 10 percent. The wage index values of 198 (32.0 percent) rural hospitals would decrease by less than 5 percen t, 24 rural hospitals (3.9 pe rcent) would decrease by 5 percent and less than 10 percen t, and 1 rural hospital (0.2 percent) would decrease by greater than or equal to 10 percent. The wage index valu es of 6 (0.2 percent) urban hospitals and zero rural hosp itals would remain unchanged by the adoption of the new OMB CBSA delineations. The largest positiv e impacts would be for 8 hospitals in 5 States (Texas, Minnesota, Louisiana, Alab ama, and Michigan) that would be moving

from a rural to an urban ar ea (ranging from a 16. 57 percent to a 22.91 percent increase in wage index), and for 10 hospitals that w ould 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), represen ting a 15.12 percent increas e in wage index. The largest negative impacts w ould be for 5 hospitals in 4 States (New York, Alabama, Idaho, and North Carolina) that would be movi ng 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 CBS A (FY 2014 CBSA 35644, New York-White Plains-Wayne, NY-NJ) to new urban CBS A 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 a ll hospitals combined, the wage index values of 2,758 (80.2 percent) overall would be in creasing, and 674 (19.6 pe rcent) overall would be decreasing, indicating that most hospitals would be positively a ffected by the adoption377 of the new OMB delineations. Furthermore, the magnitude of the changes would be relatively small overall, with only 132 hospita ls (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-reclas sified 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-ye ar transition blende d wage indexes).378

Percent Change in FY 2015 Wage Index Number ofPostReclassified Rural Hospitals based on FY 2014

CBSA Number ofPostReclassified 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 ne utral 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 equa l 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 th is 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 pr actice (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 a nd 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 Determin ing 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 equa ls two-thirds of the difference between the urban DSH payments applicable to the hospi tal before its redesi gnation from urban to rural and the rural DSH payments applicab le to the hospital subsequent to its redesignation from urban to rura l. In the second year afte r 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 cha nges to the regulations to delete § 412.64(b)(1)(ii)(D). In this regulation s ection, 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 data380 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 redesigna tion, is the only location that currently references a “hospital reclassifi ed 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 regulat ion text at § 412.102 so that it no longer refers to the defined term “hospital reclassified as ru ral,” and instead specifically states the circumstances in which § 412.102 applies. In addition, we are proposing to modify the regulation text so that it woul d apply to all transitions from urban to rural status that occur as a result of any futu re adoption of new or revise d OMB standards for delineating statistical areas adopted by CMS. Specifically, we are proposi ng to revise the regulations at § 412.102 to state that “An urban hospita l that was part of an MSA, but was redesignated as rural as a result of th e 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 fisc al years as provided in paragraphs (a) and (b) of this section. . . .”381 C. Worksheet S-3 Wage Data fo r 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 ba sed on data from cost reporting periods beginning during FY 2010). 1. Included Categories of Costs The proposed FY 2015 wage index incl udes 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 ho urs (which includes direct patient care, certain top management, pharmacy, labor atory, and nonteaching physician Part A services, and certain contract indirect patien t 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 skille d nursing facility (SNF) services, home health382 services, costs related to GME (teaching physicia ns and residents) and certified registered nurse anesthetists (CRNAs), and other subpr ovider components that are not paid under the IPPS. The proposed FY 2015 wage index al so excludes the salaries, hours, and wagerelated costs of hospital-based rural health clinics (RHCs), and Federally qualified health centers (FQHCs) because Medicare pays fo r 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 pros pective payments to IRFs, IPFs, and LTCHs, and for hospital outpatient servi ces. We note that, in the I PPS rules, we do not address comments pertaining to the wage indexes fo r non-IPPS providers, other than for LTCHs. Such comments should be made in respons e to separate proposed rules for those providers.

D. Verification of Wo rksheet 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 re ports during this pe riod as the “FY 2011 cost report,” the383 “FY 2011 wage data,” or the “FY 2011 data.” Instructions for completing the wage

index sections of Worksheet S-3 are incl uded in the Provider Reimbursement Manual (PRM), Part 2 (Pub. No. 15-2), Chapte r 40, Sections 4005.2 through 4005.4 for Form

CMS-2552-10. The data file used to c onstruct 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 da ta, mostly through the use of edits designed to identify aberrant data. We asked our MACs to revise or verify da ta elements that result in specific edit failures. For the proposed FY 2015 wage inde x, we identified and excluded 50 providers

with data that were too aber rant to include in the proposed wage index, although if data elements for some of these providers are corre cted, we intend to include some of these providers in the final FY 2015 wa ge index. We instructed MACs to complete their data verification of questionable data elements a nd 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 hospita ls in FY 2011, inclusive of thos e 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 wage384 index represents the labor market area’s current wages as compared to the national average of wages. However, we excluded th e 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 c onverted 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 labo r market areas wher e its campuses are

located in the same manner that we allotted such hospita ls’ 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 repor ting of contract housekeeping and dietary servic es on Worksheet S-3, Part II, lines 33 and 35 of the Medicare cost report. CMS finalized its propo sal 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 incl ude more types of cont ract services in the wage index. In particular, we have examin ed whether to include the costs for acquired385 dietary and housekeeping services, as many hos pitals now provide th ese services through

contracts. Costs for these services tend to be below the average wages for all hospital employees. Therefore, excluding the costs a nd hours for these services if they are provided under contract, while including them if the services are prov ided 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, an d dietary because they are provided at all hospitals, either directly or through contra cts, 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 m onitor the hospital industry for information regarding the hospitals’ ability to provide the data. Fu rther, we will work with hospitals and intermediaries [MACs] to develop acceptabl e methods for tracking the costs and hours. Finally, before including these additional co sts in the wage index, we will provide a detailed analysis of the impact of includi ng these additional costs in the wage index

values in the Federal Register and provide for public comme nt. Our final decision on whether to include contract indirect patient ca re labor costs in our ca lculation of the wage index will depend on the outcome of our an alyses 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 li nes 26.01 and 27.01, respectively. (Line 9.03386 for contract management and line 22.01 for c ontract 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 (tha t is, FY 2004). Because the cost report data used for the wage index are on a 4-year la g, data from these new contract labor lines would first be available for the FY 2008 wage index. In the FY 2008 rulemaking process, we pr ovided 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 cont ract housekeeping line 26.01; and 99 hospitals (2.8 percent) faile d edits for contract dietary line 27.01 (72 FR 24680 and 24782). We also noted that “m any of these edit failures are for wage

data that are not to be included in the wa ge 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 contr act labor lines were able to obtain and report reasonable salaries, wages, and hours associated with c ontract 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 sm all. 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 th e 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 doc umentable salaries, wages, an d hours for their contracted housekeeping and/or dietary services. (O n 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 s ituation occurs, CMS has instruct ed the Medicare contractors to use reasonable estimates, such as regiona l average hourly rates, as a substitute for actual wages and hours, and to report the estimates on the hos pital’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 in crease 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 beli eve that allowing hospitals to routinely use contracts that do not clearly br eak out the salaries, wages, a nd 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 pr ovide housekeeping and dietary services, and388 because the wage index is a relative measur e 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 misr epresents the labor costs in that area and undermines our policy. Consequently, CMS has instructed the Medica re contractors not to zero out these line items when a hospita l cannot document the housekeeping or dietary salaries, wages, and hours, but instead to us e a reasonable estimation of these wages and

hours. In this proposed rule, we are reiteratin g 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 hos pitals failed edits associated with the contract housekeeping and dietary lines, show ing 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 housekeep ing and dietary services. We encourage hospitals to ensure that th eir contracts clearly specify the salaries, wages, and hours

related to all of their contract labor. Becau se these line items have been included in the cost report since FY 2004, we believe that ho spitals have had adequate notice and time to389 structure their contracts so that the wage s 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 s ituations where a hospital would not have documentable salaries, wages, and hours for co ntract 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 dete rminate the best, most realistic, wage index that we can. As discussed previously, hous ekeeping and dietary se rvices are unique in that the costs for housekeeping and dietary se rvices tend to be below the average wages for all hospital employees. Thus, an incentive is created for hospita ls to avoid reporting these contract labor salaries, wa ges, and hours on the cost repor t 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 inde x more accurately reflects the labor costs in an area, we believe that it is both necessary and appropriate for th e 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 di etary services, Medi care 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 st udies to determine hours worked. If, for whatever reason, regional averages or time studies cannot be used, Medicare contractors390 may use data from the Bureau of Labor Stat istics to obtain average wages and hours for housekeeping and dietary services. Commente rs may also suggest alternatives for imputing reasonable estimates for possible cons ideration by CMS. In all cases, Medicare

contractors must determine that the data used are reasonable. E. Method for Computing the Propos ed FY 2015 Unadjusted Wage Index The method used to compute the pro posed 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 ma ke 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 Apr il 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 proposi ng any changes to the usage for FY 2015. The factors used to adjust the hospital’s da ta 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 an d 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 (unadj usted for occupational mix) is $17.0010. F. Proposed Occupational Mix Adjustme nt 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 care392 hospital participating in the Me dicare program, in order to construct an occupational mix adjustment to the wage index, for applic ation beginning October 1, 2004 (the FY 2005 wage index). The purpose of the occupational mi x 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 register ed 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 di fferences 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 employ ees for each short-term, acute care hospital participating in the Medicare program.

As discussed in the FY 2014 IPPS/LTC H 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 Occupationa l Mix Survey (Form CMS-10079 (2010)). For the FY 2015 wage index, we are proposi ng 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 da ta included in the proposed FY 2015 wage index.393 2. New 2013 Occupational Mix Surv ey 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 co llect data every 3 y ears on the occupational mix of employees for each short-term, acute care hospital participating in the Medicare program. We used occupational mix data co llected 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 Wa ge 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 el ements and definitions as the 2010 survey and provides for the collection of hospita l-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). Th e comment period for the notice ended on February 5, 2013. After considering the publ ic 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/Download s/WAGE-INDEX-OCCUPATIONAL-MIXSURVEY2013.pdf

.394 The 2013 Occupational Mix Survey Hosp ital 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-Inde x-Files-Items/FY2016-Wage-IndexOccupationalMix.html . Hospitals are required to subm it their completed 2013 surveys to their MACs by July 1, 2014. The preliminar y, unaudited 2013 survey data will be released afterward, along w ith 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 calcul ate 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 na tional average hourly wa ge (based on the proposed new OMB delineations) is $39.1177. The proposed FY 2015 occupational mix adjusted Puerto Rico-specific average hour ly 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 th e occupational mix survey, unless the hospital has no associated cost report wage data th at 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 per cent (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 s ubmitted 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 be tter 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 w ith the 2010 occupational mix survey. We

instructed fiscal intermediaries/MACs to con tinue 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 a nd consideration of potential penalties for noncompliant hospitals. G. Analysis and Implementation of the Pr oposed Occupational Mix Adjustment and the Proposed FY 2015 Occupational Mix Adjusted Wage Index 1. Analysis of the Proposed Occupati onal 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 occ upational mix adjustment to 100 percent of396 the proposed FY 2015 wage index. We cal culated 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 da ta 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 calculate d 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, th ose 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 subcat egory 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 31.744397958397 The proposed national average hourly wa ge for the entire nurse category as computed in Step 5 of the occupation al mix calculation is $31.744397958. Hospitals with a nurse category average hourly wage (as ca lculated in Step 4) of greater than the national nurse category averag e hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of less th an 1.0. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of less than the national nur se category average hourly wage receive an occupational mix adjust ment factor (as calcula ted in Step 6) of greater than 1.0. Based on the 2010 occupational mix survey da ta, we determined (in Step 7 of the occupational mix calculation) th at the national percentage of hospital employees in the nurse category is 43.43 percent, and the nationa l percentage of hospital employees in the all other occupations category is 56.57 percen t. At the CBSA level, using the new OMB delineations proposed for FY 2015, the percenta ge 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 occupa tional 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 pe rcent) rural areas would increase. One hundred and sixteen (28.5 percent) urban area s would increase by 1 percent but less than 5 percent, and 4 (1.0 percent) urban areas woul d increase by 5 percent or more. Fourteen398 (29.8 percent) rural ar eas would increase by 1 percent but less than 5 percent, and no rural areas would increase by 5 percent or mo re. However, the wage index values for 190 (46.7 percent) urban areas and 18 (38.3 per cent) rural areas would decrease. Eighty (19.7 percent) urban areas would decrease by 1 pe rcent but less than 5 percent, and 1 (0.2 percent) urban area would decrease by 5 pe rcent or more. Seven (14.9 percent) rural areas would decrease by 1 pe rcent 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 i ndicate that a larger percentage of rural areas (61.7 percent) would be nefit from the occupational mix adjustment than would urban areas (52.8 percent). However, approxi mately 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 Ru ral, Imputed, and Frontier Floors a. Proposed Rural Floor Section 4410(a) of Pub. L. 105-33 provi des that, for discha rges 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 wa ge 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 th at a national budget neutrality adjustment be applied in399 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 woul d receive an increase in their FY 2015 proposed wage index due to the ap plication 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 ha ve argued that they are disadvantaged by the absence of rural hospitals to set a wage inde x 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 furthe r 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 previous ly two all-urban States, New Jersey and Rhode Island, that have a range of wage i ndexes assigned to hospitals in the State, including through reclassificati on 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 be low, 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 lo west-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 Stat es. We then compared the St ate’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 pr oduct of which established the imputed floor for the State.

Under the current OMB labor market area de lineations that we used for the FY 2014 wage index, Rhode Island has only one CBS A (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 e qual 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 ra tio, 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 or iginal methodology as discussed above, and established an alternative methodology fo r 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 i ndexes (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-reclassifie d, pre-floor area wage index and the401 post-reclassified, rural floor wage index (wit hout 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 CM S Web site) included the CBSAs receiving a State’s rural floor wage index.) The lowest post-reclassifi ed 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 St ate’s alternative imputed floor. We amended § 412.64(h)(4) of the regulations to add new paragraphs to incor porate the finalized alternative methodology, and to make reference and date changes. In summary, for the FY 2013 wage inde x, 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 hosp itals, 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 th e original methodology and the alternative methodology) for 1 additional year, through Se ptember 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 al ternative methodology) for another year, through September 30, 2015, as we continue to e xplore potential wage index reforms. As

discussed in section III.B. of the preamble of this propos ed rule, we are proposing to402 adopt the new OMB labor market area deli neations 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 Ne w Jersey and Rhode Island. Under the new OMB delineations, Delaware would have th ree 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 detail ed 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 proposi ng 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 as sociated with this FY 2015 IPPS/LTCH PPS proposed rule that are available on the CM S 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 a pplication of the imputed fl oor policy under the original methodology. The wage index and impact tabl es for this FY 2015 proposed rule also reflect the proposed application of the s econd 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 at403 42 CFR 412.64(m) and to a discussion of th e 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 delinea tions 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 St ate, its proposed FY 2015 ru ral 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 identifie d 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 sec tion 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 reclassi fication or redesignat ion as discussed in section III.H. of the preamble of this propos ed rule, and the applic ation 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 ta bles 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 mark et area before the redesignation or reclassification of hospitals based on FY s 2009, 2010, and 2011 cost reporting periods. Table 3A lists these data for urban areas, and Ta ble 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 hos pital from the FY 2009 and FY 2010 cost reporting periods, as well as the FY 2011 peri od 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 propos ed rule) across all 3 y ears, 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 calcula ted 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 o ccupational mix adjustment. The proposed wage index values in Tables 4A, 4B, 4C, a nd 4D also include the proposed national rural floor budget neutrality adjustment (which in cludes 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 calcu lations computed under the current labor

market definitions and the new OMB labor ma rket area delineations. In addition, for certain applicable hospitals, the proposed wage index values included in Table 2 are405 computed to reflect the proposed transitio nal 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 Ho spital 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 reclas sify not later than 13 months prior to the start of the fiscal year for which reclassifi cation 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 ye ar (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 recla ssifications and redesignations that we are proposing for FY 2015, and the policies for the e ffects of hospitals’ re classifications 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 fi nal 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 area s are ineligible to apply for406

rural reclassification in accordance with the provisions of 42 CFR 412.103. While our general policies on geographic reclassi fication, redesignati ons under section 1886(d)(8)(B) of the Act, and urban hos pitals 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 th is proposed rule. For a discussion of the new CBSA changes based on the new OMB labor market area delineati ons and our proposed implementation of those changes, we refer re aders 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 fo r purposes of payment under the IPPS. The specific procedures and rules that apply to the geographic recla ssification 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 reclassifi cations 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 recla ssification status for FY 2015. Under the regulations at 42 CFR 412.273, hospi tals that have been reclassified by the MGCRB are permitted to withdraw their applications within 45 days of the publication of a proposed rule. For inform ation about withdrawing, terminating, or canceling a previous withdrawal or termina tion 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 th e FY 2003 IPPS final rule (67 FR 50065 through 50066). Additional discussion on withdrawals and terminations, and clarifications regarding reinst ating reclassifications and “fa llback” reclassifications, were included in the FY 2008 IPPS final rule (72 FR 47333). Changes to the wage index that resu lt from withdrawals of requests for reclassification, terminations, wage index co rrections, 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 ch anges affect not only the wage index value for specific geographic areas, but also the wage index value redesignated/reclassified hospitals receive; th at is, whether they r eceive the wage index

that includes the data for both the hos pitals already in the area and the redesignated/reclassif ied hospitals. Further, the wage index value for the area from which the hospitals are redesignate d/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 la bor market delineations, if we adopt the new OMB labor market area delineations begi nning 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 ar eas to which they have been reclassified for FY 2015 would continue to provide a highe r wage index than their ge ographic area wage index. Hospitals may withdraw their FY 2015 r eclassifications by contacting the MGCRB within 45 days from the public ation 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 ap art, or if counties shift from one CBSA to another under the new OMB delineations, it ra ises the question of how to continue a hospital’s reclassificatio n for the remainder of its 3-year reclassification period, if that area to which the hospital reclassi fied no longer exists, in whole or in part. We dealt with409 this question in FY 2005 as well when CMS adopted the current OMB labor market area definitions. Consistent with the policy CM S 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 th e reclassification to c ontinue seamlessly to the reconfigured CBSA, we be lieve it is appropriate for us to determine the best

alternative location to reassi gn current reclassifications for the remaining 3 years. Therefore, to maintain the integrity of a hos pital’s 3-year reclassi fication period, we are proposing a policy to assure that current geographic reclassifica tions (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 reclassi fied CBSA under the current FY 2014 OMB definitions, and would be generally consis tent 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 recla ssified hospitals would be assigned to a CBSA that (1) w ould contain the most proxima te county that is located outside of the hospital’s proposed FY 2015 geogr aphic labor market area, and (2) is part of the original FY 2014 CBSA to which the hospit al is reclassified. We believe that by assigning reclassifications to the CBSA that contains the neares t eligible county (as described above) satisfies the statutory requi rement 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 pr inciple of geographic proxim ity in the labor market410 reclassification process. The hospitals that we are proposing to r eassign to a different CBSA based on our proposed policy above are li sted in a special Table 9A-2 for this proposed rule, which is available via the Inte rnet 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 th at 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 pr oximity rules, as described later in this

section. We recognize that this proposed recl assification 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 peri od to a CBSA having a lower wage index than the wage index that w ould 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 implemen tation of the new OMB delineations would receive a 50/50 blended wage index adju stment in FY 2015. For FY 2015, using FY 2015 wage data, we are proposing to cal culate 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 recl assification assignments discu ssed in this section). If the wage index under the proposed new OMB delineations would be lower than the wage411

index calculated with the current (FY 2014) OMB definiti ons, the hospital would be assigned a blended wage index (50 percent of the current; 50 percen t of the proposed). We believe that this proposed transitiona l adjustment would mitigate negative payment impacts for FY 2015, and would afford hospita ls additional time to fully assess any additional reclassification op tions available to them under the new OMB delineations. We are including the following descripti ons of specific situations where we have determined that reassignment of recl assification areas w ould be appropriate. (1) Reclassifications to CBSAs That Would be Subsumed by Other CBSAs

We identified 66 counties that are curre ntly 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 th ese 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 transfe rred. For example, CBSA 11300 (Anderson, IN) would no longer exist under the propos ed FY 2015 delineations. The only constituent county in CBSA 11300, Madison County, IN, would be moving to CBSA 26900 (Indianapolis-Carmel-Anderson, IN). B ecause the original Anderson, IN labor market area no longer exists, we are proposi ng to reassign reclassifications from the original Anderson, IN labor market area to a newly configured CBS A where the original constituent county or counties are transferre d, which is Indianapo lis-Carmel-Anderson, IN. For hospitals reclassified to a CBSA that would be subsumed by another CBSA, the412 following table reflects the hos pitals’ 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 14454413 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 14454414 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 W ould Be Moving to Another CBSA

We identified six CBSAs with current reclassifications that would maintain the same constituent counties, but the CBSA numb er or name would change if we adopted the new OMB delineations. For exampl e, 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 proposin g any reassignment for hospita ls reclassified to those labor market areas. Table 9A-2 for this proposed rule (which is ava ilable via the Internet on the CMS Web site) reflects the proposed revised CBSA number effective in FY 2015. We identified eight CBSAs with current re classifications 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 ha ve 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 preambl e of this proposed rule. Sp ecifically, 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 reclassifie d. For each of the 69 hospitals, we conducted a mapping analysis and determined driving di stances 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 CBS A under the new OMB de lineations, excluding any counties that would be located in th e hospital’s proposed FY 2015 geographic labor market area. Following the ge neral reassignment principle th at we are proposing, we are proposing to reassign those reclassified hos pitals to the CBSA which contains the geographically closest county. For example, there are hospitals that currently are416 reclassified to CBSA 39100 (Poughkeepsi e-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), wh ile 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 bord er of Dutchess County and Orange County, NY (the two countie s 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. Th erefore, we are pr oposing 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 propos ed policy discussed above, except that, for county group reclassifications, we are proposi ng to reassign hospitals in a county group

reclassification to the CBSA under the new OM B delineations to which the majority of hospitals in the group reclassification are geogra phically closest. Because hospitals in a county group applied as a group, we believe th e 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 de lineations. Under the new OMB delineations, CBSA 35644 would no longer exis t 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 gr oup reclassification, all but one would be closer to an eligible county (Westchester, NY) in CBSA 35614 than to417 an eligible county (Putnam, NY) in CBSA 2052 4. Because these hospitals in Fairfield, CT applied as a group, we belie ve the reassignment should al so be applied to the whole group. Therefore, we are proposing to assign th e hospitals in this group reclassification to CBSA 35614, the reconfigured CBSA to whic h the majority of the hospitals in the group reclassification are geographically closest. To summarize, of the 69 hospitals recl assified to one of the 8 CBSAs in the preceding table that have counties that woul d split off and move to a new CBSA or a different existing CBSA under the new OMB de lineations, there are 27 hospitals that

would maintain the same reclassified CBS A number under our proposals. Another 28 hospitals would be reassigned to a reconf igured CBSA that would contain a similar

number of counties from their current recl assified 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 curre nt (FY 2014) CBSA 35644 (New York-White Plains-Wayne, NY-NJ Me tropolitan Division). For the remaining 14 reclassified hospita ls, we are proposing to assign them to a CBSA (under the new OMB delineations) that would have a diffe rent CBSA number from the labor market area to which they ar e currently reclassified (under the current FY 2014 delineations). This is because if the original CBS A 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 reassign418

reclassification status to an urban CBSA that contains the county (from the hospital’s current CBSA reclassification) that is closest to the hospital. We be lieve 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 fi ve counties (Bucks, Chester, Delaware, Montgomery, and Philadelphia Counties, PA). Under th e 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 reclassifi cations to CBSA 37964 (Philadelphia) may be more proximate to ne w CBSA 33874. Therefor e, if reclassified hospitals, or the majority of hospitals in a county group, ar e 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, ne w CBSA 33874 (Montgomery County-Bucks CountyChester County, PA Metropolitan Division). Consistent with refinements implem ented in the FY 2005 IPPS final rule (69 FR 49055), we are proposing to allow hos pitals that reclas sified 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 orig inal reclassification labor market area, provided that the hospital demonstrates that it meets the applicable proximity419 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 wi sh to be reassigned to an alternate CBSA (other than the CBSA to which their reclassi fication would be reassigned in this proposed rule) for which they meet the applicable proximity criteria may request reassignment within 45 days from the publica tion 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 respec t to their reclassifica tion reassignment, while ensuring that the proximity requirements are me t. 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 orig inally 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 applicab le 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, a nd reassignment would remain with the closest eligible (new) CBSA.420 As discussed previously in this se ction, under the new OMB delineations, we identified CBSA 35644 (New York-White Plai ns-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 CBS A (Putnam County joined Dutchess County, NY to form new CBSA 20524), while also ha ving multiple counties assigned to a reconfigured CBSA 35614 (New York-Jersey City-White Plains, NY-NJ Metropolitan Division). CBSA 35614 woul d also add Orange County, NY under the new OMBdelineations. 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-Wh ite 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 Count y, NY. Therefore, we are proposing to reassign the Orange County group reclas sification 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 r eclassification within 45 days from the publication of this proposed rule, as discussed earlier in this section.421 The following table shows proposed hosp ital 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 wh ich 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 16974422 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 35614423 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 fo r determining proximity to CMS within 45 days from the publication of this proposed rule.424 The hospital’s request for reassignmen t should contain the hospital’s name, address, CCN, and point of contact inform ation. 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 applicab le proximity criteria to an eligible CBSA

will be announced in the FY 2015 IPPS final rule. (3) Reclassifications to CBSAs That W ould 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 pr oposed 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 hospita l, we expect that all such affected hospitals would wish

to terminate their reclassification status. Th erefore, we are assuming for purposes of this proposed rule that the affected hospitals woul d be terminating their reclassification status for the remaining years of their 3-year re classification period, and for FY 2015, we are425 proposing to assign them the wa ge index of the CBSA in wh ich they are geographically located. Affected hospitals should inform CM S 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 doe s not inform us that they wish to retain their current reclassification, we will assume that the ho spital has elected to terminate the reclassification. For purposes of this proposed rule, we are presenting tables under the presumption that all 14 hospita ls will opt to cancel their reclassification status. We are proposing to assign these hos pitals the wage index value of their home area from Table 4A-2 for this proposed rule (which is available vi a the Internet on the CMS Web site), and not include them as recl assified hospitals in Table 9A-2 for this proposed rule (which is available vi a 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 recla ssifications are due to the MGCRB by September 2, 2014 (the first working day of Se ptember 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 for427 FY 2015. Applications and other informati on about MGCRB reclassifications may be

obtained via the Internet on the CMS Web s ite 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 refe rence to the most recent OMB standards for delineating statistical areas (using the most recent Cens us 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 m eets 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 meeti ng 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 languag e to reflect use of the most recent OMB standards for delineating statistical areas (u sing the most recent Census Bureau data and estimates) that were adopted by CMS in consideration of gr oup reclassification applications submitted for review in FY 2015 (that is submitted by September 30, 2014, reviewed by the MGCRB in FY 2015, to be e ffective in FY 2016) and future years.428 3. Redesignation of Hospitals unde r Section 1886(d)(8 )(B) of the Act Section 1886(d)(8)(B)(i) of the Act requires the Secret ary to “treat a hospital located in a rural county adjacent to one or mo re urban areas as being located in the urban metropolitan statistical area to which the gr eatest 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 Ma nagement 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 Cens us and the 2000 Census data to identify counties in which hospitals qu alify under section 1886( d)(8)(B) of the Act to receive the wage index of the urban area. Hospitals lo cated in these counties have been known as “Lugar” hospitals and the countie s themselves are often referr ed 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 determini ng 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 ru ral counties that woul d qualify as “Lugar” under section 1886(d)(8)(B) of the Act and th erefore would be redesignated to urban areas for FY 2015. We are proposing to revi se the regulations at § 412.64(b)(3)(i) to

reflect the most recent OMB standards for de lineating statistical areas adopted by CMS. By applying the new OMB delineations, the nu mber of qualifying counties, shown in the following chart, would increas e from 98 to 127. After eval uating and analyzing the 2010429 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, hos pitals 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 co lumn based on the criteria discussed above. We note that rural counties that no longer m eet 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 Hosp itals 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 Atlant a-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, IL430

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 Chica go-Naperville-Elgin, IL-IN-WI Tipton County IN 26900 Indianap olis-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 Mo ines-West Des Moines, IA New Franklin County KS 28140 Kansas City, MO-KS New Nelson County KY 31140 Louisvil le/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 Gra nd 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 New431

RURAL COUNTY LUGAR DESIGNATED CBSA NEW County Name State CBSA CBSA Name Pearl River County MS 25060 Gulf port-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 Alba ny-Schenectady-Troy, NY Lewis County NY 48060 Wate rtown-Fort Drum, NY New Montgomery County NY 10580 Al bany-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 Weir ton-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, NY432

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 Charle ston-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 Dalla s-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 Seat tle-Tacoma-Bellevue, WA Mason County WA 36500 Olympia-Tumwater, WA433

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,

WI434 a. Proposed New Lugar Areas for FY 2015 Of the 127 qualifying counties identifie d as Lugar counties based on the new OMB delineations, 58 counties would be newl y 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 pe rcent 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). Hosp itals in these counties would receive the reclassified urban wage inde x 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 coun ties would be geographically rural if we adopted the new OMB delineations and would m eet 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 transi tional wage index adjustment for hospitals

located in urban counties that become rura l under the new OMB delineations. Because Lugar status is a form of redesignation, hos pitals 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 de lineations 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 Secti on 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 di fferent 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 r eclassified 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 redesignat ed 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 th e procedural rules and requirements for a hospital that is redesignated under s ection 1886(d)(8)(B) of the Act and seeking reclassification under the MGCRB, as well as our policy of measur ing 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 re aders 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 w ould 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 meet436 the 25-percent cumulative out-migration thre shold with application of the new 2010 Census commuting data.

Counties that were deemed urban unde r 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, VA437 Floyd County, VA Green County, WI

Counties that would fail to meet th e 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 de signated 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 gran ted, we are proposing to assign these hospitals the FY 2015 area wage index value of the urban CBSA to wh ich they geographically belonged in FY 2014 (with the rural and imputed floors applied and with the rural fl oor budget neutrality adjustment applied to the area wage inde x). (For purposes of the wage index computation, the wage data of these hospita ls would remain assigned to the statewide438 rural area in which they are located.) Sim ilarly, we are proposing that the same 3-year transition apply to hospitals lo cated in those counties that wo uld 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 hospi tals 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 grante d, 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 neut rality adjustment applied). We are proposing to use the wage data from these hospitals as part of co mputing 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 propos ing that if a hospital is cu rrently 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 recla ssification or redesi gnation during FYs 2015, 2016, or 2017, the hospital would permanently lose it s 3-year transitional assigned wage index,

and would not be able to reinstate it. Sim ilarly, 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 adopt439 the new OMB delineations. In FY 2018, we are proposing that these hospitals would receive their statewide rural wage index. 4. Waiving Lugar Redesignation fo r 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-migr ation adjustment has effectively waived its deemed urban status and, thus, is rural fo r all purposes under th e IPPS, including being considered rural for the DSH payment adjustme nt, effective for the fiscal year in which the hospital receives the out-migration adjustme nt. (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 proce dural 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 th e publication of the pr oposed 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 hosp ital would no longer be required during the second and third years of eligibility for th e out-migration adjust ment to advise us annually that it prefers to con tinue 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 receiv e 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 rura l for the duration of its 3-year eligibility period, unless, prior to its second or third year of eligibility, the hospital explicitly440 notifies CMS in writing, within the requi red period (generally 45 days from the publication of the proposed rule), that it instead elects to retu rn to its deemed urban status and no longer wishes to accept the out-migra tion adjustment. If the hospital does notify CMS that it is electing to return to its deem ed urban status, it woul d again be treated as urban for all IPPS payment purposes.

We refer readers to the FY 2012 I PPS/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 Urba n 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 Se cretary 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 hospita l 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 qualifyi ng criteria for any hos pital seeking rural

reclassification. In order to be approved for a rural recl assification, a hospital must meet one of

three criteria. The first crit erion, located at § 412.103(a)(1), qualifies a hosp ital located in

a rural census tract of an MS A area, as determined under the most recent version of the Goldsmith Modification, the Rural-Urban Commuting Area (RUCA) codes. On441 February 28, 2013, OMB issued OMB Bulletin No. 13-01, which established revised delineations for Metropolitan Statistical Ar eas, Micropolitan Statistical Areas, and Combined Statistical Areas, and provided guida nce on the use of the delineations of these

statistical areas. These delineations are ba sed on 2010 decennial Census data. Several

modifications of RUCA codes were necessa ry to take into account updated commuting

data and revised OMB delineations. We re fer readers to the U.S. Department of Agriculture’s Economic Research Service We b site for a detailed listing of updated

RUCA codes found at: http://www.ers.usda.gov/data-pr oducts/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 recla ssification remains in effect without need for reapproval unless ther e 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 recl assification 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 en courage all hospitals with active rural

reclassifications under secti on 1886(d)(8)(E) of the Act to review their original reclassification application and determine whet her the reclassificati on status would still apply. As discussed in secti on VI.C.2. of the preamble of this proposed rule, we are proposing a 2-year grace period allowing affect ed CAHs additional time to seek a new

rural reclassification without th e threat of losing its CAH stat us. As discussed in section VI.C.2. of the preamble of this proposed rule , we are not proposi ng a grace period for other types of hospitals to seek a new ru ral reclassification. We note that rural442 reclassification status under § 412.103 is effectiv e as of the filing date of the application. Therefore, if the change in RUCA codes i nvalidates any hospital’s rural reclassification status, we believe hospitals will have adequa te time to apply for a new reclassification using an alternative qualification criter ion specified at either § 412.103(a)(2) or § 412.103(a)(3). A rural referra l center (RRC) or a sole community hospital (SCH) that continues to meet the appropria te qualification criteria would, in itself, qualify for a rural reclassification. If a comple te application is received before October 1, 2014, and is approved by the CMS Regional Office, the hos pital would experien ce no interruption in

its rural status. I. Proposed FY 2015 Wage Index Adjustme nt 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 commu ting patterns of hospital employees (the “out-migration” adjustment). The proce ss, outlined in the FY 2005 IPPS final rule (69 FR 49061), provides for an increase in the wa ge index for hospitals located in certain counties that have a relatively high percenta ge of hospital employees who reside in the county but work in a different county (o r 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 da ta for all industries (CMS extracted data applicable to hospitals). These data were compiled from responses to the “long-form”443 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 informa tion 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 expect ed 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 propos e 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 Secretar y to use data the Secretary determines to be appropriate to establish th e 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 qua lifying counties. Therefore, we are proposing that the FY 2015 out-migratio n 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, procedur es, and computation that were used for the FY 2014 out-migration adjustment. (We refe r readers to a full discussion of the adjustment, including rules on deeming hospita ls reclassified under section 1886(d)(8) or section 1886(d)(10) of the Act to have wa ived 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 We b 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] wa ge 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 subsect ion (d) hospital may elect to waive the application of such wage index increase. ” Therefore, for FY 2015, because we are proposing to continue to us e the out-migration adjustment data used for FY 2014, consistent with the statute, we also are pr oposing 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 thei r 3-year qualification pe riod. 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 begi nning 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 quali fication 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 e ffective 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 discu ss hospitals located in rural counties that are deemed to be urban under section 1886(d)(8 )(B) of the Act. Th ese 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 redesi gnated 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 adjust ment is effective. Therefore, hospitals located in counties newly designated as L ugar due to the new OMB delineations would have the choice to either maintain their Luga r 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 th eir 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 adjustme nt 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 reclassify ing from urban to rural under § 412.103.446 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 unde r 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 pur poses, the hospital would be ineligible to receive an out-migration adjustme nt, 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 a ny provider that experiences a decrease in wage index value due to the proposed implem entation of the new OMB labor market area delineations. This proposal would create a wa ge index that is 50 percent of the wage index derived using the current FY 2014 OM B 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 ha ve it added to the result of the 50/50 blended wage index, after budget neut rality is applied. We are proposing the blended wage index transition adjustment speci fically 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 ne gative payment impact, we are proposing to apply the out-migration adjustment independe nt of the blended wage index and other wage index adjustments (for example, th e rural floor) and rela ted budget neutrality447 adjustments. This is consistent with our current policy to ap ply 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-Fi les-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 additi onal public use file on our Web site that

reflects the actual data that are used in co mputing 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 thes e 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 of448 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 availabi lity 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 advi se hospitals that these data were also made available directly through their representative hospital organizations. If a hospital wished to request a ch ange 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, detaile d 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, throug h the September 16, 2013

memorandum referenced above. In the September 16, 2013 memorandum, we also specified that a hospital requesting revisions to its occ upational mix survey data was to copy its record(s) from the CY 2010 occupational mix preliminary files post ed 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 hos pitals by early-February 2014 of any changes to the wage index data as a result of the desk reviews and the resolu tion of the hospitals’ late-November revision requests. The MACs also submitted the revised data to CMS by449 late January 2014. CMS published the propos ed wage index public use files that included hospitals’ revised wage index da ta 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 re sulting 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 w ith the FY 2015 wage index, per the FY 2015 wage index timeline posted on the CMS Web site athttp://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 re fer readers to the wage index timeline for complete details. Upon release of this pro posed rule, hospitals should examine Table 2, which is

listed in section VI. of the Addendum to this proposed rule and avai lable via the Internet

on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/Wage-Index-Fi les-Items/FY-2015-Wage-Index-HomePage.html . Table 2 contains each ho spital’s proposed adjusted average hourly wage used to construct the wage index values for the pa st 3 years, including the FY 2011 data used450 to construct the proposed FY 2015 wage i ndex. We note that the proposed hospital average hourly wages shown in Table 2 only re flect 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-Fi les-Items/FY-2015-Wage-Index-HomePage.html . The May 2014 public use files are ma de available solely for the limited purpose of identifying any potential errors ma de by CMS or the MAC in the entry of the final wage index data that re sulted from the correction pro cess described above (revisions submitted to CMS by the MACs by April 9, 2014). After the release of the May 2014 wage inde x data files, change s 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 know n about before its review of the final wage index data files. Speci fically, neither the MAC nor CMS will approve the following types of requests:

● Requests for wage index data correctio ns that were submitted too late to be

included in the data transmitted to CM S 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 Febr uary 20, 2014 wage index public use files.

● Requests to revisit factual determinati ons 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 MA C and CMS regarding why the hospital believes an error exists and provide all s upporting 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 tim eline posted on the CMS Web site athttp://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 in dex data received timely by CMS and the MACs (that is, by June 2, 2014) will be incorp orated into the final wage index in the FY 2015 IPPS/LTCH PPS final rule, whic h will be effective October 1, 2014. We created the processes described above to resolve all substantive wage index data correction disputes befo re we finalize the wage and occupational mix data for the FY 2015 payment rates. Accord ingly, hospitals that do not m eet 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 decisi on with respect to requested changes. Specifically, our policy is that hospitals that do not meet the procedural deadlines set452 forth above will not be permitted to challenge later, before the PRRB, the failure of CMS to make a requested data revision. We refe r readers also to the FY 2000 IPPS final rule (64 FR 41513) for a discussion of the paramete rs for appeals to the PRRB for wage index

data corrections. Again, we believe the wage index da ta correction process described above provides hospitals with sufficient opportuni ty to bring errors in their wage and occupational mix data to the MAC’s attenti on. 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 th e MAC or CMS before the development and publication of the final FY 2015 wage inde x 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 co rrections to the wage and occupational mix data, the wage index implemented on October 1 should be accurate. Nevertheless, in the

event that errors are iden tified by hospitals and brought to our attention after June 2, 2014, we retain the right to make mi dyear 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 a bout 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 maki ng corrections to the453 wage data for the following fiscal year’s wa ge index (for example, June 2, 2014 for the FY 2015 wage index). This provision is not available to a hospita l seeking to revise another hospital’s data that may be affecti ng 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 re vised 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 ch ange 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 hos pital knew about the error a nd requested that the MAC and CMS correct the error using the established pr ocess and within the established schedule for requesting corrections to the wage index da ta, 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 Octo ber 1 that the MAC or CMS made an error in tabulating the hospital’s wage index da ta 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 i ndex (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 a nother hospital’s data. In a ddition, the provision cannot be used to correct prior years’ wage index da ta; 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-onl y corrections to the wage index. We note that, as with prospective change s 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 polic y of retroactive adjustment will still apply in those instances where a fina l 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 preamb le of this proposed rule, the preliminary, unaudited Worksheet S-3 wage data and occu pational 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 following455 IPPS fiscal year. This lengthy, almost year-long cycle is un ique to the development of the IPPS wage index, and occurs independe ntly 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 time table is rooted in changes adopted in the FY 1998 IPPS final rule with comment pe riod (62 FR 45990 through 45993). However, with numerous legislative a nd regulatory changes made to the IPPS since FY 1998, the demands on hospitals, MACs, and CMS have incr eased substantially. As a result, it has become increasingly challenging for wage inde x stakeholders to manage the wage index timetable with competing priorities. Fo r the FY 2015 wage index, CMS made slight changes to the wage index development time table, 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 MACs456 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 m onths 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 im portant and beneficial to hospitals because, as the timetable shows, it is the basis for hosp itals 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 step s 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 onl y improve the accuracy of the February PUF, but also would reduce the number of hos pital 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 MA Cs’ desk reviews and prepare the February457 PUF, we are proposing approximately 3 months between the date th at the MACs’ desk

reviews would end and the date that CMS would post the su bsequent PUF. To allow hospitals and MACs adequate time to pr epare 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 cont ext of the existing tim etable. 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. Th e proposed revisions

would not reduce the amount of time that either hospitals or MACs have to review wage data. Therefore, these proposed changes woul d not result in additional work on the part of the hospitals or MACs; in f act, in shifting the various date s, 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 2016458

Deadlines FY 2015 Timetable Proposed FY 2017 Timetable Deadline Following Posting of February PUF for Hospitals to Request Revi sions 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 inde x 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 hosp itals 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 woul d 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 cha nges would help hospitals, MACs, and CMS adjust to the more significant timeline ch anges proposed for FY 2017. We are listing459 only the changes for FY 2016 in the followi ng table side by side with the existing FY 2015 timetable, so that commenters may r ead the FY 2016 changes in the context of the existing timetable. We are not listi ng 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 th e start of an IPPS wage index fiscal year contains one spreadsheet with the Worksh eet S-3 wage data for the applicable fiscal year on one tab, and another tab with the preliminary occupationa l mix data for that fiscal year. For the FY 2016 wage index, new occupa tional mix survey data will be available for use, based on the CY 2013 occupational mix survey. Hospitals ar e 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 the460 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 th e Act directs the Secretary to adjust the proportion of the national prospective payment system base pa yment rates that are attributable to wages and wage-related costs by a factor that refl ects the relative differences in labor costs among geographic areas. It also directs the Secretary to esti mate from time to time the proportion of hospital costs that are labor-r elated: “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 attri butable 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 pe rcent 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 ho spitals’ costs that ar e “attributable to wages and wage-related costs.” Thus, hosp itals receive payment based on either a461 62-percent labor-related share, or the labor-related share estimated from time to time by the Secretary, depending on which labor-relat ed share resulted in a higher payment.

In the FY 2014 IPPS/ LTCH PPS fina l rule (78 FR 50596 through 50607), we rebased and revised the hospital market bask et. 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 anal ysis 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 additi on, we implemented this revised and rebased labor-related share in a budge t neutral manner, but consiste nt 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 th an or equal to 1.0 being paid using a laborrelated share lower than the labor-related shar e of hospitals with a wage index greater

than 1.0.

The labor-related share is used to de termine 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 furt her changes to the national average proportion of operating costs that are attributable to wa ges and salaries, employee benefits, contract labor, the labor-related portion of professional fees, administ rative 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 A ddendum 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 pe rcent of the national st andardized 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 th e national wage index for all Puerto Rico hospitals is less than 1.0.

In the FY 2014 IPPS/LTCH PPS final ru le (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 fina lized 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 ma ke any further changes to the Puerto Rico specific average proportion of operating co sts that are attributable to wages and salaries, employee benefits, contract labor, the labor-related portion of professional fees, administrative and facilities support servic es, and all other labo r-related services. Therefore, for FY 2015, we are proposing to co ntinue to use a labor -related share for the Puerto Rico-specific standardized amounts of 63.2 percent for discharg es occurring on or after October 1, 2014. Puerto Rico hospitals ar e paid based on 75 percent of the national standardized amounts and 25 percent of the Pu erto Rico-specific standardized amounts. For FY 2015, we are proposing to adopt that the labor-related share of a hospital’s463 Puerto Rico-specific rate would be either th e Puerto Rico-specific labor-related share of 63.2 percent or 62 percent, depending on whic h 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-r elated share of 63.2 percent for the 25 percent portion of the hos pital’s payment determined by the Puerto Rico standardized amounts because this amount would result in higher payments. Conversely, a hospital with a Puerto Rico-speci fic wage index of less than or equal to 1.0 for FY 2015 would be paid using the Puer to 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 Pu erto Rico labor-related share of 63.2 percent for FY 2015 is reflected in Table 1C, which is published in secti on VI. of the Addendum to this proposed rule and available via the Internet.464 IV. Other Decisions and Proposed Change s 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 di scharges under the IPPS as situations in which a patient is formally released from an acute care hospital or di es in the hospital. Section 412.4(b) defines acute care transf ers, and §412.4(c) defines postacute care transfers. Our policy, set forth in §412(f), pr ovides that when a patient is transferred and his or her length of stay is less than the ge ometric mean length of stay for the MS-DRG to which the case is assigned, the transferri ng hospital is generally paid based on a graduated per diem rate for each day of st ay, not to exceed the full MS-DRG payment that would have been made if the patient ha d been discharged wit hout being transferred. The per diem rate paid to a transferri ng 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 fo r 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 threshol d for transfer cases, as described in §412.80(b), is equal to the fixed-loss outlier threshol d for nontransfer cases (adjusted for geographic465 variations in costs), divided by the geometri c 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. Ho wever, if a DRG did not exist in Version

23.0 or a DRG included in Version 23.0 is revi sed, we use the current version of the Medicare GROUPER and the most recent complete year of MedPAR da ta to determine if the DRG is subject to the postacute care tran sfer policy. Specifically, if the MS-DRG’s total number of discharges to postacu te care equals or exceeds the 55 th percentile for all MS-DRGs and the proportion of short-stay discharges to postacute care to total discharges in the MS-DRG exceeds the 55 th 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 pos tacute care transfer policy annually unless we are maki ng a change to a specific DRG.” To account for MS-DRGs subject to the pos tacute care transfer policy that exhibit exceptionally higher shares of costs very ea rly in the hospital stay, § 412.4(f) also includes a special payment methodology. Fo r 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 pa yment for subsequent days (up to the full466 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 th e MS-DRG. MS-DRGs that are part of an MS-DRG group will qualify under the DRG speci al payment policy if any one of the

MS-DRGs that share that same base MS-DRG qualifie s (§ 412.4(f)(6)). 2. Proposed Changes to the Post acute Care Transfer MS-DRGs

Based on our annual review of MS-DRG s, 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 curr ently assigned to MS-DRGs 216 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac Catheterization with MCC), 217 (Cardiac Valve & Other Major Ca rdiothoracic 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 Cardia c Catheterization with MCC), 220 (Cardiac Valve & Other Major Cardiothoracic Procedur es without Cardiac Catheterization with CC), and 221 (Cardiac Valve & Other Major Ca rdiothoracic Procedures without Cardiac

Catheterization without CC/MCC) to MS-DRGs 266 and 267 (Endovascular Cardiac467 Valve Replacement with and without MCC, resp ectively) to better re flect 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 assign ed to MS-DRGs 490 and 491 (Back & Neck Procedure Except Spinal Fusion with CC/M CC 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 Devi ce/Neurostimulator, with CC, and without MCC/CC, respectively). Finall y, 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 Extr emity with CC/MCC a nd without CC/MCC, respectively) into MS-DRG 483 (Major Join t/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 th e 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 propos ed FY 2015 MS-DRGs against the general postacute care transfer polic y criteria using the FY 2013 MedPAR data. If an MS-DRG qualified for the postacute care transfer policy, we also eval uated that MS-DRG under the special payment methodology cr iteria according to regulations at § 412.4(f)(6). We continue believe it is appr opriate to reassess MS-DRGs wh en proposing reassignment of diagnostic codes that would resu lt in material changes to an MS-DRG. As a result of our review, we found that MS-DRGs 216 thr ough 221 would require no revisions in468 postacute care transfer or special payment policy status. However, we are proposing to update the list of MS-DRGs that are subjec t 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 sect ion 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 determ ined that proposed revised MS-DRG 483 would no longer meet the postacute care transf er criteria. Theref ore, we are proposing

that it be removed from the li st of MS-DRGs subject to the postacute care transfer policy,

effective FY 2015. We refer readers to the as terisk (*) bolded text in the following table

for which criterion was not met in our anal ysis for each MS-DRG removed from the postacute care transfer policy list.

LIST OF MS-DRGs THAT WOULD CH ANGE POSTACUTE CARE TRANSFER POLICY STATUS IN FY 2015

MS-DRG MS-DRG Title

Total cases Postacute care transfers

(55 th percentile

: 1,471) Shortstay postacute care transfers Percent of short-stay postacute care transfers to all cases (55 th 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%* NO469

LIST OF MS-DRGs THAT WOULD CH ANGE POSTACUTE CARE TRANSFER POLICY STATUS IN FY 2015

MS-DRG MS-DRG Title

Total cases Postacute care transfers

(55 th percentile

: 1,471) Shortstay postacute care transfers Percent of short-stay postacute care transfers to all cases (55 th 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 po licy 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 car e transfer policy if any one of th e MS-DRGs that share that same base MS-DRG qualifies. Finally, we have determined that MS-D RGs 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 speci al payment methodology, effective FY 2015.470

LIST OF MS-DRGs THAT WOULD CH ANGE 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 th e same base MS-DRG will all qualify under the DRG special payment policy if an y 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 Inpa tient 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 increas e.” In FY 2014, consistent wi th section 18 86(b)(3)(B) of the Act, as amended by sections 3401(a) and 1031 9(a) of the Affordable Care Act, we set the applicable percentage in crease 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 hos pital market basket for IPPS hospitals in all areas, subject to a reduction of 2.0 percentage po ints if the hospital fa ils to submit quality information under rules established by th e Secretary in accordance with section471 1886(b)(3)(B)(viii) of th e 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 per centage 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 percen tage point may result in the applicable percentage increase being less than zero. For FY 2015, there are three statutory ch anges to the applicable percentage increase compared to FY 2014. First, unde r section 1886(b)(3)(B)(viii) of the Act, beginning with FY 2015, the reduction in the appl icable percentage increase for hospitals that fail to submit quality information under rules established by the Secretary is one-quarter of the applicable percentage incr ease (prior to the app lication 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 applicab le market basket update. For FY 2014, the reduction to the applicable percentage increas e for hospitals that failed to submit quality information under rules established by the S ecretary was 2.0 percentage points. Second, beginning with FY 2015, section 188 6(b)(3)(B)(ix) requires that any hospital that is not a meaningful electronic health record (EHR) user (as define d in section1886(n)(3) of the Act and not subject to an exception under sec tion1886(b)(3)(B)(ix) of the Act)) will have “three-quarters” of the app licable percentage increase (p rior to the application of statutory adjustments under sections 1886( b)(3)(B)(viii), 188 6(b)(3)(B)(xi), and 1886(b)(3)(B)(xii) of the Act), or three-quar ters 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 mean ingful EHR users increases to 66 2/3 percent for FY 2016, and, for FY 2017 and subsequent fi scal years, to 100 percent. Third, for FY 2015, section 1886(b)(3)(B)(xii) of the Ac t applies an additional reduction of 0.2 percentage point compared to 0.3 percentage point for FY 2014. To summarize, for FY 2015, consistent w ith section 1886(b)(3)(B) of the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Ca re Act, we are setting the applicable percentage incr ease by applying the following ad justments in the following sequence. Specifically, the applicable percenta ge 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 per centage increase (prior to the application of other statutory adjustments; also referre d 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 th e Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act and a 33 1/3 percent reduc tion to three-fourths of the applicable percentage increase (prior to the application of other st atutory adjustments; also referred to as the market basket update or rate-of-increase (with no adjustments)) for hospitals not considered to be meaningf ul EHR users in accordance with section 1886(b)(3)(B)(ix) of the Act, and then subj ect to an adjustment based on changes in economy-wide productivity (the multifactor productivity (MFP) adjustment), and an additional reduction of 0.2 per centage 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, as473 added by section 3401(a) of the Affordable Care Act, state that application of the MFP adjustment and the additional FY 2015 adjustme nt 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 th e FY 2006-based IPPS operating and capital

market baskets with the revised and re based FY 2010-based IPPS operating and capital market baskets for FY 2014. We are proposi ng to continue to use the FY 2010-based IPPS operating and capital market baskets fo r FY 2015. We also are proposing to

continue to use a labor-relate d share that is reflective of the FY 2010 base year. For FY 2015, we are proposing to continue using the labor-related sh are of 69.6 percent,

which is based on the FY 2010-based IPPS market basket.

Based on the most recent data availa ble 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 determ ine the applicable pe rcentage 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 w ith 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 a ny change in our methodology for calculating and applying the MFP adjustment. For FY 2015, we are proposing a MFP adjustment of474 -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 secti on 1886(b)(3)(B)(vii i) 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 standardiz ed amount. Below we discuss these four options.

● For a hospital that submits quality data and is a m eaningful EHR user, we are proposing an applicable percentage incr ease to the FY 2015 ope rating standardized amount of 2.1 percent (that is, the FY 2015 estim ate of the market basket rate-of-increase of 2.7 percent less an adjustment of 0.4 per centage point for economy-wide productivity (that is, the MFP adjustment) and less 0.2 percentage point).

● For a hospitals that submits quality da ta and is not a meaningful EHR user, we are proposing an applicable percentage incr ease 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 (t he 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 qual ity data and is a meaningful EHR user, we are proposing an applicable percentage increase to the operating standardized amount475 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 (t he 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 qua lity data and is no t a meaningful EHR user, we are proposing an applicable percen tage 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 adju stment 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 subsequen tly 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 tabl e 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)(vii i) 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)(x ii) 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 existi ng regulations at 42 CFR 412.64(d) to reflect the current law for the FY 2015 update. Sp ecifically, in accor dance 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 incr ease to the FY 2015 oper ating standardized amount as the percentage increase in the ma rket basket index, subj ect to a reduction of one-fourth of the applicable percentage in crease (prior to the application of other477 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-fourth s 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 sec tion 1886(b)(3)(B)(ix) of the Act, less an MFP adjustment and less an additiona l 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)(i i), and (d)(3) introductory text to reflect the order in which CMS applies the statutory ad justments to the applicable percentage increase under section 1886(b )(3)(B) of the Act. As men tioned 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 adjust ment), 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) descri bes the reductions for hospitals that fail to submit quality information under rules established by the478 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 secti on 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 th e percentage increase in the ma rket 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 th e 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 a pplies the MFP adjustment and the additional reduction under section 1886(b)(3 )(B)(xii) of the Act. Ther efore, we are proposing to revise the regulations in § 412.64(d) to re flect the order in which CMS applies the adjustments to the applicable percentage increase under sectio n 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 reflec t 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 pr ovides that the applicable percentage increase to the hospital-specific rates fo r 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 subjec t to the IPPS). Therefore, the update to the hospital-specific rates for SCHs and MDHs is also subj ect 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 propos ing 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 a nd 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 o ccurring 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 cha nges to these five re gulatory provisions to reflect the FY 2015 update factor for the hospita l-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 pream ble of this proposed rule, section 1106 of the Pathway for SGR Refo rm 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 disc harges occurring before April 1, 2014). Subsequently, section 106 of the Protecti ng 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 fo r discharges beginning on April 1, 2015 under current law. Accordingl y, the proposed update of th e 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 blende d rate for their inpa tient operating costs based on 75 percent of the national standard ized amount and 25 percent of the Puerto Rico-specific standardized amount. Section 188 6(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 st andardized amount for hospitals located in any area of Puerto Rico that is equa l 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 prev ious fiscal year) increased by the applicable percentage increase under subsection (b)( 3)(B) for the fiscal year involved. Therefore, the update to the Puer to Rico-specific operating standardized amount equals the applicable pe rcentage 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 (that481 is, the same update factor as for all other hos pitals subject to the IPPS). Accordingly, we are proposing an applicable percentage incr ease to the Puerto Rico-specific operating standardized amount of 2.1 pe rcent for FY 2015. We note that the provisions of section 1886(b)(3)(B)(viii) of th e Act, which specify the adjustment s to the applicable percentage increase for “subsection (d)” hospitals that do not submit quality data under the rules established by the Secretary, and the provision s 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 e qual to the update factor applied to the

national standardized amount fo r all IPPS hospitals. Therefor e, we are not proposing to make any further changes to this regulatory provision to reflect th e FY 2015 update factor for the Puerto Rico-specific standardized amount. As mentioned previously, fo r this proposed rule, we used IGI’s first quarter 2014

forecast of the FY 2010-based IPPS market bask et update with histor ical 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): Propos ed 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 mu st meet in order to qualify under the IPPS as a rural referral center ( RRC). RRCs receive some sp ecial treatment under both the DSH payment adjustment and the crite ria 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-percen t cap on DSH payments that is applicable to other rural hospitals. RRCs are also not s ubject 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 al l hospitals that lost the

status due to triennial review or MGCRB reclassification. However, CMS did not reinstate the status of hospita ls 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 thei r status due to OMB redesignation of the483 county in which they are located from rural to urban, to be reinstated as an RRC. Otherwise, a hospital seeking RRC status must sa tisfy 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 th e hospital meets two mandatory prerequisites (a minimum CMI and a minimum number of di scharges), and at least one of three optional criteria (relating to specialty compos ition of medical staff, source of inpatients, or referral volume). (We refer read ers 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 hosp itals 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 hos pitals 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 CM S 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 and484 regional CMI values is set fo rth in the regulations at § 412.96(c)(1)(ii). The proposed

national median CMI value for FY 2015 in cludes 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 hosp itals with approved teaching programs (that is, those hospitals that train residents in an approved GME program as provided in § 413.75). These pr oposed 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 mee ting other criteria, if rural hospitals with fewer than 275 beds are to qualify for init ial 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-a djusted) 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 ar e 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 Centra l (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 cont ain data from additional bills received through March 2014. A hospital seeking to qualify as an R RC 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 (P S&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) pr ovides that CMS set forth the national and regional numbers of discharges in each year’s annua l notice of prospective payment rates for purposes of determining RRC status. As specifi ed in section 1886(d)(5)( C)(ii) of the Act,

the national standard is set at 5,000 discharges. We are prop osing to update the regional486 standards based on discharges for urban hospi tals’ 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 th e time this proposed rule was developed. We are proposing that, in addition to meeti ng 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 oste opathic 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 Centra l (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 ho spital is to qualify for RRC status for cost reporting periods beginning on or after Octobe r 1, 2014, the hospital would be required to have at least 3,000 discharges for its cost reporting peri od 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 pr ovided 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 (A TRA) 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 a nd 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 paymen t 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 tem porary changes in the low-volume hospital payment policy for FYs 2011 through 2013 provide d 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 Refo rm Act extended, for the first 6 months of FY 2014 (that is, through Ma rch 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 hos pital payment policy through March 31, 2014 under the Pathway for SGR Reform Act in an in terim 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 w ith comment period, we also amended the regulations at 42 CFR 412.101 to reflect the ex tension of the temporary changes to the qualifying criteria and the payment adju stment 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), th e 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 hospita l payment policy for the second half of FY 2014 (that is, from April 1, 2014 thr ough 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 th e existing regulations text at § 412.101 to reflect the extension of the changes to the qualifying criteria and th e payment adjustment489 methodology for low-volume hospitals through th e first half of FY 2015 (that is, through March 31, 2015) in accordance wi th section 105 of Pub. L. 1 13-93. 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 § 4 12.101, 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 qualifyi ng 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 le gislation (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 hospita l payment policy origin ally provided by the Affordable Care Act and extended through s ubsequent legislation, are effective for FY 2015 discharges occurring before April 1, 2015. To implement the extension of the temporary change in the low-volume hospita l 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 sour ce 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 ye ars, a hospital’s Medica re discharges from the most recently available MedPAR data, as determined by CMS, are used to determine490 if the hospital meets the disc harge 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 ad justment for hospitals with 1,600 or more Medicare discharges. For FY 2015 discha rges occurring before Apr il 1, 2015, consistent with our historical policy, we are pr oposing 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 pr oposed 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 hosp ital that did not qualify for the low-volume hospital payment adjustment in FY 2014) or co ntinuing to meet (in th e case of a hospital that did qualify for the low-volume hospital payment adjustment in FY 2014) the mileage criterion specified at propos ed § 412.101(b)(2)(ii). A hospital also must be located more than 15 road miles from any other IPPS hosp ital in order to qualify for a low-volume491 hospital payment adjustment for FY 2015 discha rges 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 m eets the mileage criteri on. 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 MedP AR 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 occurri ng on or after April 1, 2015, the low-volume hospital definition and payment adjustment me thodology will revert back to the statutory requirements that were in effect prior to the amendments made by the Affordable Care Act and subsequent legislat ion (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 subs equent 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 discharg es (that is, less than 200 discharges total, including both Medicare and non-Medicare discharges) during the fiscal year. Under our existing policy, effective fo r FY 2015 discharges o ccurring on or after April 1, 2015 and subsequent years, qualifyi ng hospitals would receive the low-volume hospital payment adjustment of an additional 25 percent for discharges occurring during492 the fiscal year (or portion of the fiscal year). Consiste nt 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 determin ation for the low-volume hospital payment adjustment would be made based on the hospi tal’s number of total discharges, that is, Medicare and non-Medicare discharges, as sp ecified 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 ava ilable data source that includes information

on both Medicare and non-Medica re discharges. In additi on to a discharge criterion, eligibility for the low-volume hospital paymen t adjustment also depends on the hospital meeting a mileage crite rion. As specified at proposed § 412.101(b)(2)(i), to meet the mileage criterion to qualify for the low-vol ume hospital payment adjustment for FY 2015 discharges occurring on or af ter April 1, 2015 (and subsequent years), a hospital must be

located more than 25 road miles from the nearest subsec tion (d) hospital. Consistent with our previously esta blished procedure, for FY 2015, we are proposing the following process for request ing 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 oc curring before April 1, 2015, and under proposed § 412.101(b)(2)(i) for FY 2015 discharg es occurring on or after April 1, 2015,493 if also applicable. The MAC will determine, based on the most recent data available, if the hospital qualifies as a low-volume hospita l, 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 da ta the hospital submits with its request for low-volume hospital status, in order to dete rmine whether or not the hospital meets the qualifying criteria. Consistent with our prev iously 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 adjust ment to be applied to payments for its discharges occurring on or after October 1, 2014, a nd through March 31, 2015, under proposed § 412.101(b)(2)(ii) or through Septem ber 30, 2015, for hospitals that also qualify under proposed § 412.101(b)(2)(i)). A hosp ital that qualified for the low-volume payment adjustment in FY 2014 may con tinue 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 discharg e criterion establishe d for FY 2015 (shown in Table 14, which is available via the Intern et on the CMS Web site) and the distance criterion. However, the hospital must send wr itten verification that is received by its MAC no later than September 1, 2014, that it co ntinues to be more than 15 miles from any other “subsecti on (d)” hospital. If a hospital’s written request for lo w-volume hospital status for FY 2015 is received after September 1, 2014, and if the MA C determines that the hospital meets the criteria to qualify as a low-volume hospital under propos ed § 412.101(b)(2)(ii), the MAC494 would apply the applicable low-volume hosp ital payment adjustment to determine the payment for the hospital’s FY 2015 discharges, effective prospectivel y within 30 days of the date of its low-volume hospital status de termination through di scharges occurring on or before March 31, 2015. If the hos pital also qualif ies under proposed § 412.101(b)(2)(i), the MAC would apply the 25-percent low-volume hospital payment adjustment to determine the payment for th e hospital’s FY 2015 disc harges occurring on or after April 1, 2015. If a hos pital’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 quali fies 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 disc harges occurring from the prospective effective date through September 30, 2015. (F or 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 (G ME) 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 stat utorily specified adjustment factor. The regulations regarding the cal culation of this additional payment, known as the IME adjustment, are located at § 412.105. We re fer readers to the FY 2012 IPPS/LTCH PPS495 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 stat es 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 fo rmula 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 reside nt 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 reside ncy training program for each applicable discharge of any indivi dual who is enrolled under Medicare Managed Care under Part C. The amount of such paymen t is specified in section 1886(d)(11)(C) of the Act and “shall be equal to the appli cable 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 be en 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 fr om specified base year s or the IPPS Federal rate, whichever yields the gr eatest aggregate payment for the hospital’s cost reporting period. Payments based on the Federal rate are based on the IPPS standardized amount496 and include all applicable I PPS 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 discha rges 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 hosp ital-specific rate to receive the IME add-on payment for Medicare Part C patients. For the reasons specified below, eff ective for discharges occurring in cost reporting periods beginning on or after Octobe r 1, 2014, we are proposing: (1) to provide all SCHs that are subsection (d) teaching hospi tals IME add-on payments for applicable discharges of Medicare Part C patients in accordance with se ction 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 paymen ts based on the Federal rate497 and payments based on the hospi tal-specific rate under sectio n 1886(d)(5)(D) of the Act, IME payments under section 1886(d)(11) of th e Act for Medicare Pa rt 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-specifi c 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, whiche ver yields the higher payment for the hospital’s cost reporting period. For each cost reporting period, the MAC determines which of the payment options wi ll 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 po ssible for the MAC to determine in advance precisely which of the rates will yield the higher aggregate paymen t by year’s end. In many cases, it is not possible to forecast outlie r 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-specif ic rate. The MAC makes a final adjustment at cost report settlement after it determin es precisely which of the two payment rates would yield the higher aggregat e payment to the hospital for its cost reporting period. This payment methodology makes SCHs unique because SCH payments can change on a498 yearly basis from payments based on the hos pital-specific rate to payments based on the Federal rate, or vice versa. As we stated earlier, s ection 1886(d)(11) of the Act provides for an additional payment for each applicable discharge of a ny 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 appli cable 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 b een 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 in terpreted 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 langua ge 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 Medi care Part C patient discharges. Section 1886(d)(11)(A) of the Act provides for an a dditional 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 the499 amount of this additional payment, by refere nce 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 patient s, we believe that se ction 1886(d)(11)(C) of the Act can be interpreted as simply es tablishing the methodology for calculating the amount of the add-on payment, without limiti ng the applicability of the add-on payment to those SCHs that are paid based on the Federal rate. As noted earlier, in making the compar ison 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 a nd Medicare Part C pa tient 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 th e rationale that, generally, the hospital-specific rate already reflects the additional costs that a teaching hospital incurs for its Medicare Part A patie nts. Payments based on the hospital-specific rate also do not include the IME add-on paymen t 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 base d on its hospital-specific rate, it receives no IPPS payment that accounts for the additional co sts that a teaching hospital incurs for its Medicare Part C patients. In conjunction with our proposal to pr ovide IME add-on payments under section 1886(d)(11) of the Act to SCHs, regardless of whether the SCH is paid based on the500 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 th e 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-specif ic rate, there would be no need to include the IME add-on payment for Medicare Part C pa tient 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, regardle ss of whether the hospital-specific rate is higher, in accordance with sec tion 1886(d)(11) of the Act, wh ich states that the IME Part C add-on amount “shall be equal to the appl icable percentage . . . of the estimated average per discharge amount that woul d 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 pr oposing: (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)(1 1) of the Act; and (2) that, for purposes of the comparison of payments based on the Fede ral rate and the hospital-specific rate for SCHs under section 1886(d)(5)(D ) of the Act, IME add- on payments under section501 1886(d)(11) of the Act for Medicare Part C pa tient discharges will no longer be included in the aggregate payment under the Federal ra te. That is, for purposes of determining payment to an SCH under sec tion 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 appli cable), 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 pa yments for either Medicare Part A or Part C patients. After the highe r of the Federal rate payment amount or the hospital-specific rate pa yment 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 pa yment 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 secti on 1886(d)(5)(D) of the Act for purposes of determining the hospital’s to tal payment amount. We are inviting public comments on both of these proposals a nd any alternatives that we should consider. 3. Other Proposed Policy Changes Affecting IME In section IV.K. of the pr eamble of this proposed rule , we present other proposed policy changes relating to GME payments, whic h 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.502 F. Payment Adjustment for Medicare Disproportionate Shar e 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 signifi cantly disproportionate number of low-income patients. The Act specifies two methods by which a hospital may qualify for the Medicare disproportionate sh are 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 hos pital 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 car e 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 adju stment, which is the most common, is based on a complex statutory formula under wh ich the DSH payment adjustment is based on the hospital’s geographic desi gnation, the number of beds in the hospital, and the level of the hospital's disproportionate patient pe rcentage (DPP). A hospital’s DPP is the sum

of two fractions: the “Medic are fraction” and the “Medicai d fraction.” The Medicare fraction (also known as the “SSI fraction” or “SSI ratio”) is co mputed by dividing the number of the hospital’s inpatien t days that are furnished to patients who were entitled to both Medicare Part A and Suppl emental Security Income (SS I) benefits by the hospital’s total number of patient days furnished to pa tients entitled to benefits under Medicare

Part A. The Medicaid fracti on is computed by dividing the ho spital’s number of inpatient503 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 calcul ated as well as how beds and patient days are counted in determining the Medi care 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 coun ting rules for the IME adjustment under § 412.105(b). 2. Impact on Medicare DSH Payment Adjust ment 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 calcul ation of Medicare DSH paymen ts 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 th an 500 beds that are currently in urban

counties that would become rural if we a dopt the new OMB delinea tions, and that do not become RRCs, would be subject to a maximu m DSH payment adjustment of 12 percent.504 (We note that urban hospitals are only subj ect to a maximum DSH payment adjustment of 12 percent if they ha ve 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 hosp ital 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 rede signation from urban to rural and the rural standardized amount and disproportionate shar e payments otherwise applicable to the hospital subsequent to its redesignation from ur ban 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 urba n standardized amount and disproportionate share payments applicable to the hospital before its redesigna tion from urban to rural and the rural standardized amount and disproportio nate share payments otherwise applicable to the hospital subsequent to its redesignation from urban to rural. We note that we no longer make a dis tinction between the urban standardized

amount and the rural standardized amount. Rather, hospitals receive the same standardized amount regardless of their ge ographic designation. Accordingly, we are proposing to revise the regul ation at § 412.102 to remove re ferences to the urban and

rural standardized amounts.505 The provisions of § 412.102 would conti nue to apply with respect to the calculation of the DSH payments to hospitals that are currently locat ed in urban counties that would become rural if we adopt th e 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 equa ls two-thirds of the difference between disproportionate share payments as applicab le to the hospital be fore its redesignation

from urban to rural and the di sproportionate share payments otherwise applicable to the hospital subsequent to its redesignation from ur ban 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 dispropo rtionate share payments applicable to the hospital before its redesignation from urba n to rural and the disproportionate share payments otherwise applicable to the hospita l subsequent to its redesignation from urban

to rural. For the purposes of ratesetting, cal culating budget neutrality, and modeling payment impacts for this proposed rule, any hos pital 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 ha ve its DSH payments modeled such that the payment equals the amount of the rura l disproportionate share payments plus

two-thirds of the difference between the ur ban disproportionate share payments and the rural disproportionate share payments.506 3. Payment Adjustment Methodology for Medi care Disproportionate Share Hospitals (DSHs) under Section 3133 of the Affordable Care Act (§ 412.106)

a. General Discussion

Section 3133 of the Patien t Protection and Affordable Care Act, as amended by

section 10316 of the same act and secti on 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 fo r computing the Medicare DSH payment adjustment beginning in FY 2014. For purposes of this pr oposed rule, we refer to these provisions collectively as sect ion 3133 of the Affordable Care Act. Medicare DSH adjustment payments are calculated under a stat utory 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, hosp itals 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 st atutory formula for Medicare DSH payments. This provision applies equally to hospitals that qualify fo r DSH payments under section 1886(d)(5)(F)(i)(I) of the Act and those hospi tals that qualify under the Pickle method under section 1886(d)(5)(F)(i)(II) of the Act. The remaining amount, equal to an estim ate of 75 percent of what otherwise would have been paid as Medicare DSH pa yments, reduced to reflect changes in the percentage of individuals under age 65 who ar e uninsured, is available to make additional payments to each hospital that qualifies for Medicare DSH payments and that has507 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 re lative 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 s ubsequent fiscal year, a “subsection (d) hospital” that would otherw ise receive a “disproportiona te share hospital payment... made under subsection (d)(5)(F)” receives tw o separately calculated payments. Specifically, section 1886(r)(1) of the Act provides that the S ecretary shall pay to such a subsection (d) hospital (including a Pickle hosp ital) 25 percent of the amount the hospital

would have received under se ction 1886(d)(5)(F) of the Act for disproportionate share hospital payments, which represents “the empi rically justified amount for such payment, as determined by the Medicare Payment A dvisory Commission in its March 2007 Report to the Congress.” We refer to this paymen t 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 equa l to the product of” three factor s. The first factor is the difference between “the aggreg ate amount of payments that would be made to subsection (d) hospitals under subsection (d)(5)(F) if this subsecti on did not apply” and “the aggregate amount of payments that are made to subsection (d) hospitals under paragraph508 (1)” for each fiscal year. Therefore, this factor amounts to 75 percent of the payments

that would otherwise be made unde r section 1886(d)(5)(F ) of the Act. The second factor is, for FYs 2014 thr ough 2017, 1 minus the percent change in the percent of individuals under the age of 65 who ar e uninsured, determined by comparing the percent of such individuals w ho 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 Educa tion Reconciliation Act of 2010 that, if determined in the affirmative, would clear such Act for enrollment), minus 0.1 percentage points for FY 2014, a nd minus 0.2 percentage points for FYs 2015 through 2017. For FYs 2014 through 2017, the baseli ne for the estimate of the change in uninsurance is fixed by the most recent esti mate of the Congressional Budget Office

before the final vote on the Health Care a nd 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 li nk 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 i ndividuals 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 s ources the Secretary de termines appropriate, and certified by the Chief Actuary” of CMS, and the percent of individuals “who are uninsured in the most recent period for whic h data is available (as so estimated and509 certified), minus 0.2 percentage points fo r FYs 2018 and 2019.” Therefore, for FY 2018 and subsequent years, the statute provides so me 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 car e for such hospital for a period selected by the Secretary (as estimated by the Secretar y, based on appropriate data...),” including

the use of alternative data “where the Secr etary determines that alternative data is available which is a better proxy for the cost s 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 am ount 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 fact ors 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 a pplies to FY 2014 and each subs equent 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 pe riod (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 Ac t for FY 2014. In those rules, we noted510 that, because section 1886(r) of the Act modifies the payment required under section 1886(d)(5)(F) of the Act, it a ffects only the DSH payment under the operating IPPS. It does not revise or replace the capital IPPS DSH payment pr ovided under the regulations at 42 CFR Part 412, Subpart M, which were established through th e exercise of the Secretary’s discreti on in implementing th e capital IPPS under sect ion 1886(g)(1)(A) of

the Act. Finally, section 1886(r)(3) of the Ac t provides that there shall be “no administrative or judicial review under sec tion 1869, section 1878, or otherwise” of “any estimate of the Secretary for purposes of dete rmining the factors described in paragraph (2),” or of “any period selected by the Secret ary” for the purpose of determining those factors. Therefore, there is no administra tive or judicial revi ew 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 paymen t 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 ju stified Medicare DSH payments is unchanged under section

3133 of the Affordable Care Act. Consiste nt 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. Specificall y, section 1886(r)(2) of511 the Act states that “[i]n addition to the pa yment made to a subsect ion (d) hospital under paragraph (1)...the Secretary shall pay to such subsection (d) hospital an additional amount...” (emphasis supplied). Because paragr aph (1) refers to empirically justified Medicare DSH payments, the additional pa yment under section 1886(r)(2) of the Act therefore, is limited to hospitals that receive empirically ju stified Medicare DSH payments in accordance with se ction 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 Me dicare DSH payments in a fiscal year will not receive uncompensated care payments for th at 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 avai lable). 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 re port for that payment year. In the FY 2014 IPPS/LTCH PPS final rule, we also considered whether several specific classes of hospitals are included with in 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 sec tion 1814(b)(3) of the Act, would be eligible512 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 dete rmined that Maryland hospitals that operated under a waiver under se ction 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, eff ective January 1, 2014, the State of Maryland elected to no longer have Medi care pay Maryland hospitals in accordance with section 1814(b)(3) of th e 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 hosp itals still are not paid under the IPPS. Therefore, they remain ineligible to receive empirically ju stified Medicare DSH payments or the uncompensated care payments under section 1886(r) of the Act. SCHs are paid based on their hospital-sp ecific rate from certain specified base years or the IPPS Federal rate, whichever yi elds the greater aggr egate payment for the hospital’s cost repo rting period. If an SCH is paid under its hospital-specific rate, it is not eligible for Medicare DSH payments. In or der 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 determin e interim payments for SCHs based on what we estimate and project their DSH status to be prior to the beginning of the Federal fiscal513 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 rece ive interim uncompensated care payments for that fiscal year on a per discharge basis, s ubject as well to settlement through the cost report. Final eligibility determinations w ill be made at the end of the cost reporting period at settlement, and both interim empiri cally 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 ra te and, therefore, are eligible to receive Medicare DSH payments if their disproporti onate patient percenta ge is at least 15514 percent, we apply the same process to dete rmine 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 a pplicable 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 addi tion, as we do for all I PPS hospitals, we would

calculate a numerator for Factor 3 for all M DHs, 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 th e 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-specifi c rate and the Federal rate. C onsistent 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 incl uded as part of the Federal rate payment in the comparison of payments under the hospital-specif ic rate and the Federal rate. That is, in making this comparison at cost report se ttlement, we will include the pro rata share of the uncompensated care payment amount th at reflects the period of time the hospital was paid under the MDH program for its discharges occurring on or after515 October 1, 2014, and before April 1, 2015. Consis tent with the policy for hospitals with Medicare cost reporting periods that span more than 1 Fe deral 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 pe riod (78 FR 61192 through 61194). As noted previously, section 106 of Pub. L. 113-93 provi des for an extension of the MDH program through March 31, 2015, only. Therefore, begi nning April 1, 2015, all hospitals that previously qualified for MDH status will no l onger have MDH status under current law. IPPS hospitals that have elected to part icipate 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 I PPS (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 require ments 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 pa rticipating in this initiative, so that eligible hospitals will receive empirica lly justified Medicare DSH payments and uncompensated care payments.

Section 410A of the Medicare Modern ization Act established the Rural Community Hospital Demonstration Program. After the initial 5-year period, the

demonstration was extended for an additi onal 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, participating516 hospitals receive payment for Medicare inpa tient services on the basis of a cost methodology. Specifically, for discharges occurr ing 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 partic ipating in the demonstrati on receive payments for the reasonable cost of providing such services. For discharges occurring in subsequent cost reporting periods during the appl icable 5-year period, hospitals receive the lesser of the current year’s reasonable cost-based amount, or the previous yea r’s amount updated by the percentage increase in the IPPS market bask et (the target amount). The instructions (Change Request 5020 (April 14, 2006) and Ch ange 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 co st-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 re quires 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) hospi tal. Because secti on 1886(r)(1) of the Act merely requires the program to pay a designa ted percentage of these payments, without revising the criteria governi ng eligibility for DSH payments or the underlying payment methodology, we stated in the FY 2014 IPPS/ LTCH PPS final rule that we did not517 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 revi sing 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 correspond ing changes to the hospi tal cost report so that these empirically justifie d Medicare DSH payments can be settled at the appropriate level at the time of cost report settleme nt. 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 pr ovides 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 ch ange 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 policie s for FY 2014, and our proposed policies for

FY 2015.518 (1) Proposed Calculation of Factor 1 for FY 2015 Section 1886(r)(2)(A) of the Act establis hes 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 aggr egate amount of payments that would be made to subsection (d) hospitals under subs ection (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 Federa l fiscal year until cost report settlement for all IPPS hospitals is completed, which o ccurs several years af ter 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 “estim ated by the Secretary.” Similarly, section 1886(r)(2)(A)(ii) of the Act represents the es timated 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 pa yments for the fiscal year, in the absence519 of the new payment provision; and (2) the am ount of empirically ju stified Medicare DSH payments that are made for the fiscal year, which takes into account the requirement to pay 25 percent of what would have otherwis e been paid under section 1886(d)(5)(F) of the Act. In other words, this factor repr esents 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 unc ompensated 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 peri od (78 FR 61194), we adopted a policy under which we develop final estimates of bot h the aggregate amount of Medicare DSH payments that would be made in the abse nce 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 prio r to each fiscal year to whic h the new provision applies. These estimates are not revised or update d 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 justif ied Medicare DSH payments after application of section 1886(r)(1) of the Act), we use the most recent ly available projections of Medicare DSH payments for the fiscal year, as calculated by CMS’ Office of the Actu ary. 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 Ju ly (based on data from June) as part of the Midsession520

Review. The estimates are based on the most recently filed Medicare hospital cost report with Medicare DSH payment information, s upplemental cost report data provided by Indian Health Service (IHS) hospitals to CM S, and the most recent Medicare DSH patient percentages and Medicare DSH payment adju stments 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 Medi care Hospital Cost Report Information System (HCRIS), supplemental cost report da ta 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 public ation of the FY 2014 IPPS/LTCH PPS final rule. For the July 2014 estimate, we anticipate that the da ta will be based on the March 2014 update of the HCRIS data, supplemental cost report da ta 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 availa ble 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 th e 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-Pa yer Model and hospitals participating in the521 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 IH S 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 fis cal year. The February 2014 Office of the Actuary estimate for Medicare DSH paymen ts 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 participa ting in the Maryland All-Payer Model, SCHs paid under their hospital-specific paymen t rate, and hospitals particip ating 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 bill ion (25 percent of the total amount estimated). Under § 412.l06(g)(1)(i) of th e 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 Fa ctor 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 2015522 Section 1886(r)(2)(B) of th e 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, a nd 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 unde r the Patient Protection and Affordable Care Act (as calculated by the Secretary based on th e most recent estimates available from the Director of the Congressional Budget Office be fore 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 fu rther indicates that the percent of

individuals under 65 without insu rance in 2013 must be the pe rcent of such individuals “who are uninsured in 2013, the last year before coverage expansion under the Patient Protection and Affordable Care Act (as calc ulated 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 Reconciliati on Act of 2010 that, if determined in the affirmative, would clear su ch 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 Representativ es on March 21, 2010, and by the Senate on523 March 25, 2010. Because the House of Representatives was the first House to vote on

the Health Care and Education Reconcil iation Act of 2010 on March 21, 2010, we have

determined that the most recent estimate ava ilable from the Director of the Congressional Budget Office “before a vote in either H ouse on the Health Care and Education Reconciliation Act of 2010...” (emphasis adde d) 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 le tter meet the statutory requirement under section 1886(r)(2)(B)(i)(I ) of the Act. (To view th e March 20, 2010 letter, we refer

readers to the Web site at: http://www.cbo.gov/sites/default/files/c bofiles/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 N onelderly Population Incl uding All Residents” (82 percent) and the second estimate is of the “Insured Share of the Nonelderly Population Excluding Unauthorized Immigr ants” (83 percent). In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50631), we us ed the first estimate that includes all residents, including unauthorized immigrants. We stated that we believe this estimate is

most consistent with the stat ute which requires us to measur e “the percent of individuals under the age of 65 who are uninsured,” a nd 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 uninsur ance in the United States that influence uncompensated care for hospitals than the estimate that reflects only legal residents. The524 March 20, 2010 CBO letter reports these figur es 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 indi viduals who are uninsured in the applicable year with the percent of individuals who were unins ured in 2013, in the FY 2014 IPPS/LTCH PPS final rule, we used the CBO in surance rate figure and subtracted that amount from 100 percent (that is the total popul ation without regard to insurance status) to estimate the 2013 baseline percent of indivi duals 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 indi viduals “who are uninsured in the most recent period for which data is available (as so calculated).” In th e FY 2014 IPPS/LTCH PPS final rule (78 FR 50634), we used the same da ta 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 es timates, which are based on the calendar year, for the Federal fiscal years for wh ich 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 insura nce coverage (which are available at: http://www.cbo.gov/sites/default/files/cbof iles/attachments/44190_EffectsAffordableCare ActHealthInsuranceCoverage_2.pdf ) as amended by CBO’s July 2013 estimates of changes in estimates of the effects of insura nce coverage provisions in the Affordable525 Care Act issued in conjunction with a memo regarding “Analysis of the Administration’s Announced Delay of Certain Requirements Unde r 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 insuran ce 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 percen tage 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 PP S final rule and later revised in the526

FY 2014 IPPS interim final rule with comme nt 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 hea lth insurance coverage (which are available

at http://www.cbo.gov/publication/43900?utm_sour ce=feedblitz&utm_medium=FeedBlitzE mail&utm_content=812526&utm_campaign=0 ). The CBO’s Februa ry 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.) Similarl y, 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 pe rcent (that is, 100 per cent 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 cove rage (February 2014 CBO estimate): 84 percent.

● CY 2015 rate of insurance cove rage (February 2014 CBO estimate): 86 percent.

● FY 2015 rate of insuran ce 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 pe rcentage points for FY 2015 under section 1886(r)(2)(B)(i) of th e Act) = 0.8036 (80.36 percent)

0.8036 = Factor 2 Therefore, we are proposing that F actor 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 prep aration of the final rule. We are inviting public comments on our proposed calcul ation of Factor 2 for FY 2015. (3) Proposed Calculation of Factor 3 for FY 2015 Section 1886(r)(2)(C) of the Act define s Factor 3 in the calculation of the uncompensated care payment. As we have discussed earlier, sect ion 1886(r)(2)(C) of the Act states that Factor 3 is “equal to the pe rcent, 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 dete rmines alternative data is available which is a better proxy for the costs of subsection (d) hospitals for trea ting the uninsured, the use of such alternative data)); and (ii) the aggregate amount of uncompensated care for all528 subsection (d) hospitals that receive a paym ent under this subsection for such period (as so estimated, based on such data).” Therefore, Factor 3 is a hospital-specific value that e xpresses 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 fo r all hospitals estimat ed 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 dete rmine the amount of the uncompensated care payment that each eligible hospital will receive for FY 2014 and subsequent fiscal years. In order to impleme nt the statutory require ments 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 es timated uncompensated care amount for an individual hospital) and denominator (that is, the estimated uncompensated care amount for all hospitals estimated to receive DSH paymen ts in the applicable fiscal year); (2) the data source(s) for the estimated uncompens ated 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 estim ate the amounts of uncompensated care for a period “based on appropriate data.” In a ddition, 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 co sts 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 defi ning the amount uncompensated care for a hospital as the uncompensated care costs of each hospital and consid ered potential data sources for those costs. For purposes of sel ecting an appropriate data source for this possible definition of uncompensat ed 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 Disp roportionate 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 pr ovide 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 in structions 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 determine530 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 complete ness of these data, we did not propose to use

data from the Worksheet S-10 to determ ine the amount of uncompensated care. However, we stated our belie f 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 th e topic (for example, Me dPAC’s March 2007 Report to Congress) and that it is not unr easonable to expect informati on on the cost report to be used for payment purposes. Furthermore, hospitals attest to the accuracy and completeness of the information reported in th e cost report at the time of submission. We indicated that we expect reporting on Worksh eet S-10 to improve over time, particularly in the area of charity care which is al ready 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 uncom pensated care costs in the future, once hospitals are submitting accurate and consistent data through this reporting mechanism. As a result of our concerns regarding th e data reported on Worksheet S-10 of the Medicare cost report, we belie ved 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 for531 additional years until hospitals have adequate experience reporting all of the data

elements on Worksheet S-10. We noted that th is approach is consistent with input we

received from some stakeholders in res ponse 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 us ed for implementation of s ection 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 alte rnative 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 st ated 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 tr eatment costs of uninsured patients. Moreover, due to the concerns regarding th e accuracy and consistency of the data reported on the Worksheet S-10, we also determin ed that these alternative data, which are currently reported on the Medica re 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 th e 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 defi ned in 42 CFR 412.106(b)(4) and 412.106(b)(2)(i), respectively, to determine Fact or 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 co sts for purposes of determin ing Factor 3 once hospitals are submitting more accurate and consistent da ta through this reporting mechanism. In532 the interim, we indicated that we would take steps such as revisi ng and clarifying cost report instructions, as appropr iate. We stated that it is our intention to propose introducing the use of the Wo rksheet 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 a ssess the comments we have recei ved 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 deve loped revisions to the Worksheet S-10 instructions at this time, we remain co mmitted 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 F actor 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 pa tients 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 availabl e 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 regula tions. We are inviting public comments on this proposal, and we will continue to work with the hospital community and others to develop the appropriate clarif ications and revisions to Worksheet S-10 of533 the Medicare cost report for reporting uncompens ated 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 sour ce 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 al l hospitals that we es timate would receive empirically justified Medicare DSH payments in a fiscal year (that is , hospitals that we project would receive interim uncompensated care payments dur ing 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 th ey receive an empirically justified Medicare DSH payment for the fisc al 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 a nd notify CMS in writing of a change in a hospital’s subsection (d) hospital status, such as if a hosp ital 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 regi onal 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 reflect s the variations in uncompensated care costs well enough to adopt it as the basis for adjusting Factor 3. The534 wage index reflects the relative hospital wage level in the ge ographic 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 geographi c area) and a national average hourly wage (total wage costs divided by to tal 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 consider ed to be the labor-related sh are 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 a nd 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 whethe r to propose employing the wage index to adjust insured low-income days in determining Factor 3. After this considera tion, we continue to believe that a wage index adjustment to insu red low-income days is not an appropriate

measure to account for variations in the co sts of uncompensated care among hospitals. The intensity of such care, and therefore the co sts, 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 proposi ng 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 incl ude insured low-income days from exempt units (specifically, inpatient rehabilitati on units paid under the IRF PPS and inpatient psychiatric units paid under th e IPF PPS) of the hospital in the computation of Factor 3, in order to better captu re the treatment costs of the unins ured 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 us ed for payment purposes. We also indicated that we believed it would be prudent to cons ider the degree to which these data meet these conditions before adop ting this recommendation. Ther efore, we stated that we would consider including this recomm endation 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 adop ting this recommendation. That analysis has

indicated that the inclusion of Medicaid and Medicare-SSI days for exempt inpatient units does not significantly change the distri bution of uncompensated care payments to hospitals, with the exception of a few hospitals with high utiliz ation associated with those exempt units that would see increases in their uncompensated care payments. Furthermore, Medicaid and SSI days for inpati ent rehabilitation units have been audited536 and are used for payment purpos es under the IRF PPS; specifica lly, these data are used to calculate the low-income payment (LIP) ad justment 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 belie ve 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 pa yment purposes. The use of data for inpatient psychiatric units would fail th e second and third conditions. At the same time, we do not believe that including only i npatient 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 note d, that the statutory re ferences under section 1886(d)(5)(F) of the Act to “d ays” 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 hosp ital 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 belie ve it is preferable to maintain consistency with this longstanding precedent in the contex t 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 the537 Factor 3 quotient. Specifically, section 1886(r) (2)(C)(i) of the Act defines the numerator of the quotient as “the amount of uncomp ensated care for such hospital for a period selected by the Secretary....” (emphasis a dded). Section 1886(r)(2 )(C)(ii) of the Act defines the denominator as “the aggreg ate amount of uncompensated care for all subsection (d) hospitals that receive a paym ent under this subsection for such period” (emphasis added). In the FY 2014 I PPS/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 paym ents 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 pa yments 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 quali fy 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 Medi care cost report data (including the most recently available data that may be used to upda te the SSI ratios) with respect to a Federal fiscal year. In other words, we use data fr om the most recently available full year cost report for the Medicaid days and the most r ecently available SSI ratios (that is, latest538 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 olde r 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 comme nt 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 da ys 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 mo st 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 hospita ls, 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 recentl y 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 reflect s less than a full 12-month year ; in the event the 2012 cost report is for less than 12 months, we are pr oposing 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 usi ng data from the December 2013 update of the 2011/2012 Medicare cost reports for the Medi caid 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 report539 data provided by IHS hospitals to CMS as of December 2013 in order to calculate the proposed Factor 3. For the FY 2015 IPPS fina l rule, we intend to use the March 2014 update of the 2011/2012 Medicare cost reports, supplemental co st 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, th e 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 F actor 3 at the time of publica tion 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 paymen t rates and factors in both th e 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 MedP AR 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 re port data to determine Factor 3. One issue concerned the process and data to be employe d 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’s540 cost report data and SSI rati o 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, Medicai d days and SSI days) under the surviving CCN, based on the most recent available data for that CCN (f or 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 va lues 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 w ould be determined using 2011/2012 cost reports. As a result, for any mergers o ccurring 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 combin ation 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 fr om both merged hospitals until data for the merged hospitals become avai lable under the surviving CCN.541 In addition, because the data systems us ed to calculate Fact or 3 do not identify hospitals that have merged, we also are pr oposing to establish a process to identify hospitals that have merged afte r 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 da ta 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 afte r 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 agreem ent of one hospital is subsumed into the provider agreement of the surv iving provider. We would not consider an acquisition where the new owner voluntarily terminates the Medicare provide r 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 ag reement of one hospital is subsumed into the provider agreement of the surviving provi der because, in this type of acquisition as described in the September 6, 2013 Su rvey & Certification Memorandum S&C: 13-60-ALL ( http://www.cms.gov/Medicare/Provider-Enrollment-andCertification/SurveyCertificationGenInfo/D ownloads/Survey-and-Cert-Letter-13-60.pdf ), the buyer is subject to all applicab le statutes and regulations a nd to the terms and conditions under which the assigned agreement was origina lly issued. These include, but are not limited to, Medicare requirements to adjust payments to account for prior overpayments542 and underpayments, even if they relate to a pre-acquisition period (successor liability), and to adjust payments to collect civil moneta ry penalties. Therefore, we believe it is appropriate to also retain the data of the subsumed hospital to calculate the uncompensated care payment for the merg ed hospital. Conversely, by rejecting assignment of the Medicare provider agreemen t of the subsumed hos pital, the surviving provider has voluntarily terminated the Medi care 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 agreem ent of the subsumed provider, it would not seem appropriate to use data from the s ubsumed provider for purposes of Medicare payment, including for the calculation of a hospital’s uncompensated care payment. For FY 2015, we are proposing to iden tify 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 subm itted 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, wh ich is the earliest date that would be included in any 2011 cost report data that are used to calc ulate 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 woul d then combine the data elements of any hospitals that had merged to calculate th e uncompensated care payment for the merged hospital. Specifically, we would combine th e Medicaid days from the most recently available full year cost repor ts 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 th e Medicaid days from either the 2011 or 2012 cost reports and would use the most recen tly available SSI ratios available at the time the final rule is developed. In order to confirm these mergers and th e accuracy of the data used to determine each merged hospital’s uncompensated care pa yment, 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 merger s 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 newl y 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 Medica re DSH payment and, therefore, eligible for544 uncompensated care payments for the applicab le 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 hospi tals in a similar manner as new hospitals, such that the newly merged hospital’s fi nal 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 reporte d 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 merg ed hospitals, eligibility to receive interim uncompensated care payments and the am ount 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 availa ble at the time the final rule is developed for only the surviving CCN. However, at co st 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 fo r the applicable fiscal year. That is, we

would revise the numerator of Factor 3 fo r the newly merged hospital to reflect the Medicaid and SSI days reported on the cost repo rt 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. Background545 Section 1885(d)(5)(G) of the Act provides special payment protections, under the IPPS, to a Medicare-dependent, small rural ho spital (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), sect ion 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 la w, 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 pr ogram 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 discha rges 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 ha lf 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 fo r MDH status for FY 2014, as applicable.546 Generally, a provider that wa s classified as an MDH as of September 30, 2013, was

reinstated as an MDH effective Octobe r 1, 2013, with no need to reapply for MDH classification. However, if the MDH had cl assified as an SCH or cancelled its rural classification under § 412.103(g) effective on or after Octobe r 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) a nd (c)(2)(iii) to reflect th e extensions of the MDH program provided for by the ATRA and Path way for SGR Reform Act, respectively. Lastly, under current law, sect ion 106 of the Protecting Acce ss to Medicare Act of 2014 (Pub. L. 113-93) provides for a 1-year exte nsion of the MDH progr am effective from April 1, 2014 through March 31, 2015. Speci fically, 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 thr ough September 30, 2014) under Pub. L. 113-93 in a separate Federal Register notice. For additional info rmation on the extensions of the MDH program after FY 2012, we refer read ers 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, 2013547 (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. 11 3-93, 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 provid e 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 proposin g to make conforming changes to the regulations at §§ 412.108(a)(1) a nd (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, e ffective 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 prev iously 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. We548 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, th e 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 acco rdance with these regulations, in order for an MDH to receive SCH status effective Ap ril 1, 2015, it must apply for SCH status at least 30 days before the end of the MDH pr ogram; that is, the MDH must apply for SCH status by March 1, 2015. The MDH also must re quest 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 th e SCH status, if approved, be effective April 1, 2015, immediately after its MDH status expires wi th the expiration of the MDH program on March 31, 2015. We note that an MDH that a pplies 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 a pply 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 Hosp ital 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. Secti on 1886(q) of the Act establishes the “Hospital Readmissions Reduc tion Program,” effective for discharges from an “applicable hospital” beginn ing on or after October 1, 2012, under which payments to those applicable hospitals ma y be reduced to account for certain excess

readmissions. Section 1886(q)(1) of the Act sets fo rth 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 Ac t, 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 th e 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 subs ection did not apply; reduced by . . . any portion of such payment amount that is attributable to paym ents 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 a nd 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 th e “adjustment factor” for an applicable hospital for a fiscal year as e qual 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 fl oor adjustment factor specifi ed in subparagraph (C).” Section 1886(q)(3)(B) of the Ac t, in turn, describes the ra tio 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 aggreg ate payments for all discharges . . . .” Sectio n 1886(q)(3)(C) of the Act esta blishes 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 the551 product, for each applicable condition, of (i ) the base operating DRG payment amount for such hospital for such applicab le 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 hosp ital-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; sp ecifically, the ratio of “risk-adjusted

readmissions based on actual readmissions” for an applicable hospita l for each applicable condition, to the “risk-adjusted expected readmissions” for th e applicable hospital for the applicable condition. Section 1886(q)(5) of the Act provides definitions of “applicable condition,” “expansion of applicable conditions,” “appl icable hospital,” “applicable period,” and “readmission.” The term “applicable conditio n” (which is addressed in detail in

section IV.C.3.a. of the FY 2012 IPPS/LTC H PPS final rule (76 FR 51665 through 51666)) is defined as a “condition or pro cedure selected by the Secretary among conditions and procedures for which: (i) readmissions . . . represent conditions or procedures that are high volume or high expe nditures . . . 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 practicab le, [to] expand the applicable conditions552 beyond the 3 conditions for which measures have been endorsed . . . to the additional 4 conditions that have been identified by th e Medicare Payment Advisory Commission in its report to Congress in June 2007 and to othe r 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 Reducti on Program, as a “subsec tion (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 orde r to calculate various ratios and payment adjustments under the Hospital Readmissions Reduction Program. Section 1886(q)(6) of the Act sets fo rth the public reporting requirements for hospital-specific readmission rates. Section 1886(q)(7) of the Act limits administrative and judicial review of certai n determinations made pursuan t to section 1886(q) of the Act. Finally, section 1886(q)(8) of the Ac t requires the Secretary to collect data on readmission rates for all hospital inpatients (not just Medicare patien ts) for a broad range of both subsection (d) and non-subsection(d) hosp itals, in order to calculate the hospitalspecific readmission rates for all such hosp ital inpatients and to publicly report these “all-patient” readmission rates.553 2. Regulatory Background The payment adjustment factor set fort h 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 read missions ratio, which will be used, in part, to calculate the readmissions adjustment fact or. 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 methodol ogy for calculating the excess readmissions ratio. We also established policies with respect to measures for readmission for the applicable conditions and our methodology fo r 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 paymen t adjustment factor and the process by which hospitals can review and correct their data. Specifically, in that final rule, we addressed the base operati ng DRG payment amount, aggregate payments for excess readmissions and aggregate payments for all di scharges, the adjustment factor, applicable hospital, limitations on review, and reporting of hospital-specific information, including the process for hospitals to review readmi ssion 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 Ho spital 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 refineme nt of the readmissions measures and related methodology for the current applicable c onditions, expansion of the “applicable conditions” beginning for FY 2015, and clarifica tion of the process for reporting hospitalspecific information, including the opportunity to review and submit corrections. We also established policie s related to the calculation of the adjustment factor for FY 2014. 3. Overview of Proposals and Policies fo r 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 bypa ss graft (CABG) (section IV.H .6. of the preamble of this proposed rule);

● Discussing the maintenance of techni cal specifications for quality measures (section IV.H.7. of the preambl e of this proposed rule);

● Describing a waiver from the Hosp ital Readmissions Reduction Program for hospitals formerly paid under sec tion 1814(b)(3) of the Act (§ 412.154(d)) (section IV.H.8. of the preambl e 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);555

● 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 cal culation 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 ex ceptions process to address hospitals with extraordinary circumstances (section IV.H.12. of the preamble of th is 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 R eadmission Algorithm for Acute Myocardial Infarction (AMI), Heart Failure (HF), Pneu monia (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’ pa yment 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 hosp ital. A complete description of the CMS Planned Readmission Algorithm Version 2.1, whic h 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 fi nal rule (78 FR 50652), we agreed to continually review the CMS Planned R eadmission Algorithm and make updates as needed. Subsequently we have identified a nd made improvements to the algorithm. We are proposing to use the re vised 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 determinatio ns. We are also proposing to use this algorithm for the CABG readmission measure proposed for inclusi on 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 review ed 634 patients’ charts at 7 hospitals, classified readmission as planned or unplanne d 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 algor ithm to classify readmission as planned or unplanned. The algorithm uses the Agency for Healthcare Research and Quality’s (AHRQ’s) Clinical Classifica tion Software (CCS) to group thousands of procedure and diagnosis codes into fewer categories of rela ted procedures or diagnoses. The algorithm557 then uses four tables of pr ocedures and diagnoses catego ries and a flow diagram to classify tables as planned or unplanned. For all measures, the first table identifies procedures that, if present in a readmissio n, classify the readmission as planned. The second table identifies primary discharge diagnos es that always classify readmissions as planned. Because almost all planned admissions are for procedures or surgeries, a third table identifies procedures for which patient s are typically admitte d; if any of these procedures are coded in the readmission, we cl assify 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) pr imary discharge diagno ses that disqualify

readmissions that include one or more of th e 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 sli ghtly for certain measures based on clinical considerations for each cohort. The final prop osed tables for each me asure 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 tabl es by removing or adding procedures or conditions to improve the accuracy of the algorit hm. First, validation study revealed that the algorithm could be improved by removi ng two procedure CCS categories from the third table, the potentially planned procedur e table: CCS 211 – Therapeutic Radiation and CCS 224 – Cancer Chemotherapy. Typicall y, patients do not require admission for scheduled Therapeutic Radiation treatm ents (CCS 211). The study found that558 readmissions that were classified as planne d 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 pr ocedure table. The second table of the algorithm classifies a ll readmissions with a principal diagnosis of Maintenance Chemotherapy as planned. Most patients w ho 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 we re largely unplanned, so removing CCS 224 from the potentially planned procedure table improved the algorithm’s accuracy. Therefore, Version 3.0 removes CCS 211 a nd CCS 224 from the list of potentially planned procedures to improve the accuracy of the algorithm. As noted above, the algorithm uses a tabl e of acute principal discharge diagnoses to help identify unplanned readmissions. R eadmissions that have a principal diagnosis listed in the table are classified as unpla nned, regardless of whether they include a procedure in the potentia lly planned procedure table. Th e validation study identified one diagnosis CCS that should be added to the ta ble of acute diagnoses to more accurately identify truly unplanned admissions as unpla nned: Hypertension with Complications (CCS 99). Hypertension with complications is a diagnosis that is ra rely associated with planned readmissions.559 In addition, the validation study identifie d a subset of ICD-9-CM diagnosis codes within two CCS diagnosis categor ies 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 IC D-9-CM codes within this CCS group that are for acute diagnoses to th e list of acute conditions improves the accuracy of the algorithm for these acute conditions while st ill ensuring that read missions for planned procedures, like cholecystectomies, are counte d 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 read ers 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 fo r 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 Ar throplasty 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 Pr imary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) All-Caus e 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 theref ore 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 elec tive procedure. Howe ver, after hospitals reviewed their hospital-specific THA/T KA Readmission Measure data during the national dry run conducted during Septembe r and October of 2012, we learned that hospitals code hip fractures that occur duri ng the same admission as a THA as either a principal or secondary diagnosis. Accord ing to feedback recei ved from hospitals participating in the dry run, the measure methodology failed to identify and therefore appropriately exclude a small number of pa tients (that is, 0.42 pe rcent of patients in 2009 - 2010 data) with hip fracture who ha d 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 i ndex admission. We believe this refinement is responsive to comments from hospitals a nd will allow us to accura tely exclude patients561 who were initially admitted for a hip fractur e and then underwent total hip arthroplasty, making their procedure nonelective. We invite public co mments on this proposal. c. Anticipated Effect of Pr oposed 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 statis tics are for illustrative purposes only, and we are not proposing to revi se 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 numbe r 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 (e xcluding the planned readmissions) would remain constant for AMI and COPD; in crease by 0.1 percentage points for HF and PN; and increase by 0.4 percenta ge points for hip/knee. The new national readmission (unplanned) rate for each condition would have been 17.9 percent for AMI; 23.0 percent fo r HF; 17.7 percent for PN; 21.1 percent for COPD; and 5.27 percent for hip/knee.562 The number of readmissions considered pl anned (and, therefore, not counted as a readmission) would decrease by 319 for AM I; 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 meas ure cohort would have been reduced by 0.37 percent; the crude readmission ra te would have been reduced by 0.02 absolute percentage points; and the mean RSRR would have been reduced by 0.03 absolute percentage points.563Table IV.H.1.: Comparison of Planned Readmission Algorithms V 2.1 and 3.0for AMI/HF/PN/COPD/HK Readmission Measures(Based on 2009 - 2012 Discharges from 3025 Hospitals)AMIHFPNCOPDHip/KneeV 3.0V 2.1V 3.0V 2.1V 3.0V 2.1V 3.0V 2.1V 3.0V 2.1Number of Discharges494,121494,1211,165,6061,165,606954,033954,033926,433926,433858,266858,266Number of Unplanned Readmissions88,56788,248268,072266,759169,213168,347195,595195,04845,20544,907Readmission Rate17.9%17.9%23.0%22.9%17.7%17.6%21.1%21.1%5.27%5.23%Number of Planned Readmissions11,57711,89615,29316,6065,8676,7335,8586,4052,2832,581Planned Readmission Rate2.3%2.4%1.3%1.4%0.6%0.7%0.6%0.7%0.3%0.3%% of Readmissions that are Planned11.6%11.9%5.4%5.9%3.4%3.8%2.9%3.2%4.8%5.4%564 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 followi ng 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 meas ures. In view of these reque sts and our belief that it is reasonable to allow more time for hospitals to become familiar w ith 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 C onditions 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 th e applicable conditions beyond the 3 conditions

for which measures have been endorsed as de scribed in subparagra ph (A)(ii)(I) . . .to the

additional 4 conditions that have been id entified by the Medicare Payment Advisory Commission [MedPAC] in its re port to Congress in June 2007, and to other conditions and procedures as determined appropriate by the Secretary.’’ The four conditions and565 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) ot her vascular conditions. Sec tion 1886(q)(5)(A)(i) of the Act directs the Secretary, in se lecting an ‘‘applicable c ondition,’’ to choose from among readmissions ‘‘that represent conditions or procedures that are high volume or high expenditures under this title (or other criteria spec ified by the Secretary).’’ In accordance with section 1886(q)(5)(A) of the Act, effective for the calculation of the readmissions payment adjustment fact ors 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 readmissi on rates. We describe this measure in

detail below. We are proposing the inclusion of th e condition of CABG readmissions to the Hospital Readmissions Reduction Program based on MedPAC’s recommendations. For this condition, we developed a Hospit al-Level 30-Day All-Cause Unplanned Readmission Following Coronary Artery Bypa ss Graft (CABG) Surgery measure. The National Quality Forum (NQF) Measure A pplications Partnership (MAP) Hospital workgroup conditionally supported this measur e for use in the Hospital Readmissions Reduction Program. The condition for s upport is based on attainment of NQF endorsement. On February 5, 2014, we submitted the Hospital-Level 30-Day All-Cause566 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 Read missions Measure: Hospital-Level, 30-Day, All-Cause, Unplanned Readmission Following Coronary Artery Bypass Graft (CABG) Surgery Among the seven conditions MedPAC iden tified in its 2007 Report to Congress as having the highest potentia lly preventable readmission ra te, CABG had the highest rate of readmissions within 15 days follo wing discharge (13.5 percent) and second highest average Medicare payment per readmission ($8,136). 27 The annual cost to Medicare for potentially preventable CA BG readmissions was estimated at $151

million. 28

Evidence also shows variation in read missions rates for patients with CABG surgery, supporting the finding that opportunities ex ist for improving care. The median, 30-day, risk-standardized readmission rate among Medicare fee-for-s ervice patients aged 65 or older hospitalized fo r CABG in 2009 was 17.2 percent, and ranged from 13.9 percent to 22.1 percen t across 1,160 hospitals. 29 Although data documenting readmission reductions in CABG are limited, there are da ta that support CABG readmission as an

27 Medicare Payment Advisory Committ ee. Report to the Congress: Pr omoting Greater Efficiency in Medicare, 2007. 28 Ibid

. 29 Suter L.G., Wang, C., Vellanky S., Potteiger J., Cur tis 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 Center s 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 variati on in readmission rates; (2) the most common cause of readmission after CABG is complica tion 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 we re not closely correlated to mortality rate s and thus measuring readmi ssion rates likely offers a complementary metric intended to assess a different domain of quality. Mortality measures are more likely to encourage improve ments in clinical quality, including rapid triage, effective safety practices, and early in tervention and coordinati on in the hospital. Readmission measures place an increased em phasis on aspects of quality related to effective transitions to the outpatient se tting, clear communication with patients and caregivers, and collaboration across communities and providers. Together, these data suggest that reducing readmissi on rates following CABG surger y is an important target for quality improvement. In addition, incl usion of this measure in the Hospital Readmissions Reduction Program aligns with CMS’ Quality Strategy objectives to promote successful transitions of care for pa tients from the acute care setting to the outpatient setting, and to reduce short-te rm readmission rates. In its final recommendations for rulemaking, the MAP cond itionally supported the inclusion of the proposed CABG measure pending NQF endorseme nt 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-Le vel, 30-Day, All-Cause, Unplanned Readmission Measure Following CABG Surger y 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 thes e reasons we believe this m easure is appropriate for the Hospital Readmissions Reduction Program. We invite public co mments on this proposal. c. Proposed Methodology for the CABG Meas ure: 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 r eadmission following admission for a CABG procedure. In general, the measure uses the same approach to risk-adjustment and hierarchical logistic modeling (HLM) met hodology that is specified for the AMI, HF, PN, COPD and THA/TKA readmi ssion 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 patie nts a hospital treats (that is, hospital case-mix), the number of patients it treats, a nd the quality of care it provides. The HLM methodology is an appropriate statistical appr oach to measuring quality based on patient outcomes when the patients are clustered within hospitals (and, therefore, the patients’ outcomes are not statistically independent) a nd 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 me thodology 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 measur e is based on data derived from

administrative claims. It uses Medicare ad ministrative data from hospitalizations for

fee-for-service Medicare beneficiaries hospitalized for a CABG procedure. (2) Definition of Outcome The proposed CABG readmission measur e 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 improve ments in care at the time of discharge can570 reduce 30-day readmission rates. 32,33 Thirty days is a meaningful timeframe for hospitals because readmissions are more likely attribut able to care received within the index hospitalization and during the tran sition to the outpatient setting. The proposed CABG readmission meas ure assesses all-cause unplanned readmissions (excluding planned readmissions) rather than readmissions for CABG only. We include all unplanned readmissions for seve ral reasons. First, from the patient perspective, a readmission for any reason is li kely to be an undesir able outcome of care, even though not all readmissions are preven table. 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 fr om the hospital setting. More over, it is often hard to exclude quality issues and accountability for a readmission based on the documented cause of readmission. For example, a pa tient who underwent a CABG surgery and developed a hospital-acquired infection might ultimately be readmitted for sepsis. It would be inappropriate to cons ider such a readmission to be unrelated to the care the patient received for their CABG surgery. Fi nally, while the measure does not presume that each readmission is prev entable, 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 clai ms 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 Di scharge Planning and Compliance with Outpatient Appointments on Readmission Rates. Psychiatr Serv. July 1 2000;51(7):885-889.571 Algorithm Version 3.0 that dete cts planned readmissions that may occur within 30 days of discharge from the hospital. Version 2.1 of the algorithm was fina lized 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. Th e proposed CABG readmission measure uses the planned readmission algorithm, tailored for CA BG patients. We ad apted the algorithm for this group of patients with input from Cardiothoracic surgeons and other experts, narrowing the types of readmissions consid ered 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 inco rporates the CMS Planned Readmission Algorithm Version 3.0 can be found in the 2012 CABG Readmission Measure Methodology Report on the CMS We b site (available at: http://www.cms.gov/Medicare/Quality -Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html ). For the proposed CABG readmission measure, unplanned readmissions th at 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 clini cally coherent set of patient s in the measure, we sought input from clinical experts regarding the inclusion of other concomitant cardiac and non-cardiac procedures, such as valve replacem ent and carotid endart erectomy. Adverse572 clinical outcomes following su ch 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 underg oing isolated CABG as eligible for

inclusion in the measure. We defined is olated CABG patients as those undergoing CABG procedures without concomitant valve or other major cardiac, vascular or thoracic procedures. In addition, our clinical expert s, consultants, and Technical Expert Panel (TEP) members agreed that an isolated CABG cohort is a clinically coherent cohort suitable for a risk-adjusted outcome measur e. 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 pa tients who are discharged agai nst 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 measur ement period (a repeat CABG procedure during the measurement period very likely re presents a complication of the original CABG procedure and is a clinic ally more complex and higher ri sk surgery; therefore, we

select the first CABG admission for inclusi on 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 Medica re fee-for-service (excluded because the 30-day readmission outcome cannot be assessed in this group). (5) Transferred Patients and A ttribution of Readmission Outcome Among medical conditions, such as AMI, heart failure and pneumonia, transfers

between acute care faci lities can occur for a variety of di fferent reasons and it is likely that the discharging hospital ha s the most influence over a pa tient’s risk of readmission

and therefore the readmission outcome is a ppropriately assigned to the hospital that discharges the patient. For that reason, the currently publicly reported AMI, heart failure and pneumonia readmission measures attribut e 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, transf er to another acute care facility after CABG is most likely due to a complication of the CABG pro cedure or the peri-operative care the patient received. Therefore, the care provided by the hospital performing the CABG procedure likely dominates readmissi on risk, even among transferred patients. This viewpoint is supported by the high propor tion of CABG readmissions for diagnoses574 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 readmissi on outcome is attributed to the hospital performing the first (“index”) CABG, even if this is not the discha rging 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 transfe rred to hospital B. The initial admission to hospital A and the admission to hospital B ar e considered one acute episode of care, made up of two inpatient admissions. The meas ure 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 ad justs for differences across hospitals in the level of risk their patients have fo r readmission relative to patients cared for by other hospitals. The measure uses administrativ e claims data to identify patient clinical conditions and comorbidities to adjust pati ent risk for readmissi on across hospitals, but does not adjust for potential complications of care. The model does not adjust for

socioeconomic status or race because risk ad justing 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 to575 illuminate quality differences, and risk adju stment for socioeconomic status or race would obscure such quality differences. (7) Calculating the Excess Readmissions Ratio The proposed CABG readmission meas ure uses the same methodology and statistical modeling approach as the ot her Hospital Readmissions Reduction Program measures. We published a detailed descripti on 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 wh ich this measure is calculated for the Hospital Readmissions Reduction Program differs from those used in calculations for the Hospital IQR Program. The Hospital Read missions 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 Un ited States. However, we believe that the CABG readmissions measure is appr opriate 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 Reduc tion Program and measure technical specifications and methodology are on the Qu alityNet Web site on the Resources Web page (available at: https://www.qualitynet.org/dcs/ContentSer ver?c=Page&pagename=QnetPublic%2FPage %2FQnetTier3&cid=1228772412995 ). Many of the quality measures used in different Medicare an d 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 underg o maintenance of endorsement review every 3 years. In the measure maintenance process, the measure steward (owner/developer) is responsible for updating an d maintaining the curr ency 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 trienn ial 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 incorporat e nonsubstantive updates577 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 annua l 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 Reducti on 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 pres erving the public’s ability to comment on updates that so fundamentally change an endor sed 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, provi ded 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 of578 health outcomes and cost savings establishe d 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 paym ent reform for the medical care of residents of the State, including dual-e ligible 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 Ma ryland 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 applicab le to Maryland hospitals. The effect of Maryland hospitals no longer being pa id under 1814(b)(3) of th e 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 implementing579 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 follo wing language: “or a hospital in Maryland that is paid under section 1814(b)(3) of the Act and that, absent the wa iver specified by section 1814(b)(3) of the Act, would have been pa id under the hospital i npatient 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 th e “adjustment factor” for an applicable hospital for a fiscal year as e qual 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 fl oor adjustment factor specifi ed in subparagraph (C).” Section 1886(q)(3)(B) of the Ac t, in turn, describes the ra tio used to calculate the adjustment factor. Specificall y, it states that the ratio is “equal to 1 minus the ratio of – (i) the aggregate payments for excess readmissi ons . . . and (ii) the aggregate payments for all discharges . . . .” The calculation of this ratio is codified at § 412.154(c)(1) of the regulations. Section 188 6(q)(3)(C) of the Act specifies th e 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 gr eater of the ratio or, fo r FY 2015 and subsequent fiscal years, a floor adjustment factor of 0.97. U nder our established policy, the ra tio 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, th e 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 us e 3 years of claims data to calculate the

readmission measures in the FY 2012 IPPS/LTC H 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 ex cess readmissions ratios and adjustments for the fiscal year, which includes aggregate paym ents for excess readmissions and aggregate payments for all discharges used in the calculation of the payment adjustment. Consistent with the definition at § 4 12.152, 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 paymen t 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 most581 recent available 3-year period of data upon which to base these calculations (78 FR 50669). In this proposed rule, for FY 2015, consis tent with the definition at § 412.152, we are proposing an “applicable period” for the Hospital Read missions 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 a nd 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 pr oposed 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 TH A/TKA and COPD Readmissions Measures to Calculate Aggregate Payments for Excess Readmissions Beginning in FY 2015 Under the Hospital Readmissions Reduc tion 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 sect ion 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 se ction 1886(q)(2) of the582 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 sect ion 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, fo r purposes of calculating the payment adjustment factors and applying the paym ent 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 Readmissi ons 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 readmi ssions” and “aggregate payments for all discharges,” as well as a methodology for calculating the numerator of the ratio (aggregate payments for excess readmissions) a nd the denominator of the ratio (aggregate payments for all discharges) are codifi ed at § 412.154(c)(2) of the regulations (77 FR 53387).583 Section 1886(q)(4) of the Ac t 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 “f or a hospital for an applicable period, the sum, for applicable conditions . . . of the product, for each applicable condition, of (i) the base operati ng 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 applicab le period; and (iii) the excess readmissions ratio... for such hospital for such applicable pe riod minus 1.” We c odified this definition of “aggregate payments for excess readmi ssions” 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 hospita l for the applicable period; and (3) the excess readmissions ratio for the hospita l for the applicable period minus 1 (77 FR 53675). The excess readmissions ratio is a hosp ital-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 “ris k-adjusted readmissions based on actual readmissions” for an app licable hospital for each a pplicable condition, to the “risk-adjusted expected readmissions” for the applicable hospital for the applicable condition. The methodology for the calculation of the ex cess readmissions ratio was

finalized in the FY 2012 IPPS/LTCH PPS fi nal rule (76 FR 51673). “Aggregate584 payments for excess readmissions” is the numer ator of the ratio used to calculate the adjustment factor under the Hospital Read missions Reduction Program (as described in further detail later in this section). The term “aggregate payments for a ll discharges” is defined at section 1886(q)(4)(B) of the Act as “for a hospital fo r an applicable period, the sum of the base operating DRG payment amounts for all discharg es for all conditions from such hospital for such applicable period.” “Aggregate paym ents for all discharges” is the denominator

of the ratio used to calcul ate the adjustment factor under the Hospital Readmissions Reduction Program. We codified this de finition of “aggregate payments for all discharges” under the regulat ions at § 412.152 (77 FR 53387). We finalized the inclusion of two additional applicable conditions, COPD and THA/TKA, to the Hospital Readmissions Re duction 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 adju stment for FY 2015. Specifically, we are proposing how the addition of COPD and T HA/TKA applicable conditions would be included in the calculation of the aggregate payments for excess readmissions, which is the numerator of the readmissions payment adju stment. We note that this proposal does not alter our established methodology for calculating aggregate payments for all discharges, that is, the denomi nator 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 applicable585 period. “Aggregate payments for excess readmi ssions” (the numerator) is defined as “the sum, for applicable conditions . . . of the pr oduct, 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 admissi ons 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 Medica re inpatient claims from the MedPAR file with discharge dates that are within the same applicable period to

calculate the excess readmissions ratio. We us e MedPAR claims data as our data source for determining aggregate payments for exce ss readmissions and aggregate payments for all discharges, as this data source is consiste nt with the claims data source used in IPPS rulemaking to determine IPPS rates. For FY 2015, we are proposing to use MedP AR 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 Me dPAR 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 up dates 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 th e public to verify the readmissions adjustment factors. Interested individuals may order thes e 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 Re quest, the LDS Data Use Agreement and Research Protocol (refer to the Web site fo r further instructions), the LDS Form, and a check for $3,655 to:

● If using the U.S. Postal Service: Centers for Medi care and Medicaid Services, RDDC Account, Accounting Division, P.O. Box 7520, Baltimore, MD 21207-0520.

● If using express mail: Centers fo r Medicare and Medicaid Services, OFM/Division of Accounting- RDDC, Ma ilstop C#-07-11, 7500 Security Boulevard, Baltimore, MD 21244-1850. For this proposed rule, we are propos ing to determine aggregate payments for excess readmissions and aggregate payments fo r 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 th e purpose of modeling the proposed FY 2015 readmissions payment adjustment factors fo r this proposed rule, we are using excess readmissions ratios for app licable 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 hosp ital-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 cl aims 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 cl aims within FY 2011, the March 2013 update of the FY 2012 MedPAR file to identify cl aims within FY 2012, and the December 2013 update of the

FY 2013 MedPAR file to identi fy claims within FY 2013 w ith 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 fina l rule the March 2014 upda te 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 hospita l, 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 readmi ssions of Medicare patients discharged from an applicable hospital having a principal di agnosis for the measur ed condition in an applicable period (76 FR 51669). The discha rge diagnoses for each applicable condition are based on a list of specif ic 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 > Readmissi on Measures > Measure Methodology.588 In order to identify the a pplicable conditions to calcul ate 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 aggr egate 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 pr ocedure 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 w ith the methodology to calculate the excess

readmissions ratio for THA/TKA. In order to identify claims with the applicable condition of COPD, we are propos ing to identify claims that either have the ICD-9-CM code for that condition is listed as the princi pal 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 consid ered 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 exce ss 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 cu rrent methodology to identify the admissions included in the calculation of “aggregat e payments for excess readmissions” for589

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 aggr egate 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 proposi ng 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 applicab le conditions, AMI, HF, PN, THA/TKA and COPD, for the purposes of cal culating aggregate payments for excess readmissions as

follows:

● We would exclude admissions that are id entified as an applicable condition if the patient died in the hospital, as identifie d by the discharge status code on the MedPAR

claim.

● We would exclude admissions identifie d 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 examin ation 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 patie nts 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 Pa rts 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 a bove 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 tran sfer to another hospital or from another hospital, consistent with the calculation of the excess readmissions ratio for THA/TKA.

● We are proposing to exclude admissi ons for THA/TKA for cases where the discharge includes a femur, hip, or pelvic fr acture coded in the principal or secondary diagnosis fields, consistent with the calc ulation of the excess readmissions ratio for

THA/TKA.

● We are proposing to exclude admissi ons 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 admissi ons 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 maligna nt neoplasm coded in the principal diagnosis field, consistent with the calcul ation of the excess readmissions ratio for

THA/TKA.

● We are proposing to exclude admissi ons for THA/TKA for cases where the discharge includes more than two hip/knee procedures..

● We are proposing to exclude admissi ons 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) pr ocedures; resurfacing procedures; and removal of im planted 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), cons istent with the methodology to calculate excess readmissions ratios based solely on admi ssions 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 ta bles below list the ICD-9-CM codes we are proposing to use to identify each applic able 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 us e to identify the two conditions, THA/TKA and COPD, added to the Hospital Read missions 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 IDENTI FY 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 ot her 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 Pneumoni a 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 othe r 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 H1 N1 influenza virus with pneumonia594

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 kidne y disease, malignant, with heart failure and with chronic kidney di sease stage I thr ough stage IV, or unspecified 404.03 Hypertensive heart and chronic kidne y disease, malignant, with heart failure and with chronic kidney diseas e stage V or end stage renal disease

404.11 Hypertensive heart and chronic kidney disease, benign, with heart failure and with chronic kidney disease stag e I through stage IV, or unspecified

404.13 Hypertensive heart and chronic kidney disease, benign, with heart failure and with chronic kidney disease stag e I through stage IV, or unspecified failure and chronic kidney disease st age V or end stage renal disease

404.91 Hypertensive heart and chronic kidne y disease, unspecified, with heart failure and chronic kidney disease stag e V or end stage renal disease heart failure and with chronic kidney di sease stage I thr ough stage IV, or unspecified

404.93 Hypertensive heart and chronic kidne y disease, unspecified, with heart failure and chronic kidney disease st age V or end stage renal disease 428.xx Heart Failure595

ICD-9-CM CODES TO IDENTIFY ACU TE 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) – epis ode of care unspecified 410.71 AMI (subendocardial) – in itial 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) – ep isode of care unspecified 410.91 AMI (unspecified site) – initial episode of care596

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 bronch itis; with acute bronchitis 491.8 Other chronic bronchitis. Chroni c: tracheitis, tracheobronchitis. 491.9 Unspecified chronic bronchitis 492.8 Other emphysema; emphysema (lung or pulmonary): NOS, centriacinar, centrilobu lar, obstructive, pa nacinar, panlobular, unilateral, vesicular. MacL eod'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 di sease, obstructive lung disease, obstructive pulmonary disease (C OPD) NOS. NOTE: This code is not to be used with any code from categories 491-493. 518.81* Other diseases of lung; acut e respiratory failure; respiratory failure NOS 518.82* Other diseases of lung; acute respiratory failure; other pulmonary insufficiency, acute re spiratory distress 518.84* Other diseases of lung; acut e 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 arthroplasty597 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 a ggregate payments for excess readmissions, we are proposing to calculate the base ope rating DRG payment amounts for all claims in the 3-year applicable period for each app licable condition (AMI , HF, PN, COPD and THA/TKA) based on the claims we have iden tified as described above. Once we have calculated the base ope rating DRG amounts for all the clai ms for the five applicable conditions, we are proposing to sum the ba se 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 hospita l has performed, with re spect to readmissions for that applicable condition, worse than the av erage hospital with sim ilar 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 ra tio 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 ar e not proposing any598 changes to our existing methodology to calculate “aggregate payments for all discharges” (the denominator of the ratio). We are proposing the following met hodology for FY 2015 as displayed in the

chart below.

FORMULAS TO CALCULATE THE RE ADMISSIONS 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 condi tion is less than/equal to 1, then there are no aggregate payments for ex cess 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 r eadmissions/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 we599 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 whethe r 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-ba sed purchasing program (the Hospital Value-Based Purchasing (VBP) Pr ogram) under which va lue-based incentive payments are made in a fiscal year to hospitals that meet performance standards established for a performance period for su ch fiscal year. Both the performance standards and the performance period for a fi scal 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 hos pitals 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 Performan ce Score (TPS) for a specified performance period. In accordance with se ction 1886(o)(7) of the Act, the total amount available for value-based incentive payments for a fiscal ye ar 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 fundi ng pool was equal to 1.25 percent of the base-operating DRG payments to all part icipating hospitals, as estimated by the Secretary. The size of the applicable pe rcentage has increased to 1.50 percent for601 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 (t he 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 th at pose immediate jeopar dy to the health or safety of patients; and (3) a hospital fo r which there are not a minimum number (as determined by the Secretary) of measures th at apply to the hospita l 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 Inpa tient VBP Program final rule (76 FR 26490 through 26547), FY 2012 IPPS/LTCH PPS fina l rule (76 FR 51653 through 51660),

CY 2012 OPPS/ASC final rule with co mment 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), a nd CY 2014 OPPS/ASC final rule with comment period (78 FR 75120 through 75121) for fu rther descriptions of our policies for the Hospital VBP Program.602 We have also codified certain requir ements 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 instru cts 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 to tal amount available for value-based incentive payments for all eligible hospitals for the fi scal year, as estimated by the Secretary. We finalized details on how we would impl ement 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 ap plicable 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-base d 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 f unction to translate this estimated amount available into a value-based incentive payment percentage for each hospital, based on its TPS. We will603 then calculate a value-based incentive payment ad justment factor that will be applied to the base operating DRG payment amount for each discharge occurr ing 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 (whi ch is available via th e 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 scor es 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 th ose proxy value-based incentive payment adjustment factors was 2.0952951561. This slope, along with the

estimated amount available for value-based in centive 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 ch anges based on the March 2014 update to the FY 2013 MedPAR file. We also in tend to update the slope of the linear exchange function used to calcu late those updated proxy value-based incentive payment adjustment factors. The upda ted proxy value-based incentive payment adjustment factors for FY 2015 will continue to be based on hist oric FY 2014 Program TPSs because hospitals will not have been given the opportunity to review and correct their actual TPSs for the FY 2015 Hosp ital 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 fo r FY 2015, we will add Table 16B (which will

be available via the Internet on the CMS We b site) to display the actual value-based604 incentive payment adjustment factors, exch ange 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 s ite 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 Prot ecting Access to Medicare Act of 2014 (PAMA), extended the MDH program through Ma rch 31, 2015. We note that that the special treatment for MDHs under section 1886(o)(7 )(D)(ii)(I) of the Ac t, 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, fo r purposes of calculating the payment adjustment factors and applying the paym ent 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 ba se 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 is605 “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 Thera py 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 Se lection for Surgical Patients SCIP-Inf-3 Prophylactic Antibiotics Discon tinued Within 24 Hours After Surgery End Time SCIP-Inf-9 Urinary Catheter Removed on Po stoperative Day 1 or Postoperative Day 2 SCIP-Card-2 Surgery Patients on Beta-Blo cker Therapy Prior to Arrival Who Received a Beta-Blocker Duri ng 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-Associat ed 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 Domain606 MSPB-1 Medicare Spe nding 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 showi ng statistically indistinguishable performance levels at the

75 th and 90 th percentiles; and (2 ) national measure data showin g a truncated coefficient of variation (TCV) less than 0.10. We refer readers to the Ho spital Inpatient VBP Program final rule (76 FR 26496 through 26497) for furt her discussion of these current “toppedout” criteria and to our proposal belo w to modify the second criterion.

Based on our evaluation of the most recentl y available data, we believe that PN-6, SCIP-Card-2, SCIP-Inf-2, SCIP-Inf-3, SC IP-Inf-9, and SCIP-VTE-2 are all now “topped-out.” Therefore, we are pro posing 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 scori ng methodology, and will reduce the reporting burden on participating hospitals. We welcome public comment on this proposal.607 (2) Proposed Change to Truncated Coeffici ent 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 indistinguis hable 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 co mmon statistic that expresses the standard deviation as a percentage of th e sample mean in a way that is independent of the units of observation. Applied to this analysis, a large CV would indicate a br oad 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 distincti ons 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 am ong 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 measur es are eligible for adoption based on the statutory requirements, including specifi cation under the Hosp ital 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 Hosp ital 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 sta ndardized infection ratio (MRS A bacteremia SIR) among all inpatients in the facility, a nd is reported via CDC’s Nationa l Healthcare Safety Network (NHSN). We adopted this measure beginni ng 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 persiste nt public health threat presented by

MRSA infections. Accordi ng to a 2013 study available at the NIH Web site, MRSA “results in longer hospitaliza tion, increased expenses, and poorer patient prognosis,” and MRSA “has been swiftly increasing worl dwide 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 Unde r Consideration by HHS found at https://www.qualityforum.org/WorkArea/li nkit.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 shoul d be applied following public reporting on Hospital Compare, and that the most recent versi on 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 th e 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 infecti ons 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 th e 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 Child ren. Infectious Disease Society of America 2011; 52:e18610 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 ri sk-adjusted outcome measure monitoring hospital onset of C. difficile infection events using the standardized infection ratio ( C. difficile SIR) among all inpatients in the f acility, and is reported via CDC’s NHSN. We adopted this measure for th e FY 2015 payment determination under the Hospital IQR Program in the FY 2012 I PPS/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 th e 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 recen t 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.pdf611 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 Unde r Consideration by HHS found at https://www.qualityforum.org/WorkArea/li nkit.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 shoul d be applied following public reporting on Hospital Compare, and that the most recent versi on 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 th e 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 a dopted 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). Initia l measure data were posted on Hospital Compare in December 2013. Although this is a chart-abstra cted measure, we finalized our policy in612 the FY 2013 IPPS/LTCH PPS final rule (77 FR 53528 through 53529) that this measure would be collected in aggreg ated numerator, denominato r, and exclusion counts per hospital via a Web-based tool, instead of co llecting patient-level data from hospitals.

As we described in the FY 2013 IPPS/LTC H PPS final rule referenced above, the Strong Start Initiative ( http://www.innovation.cms.gov/in itiatives/strong-start/ ) was launched to help reduce early elective births. At launch, th e HHS Secretary stated that more than half a million infants are born prem aturely in America each year. Fortunately, the early elective birth rate has steadily d ecreased. In 2012, the num ber 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 ad ditional 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 elec tive births, the Str ong Start Initiative’s objective is to test ways to reverse this tr end by helping provide expectant mothers with the care they need for a h ealthy 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., Fr ye, D., & Meyers, J. (2009). Neonatal and maternal outcomes associated with elective delivery. [Elect ronic 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 acro ss 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 a nd mortality, as well as a significant savings

in healthcare costs. In add ition, the rate of cesar ean 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 Unde r Consideration by HHS found at https://www.qualityforum.org/WorkArea/li nkit.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 measur e for the Hospital VBP Program and we are proposing to place the measure into the Clin ical Care -- Process domain because we believe this measure furthers the NQS’s th ree-part aim of better health care for individuals, better hea lth 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 benefici aries, who have the614 potential to be impacted by early electiv e births. In 2011, Medicare paid for roughly 14,000 births. We welcome public comment on this proposal. d. Proposed Adoption of the Current CL ABSI Measure (NQF #0139) for the FY 2017 Hospital VBP Program

In the FY 2014 IPPS/LTCH PPS final ru le (78 FR 50682 and 50686), we adopted the CLABSI measure for the FY 2016 Hospital VB P Program. We stated our belief that adopting the current CLABSI measure is cons istent 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/li nkit.aspx?LinkIdentifier=id&ItemID=72746 , to use the standardized infection ratio versi on of the measure until the reliability-adjusted CLABSI measure is NQF-endorsed. We have st ated our intent to consider adopting the reliability-adjusted CLABSI measure in future rulemaking. The reliability-adjusted standardized in fection ratio (SIR) is an outcome measure

that summarizes the healthcare-associated in fection experience by type of infection (for example, central-line associated bloodstream infection, surgical site infection) for individual hospitals. The reli ability-adjusted measure enable s more meaningful statistical differentiation between hosp itals by accounting for differe nces in patient case-mix, exposures to medical devices or procedures (for example, central line days, surgical procedure volume), and unmeasured factors th at are not reflected in the unadjusted SIR

and that cause variation in outcomes between hospitals. A ccounting for these sources of615 variability enables better meas ure discrimination between hos pitals and leads to more reliable quality measurements. However, in the absence of NQF endorse ment 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 adop tion under the Hospita l VBP Program. We

continue to believe that the CLABSI measur e encourages hospitals to minimize infection events that present significan t 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 reliab ility-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 a nd Proposed New Measures for the FY 2017 Hospital VBP Program The following table outlines the measur es for the FY 2017 Hospital VBP Program that we are readopting, as well as those m easures we are proposing to adopt. As discussed further below, this table incl udes 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) Safety616

CLABSI** Central Line-A ssociated 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 In fection: (NQF #0753) ● Colon ● Abdominal Hysterectomy Safety

MORT-30-AMI* Acute Myocardi al 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 Th erapy 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 Spendi ng 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 Comp lication Rate (RSCR) Following Elective Primary Total Hip Arthroplasty (THA) and Total Knee Arthroplasty (TKA) Hospital-level Risk-Standardized Comp lication 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 Pr ogram 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 i ndex 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 jo int 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&blobnoc ache=true&blobwhere=1228890067881&blobheader=multipart%2Foctet-stream&blobheadername1=ContentDisposition&blobheadervalue1=attachmen t%3Bfilename%3DTHK_CmpMsrUpdtSpecs_ 080113.pdf&blobcol=urldata&b lobtable=MungoBlobs ) for additional details on the

THA/TKA measure.

We continue to believe that meas uring and reporting risk-standardized complication rates will inform health care pr oviders about opportuni ties to improve care, strengthen incentives for quality improvement , and promote improvements in the quality of care received by patients and in the out comes they experience. We believe that THA/TKA is an important measure of clinic al outcomes, and we therefore are proposing to adopt it for the FY 2019 Hospital VBP Pr ogram and subsequent years. The MAP618 supported the adoption of the measure for incl usion in the Hospital VBP Program in its MAP Pre-Rulemaking Report: 2013 R ecommendations on Measures Under Consideration by HHS found at https://www.qualityforum.org/WorkArea/li nkit.aspx?LinkIdentifier=id&ItemID=72746 , noting it addresses a high-volume elective pro cedure 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 pos sible at that time. However, we did not intend to signal that we w ould not adopt the PSI-90 measure for FY 2019 and subsequent years. We continue to believe that adop ting 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 proposi ng 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 Expe rience 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 th e new Care Transition Measure composite. After collecting four quarter s of data on these items (J anuary 2013 through December 2013), we intend to publicly report CT M 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 stat utory requirements of the Hospital VBP Program, we are considering proposing to a dopt CTM as the ninth dimension of the HCAHPS survey in the PEC/CC domain fo r 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 dimensi ons of the HCAHPS Survey. Scoring in this

domain is based on two elements: the HCAHPS Base Score an d HCAHPS Consistency620

Points Score. For additional information on the calculation of the PEC/CC domain score,

we refer readers to “ A Step-by-Step Guide to Calculati ng the Patient Experience of Care Domain Score in the Hospital Value-Base d 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 “normaliza tion” approach, which would introduce only minor changes to the original scoring formula, as follows. For purposes of the HCAHPS Base Scor e, 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 Impr ovement 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 point s, 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 r ounded down) to create the normalized621

HCAHPS Base Score. Each of the nine dimens ions would be of equa l weight, so that, as before, the normalized HCAHPS Base Sc ore 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 formul a would be the sum of the HCAHPS Base Score and the HCAHPS Consistency Points Sc ore 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 Co st Reduction Domain Measure Topics In the interest of expanding the Effi ciency domain to include a more robust measure set, including measures that suppl ement the Medicare Spending per Beneficiary (MSPB) measure with more condition and/or treatment specific episodes, as well as facilitating alignment with the Physician Va lue-Based Payment Modifier (VM) Program, we are considering proposing to add new episode-based payment measures to the Hospital VBP Program through future rulemaki ng. Expanding the Efficiency domain to

include such measures would create incentiv es for coordination between hospitals and physicians to optimize the care they provide to Medicare bene ficiaries 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 Hospital622 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 dur ing an episode that spans from 3 days prior to a hospital admi ssion through 30 days post-discharge from the hospital. We would sum the standardized Me dicare 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 acco rding to the CMS standardiz ation 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 me thodology 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 tw o of the new episode-based measures, the hip episode measure and the knee episode meas ure, represent conditions that are in the same MDC. Accordingly, the new episode -based measures would be individually risk-adjusted at the sp ecific episode type level, in or der to recognize the distinctions. The payment standardization methodology is available in th e document entitled

“CMS Price Standardization” and the MSPB risk adjustment methodology is included in623

the document entitled “MSPB Measure In formation Form,” both available at: http://www.qualitynet.org/dcs/ContentSer ver?c=Page&pagename=QnetPublic%2FPage %2FQnetTier4&cid=1228772057350 . The risk adjustment methodology specific to these six episode-based standardized payment meas ures can be found on the CMS Web site at: http://www.cms.gov/Medicare/Quality -Initiatives-Patient-AssessmentInstruments/hospital-value-based-purchasi ng/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 h ealth conditions treated during the hospital stay that triggered the episode. The aim of in cluding these episode-based payment measures in the Hospital VBP Program would be to di fferentiate between hos pitals that provide care efficiently (that is, high qua lity care at a lower cost to Medicare). We believe that risk-adjusted standardized Medi care payments are an appropri ate indicator of efficiency as they allow us to compare hospitals wit hout regard to such factors as geography and teaching status. This comparison is particul arly 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 appropriat ely 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 wh en, during the 30 days following discharge624 from an index admission, a beneficiary is read mitted 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 repl acement/revision episode and would also trigger a new hip replacement/r evision episode where the index admission

would be that for the revisi on. 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-purchasi ng/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 tr act 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 consid eration are (1) hip replacement/revision; (2) knee replacem ent/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 code s specified for that episode. We welcome public comment on the three medical and three surgical conditions that we are considering as new episode-ba sed measures for initial expansion of the Efficiency domain.625 There are a number of other types of ep isodes that could also meet the episode selection criteria we describe below, incl uding those related to heart and lung (for example, heart failure and pneumonia). We not e that we are exploring data related to episodes for these types of conditions under the Physician VM Program. We welcome comment regarding the applic ability of episode-based measures for these or other conditions for future expansi on of the Efficiency domain. In selecting the six condi tions around which we would develop episode measures for future expansion of the Efficiency domain, we considered the following five criteria: (1) the condition consti tutes a significant share of Medi care payments for hospitalized patients during and surrounding the hospital stay; (2) the degree to which clinical experts consulted for this project agree that sta ndardized Medicare pa yments 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 fo r the condition reflect high variation in post-discharge payments, enabling differentiation between hospitals; and, (5) the medical condition is managed by ge neral medicine physicians or hospitalists and the surgical conditions are managed by su rgical subspecialists , enabling comparison between similar practitioner types within each episode measure. For analysis purposes, the five selecti on criteria were applied to 2012 Medicare acute inpatient hospital data in a hierarch ical manner, to prioritize the inpatient

conditions. After the selec tion criteria were applied, we narrowed the medical and626 surgical episodes to those episodes that ar e 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-purchasi ng/index.html?redirect=/ hospital-value-basedpurchasing . We welcome public comments on the ep isode selection criteria we utilized. Complete episode specifications, including the MS-DRG and ICD-9-CM procedure codes used to identify each of th e 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/Medicar e/Quality-InitiativesPatient-Assessment-Instrume nts/hospital-value-basedpurchasing/index.html?redirect=/ hospital-value-based-purchasing . We welcome public comments on these specifications and the cons truction of the six episode-based payment measures that we are considering. 7. Previously Adopted and Proposed Perfor mance 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 a nd ends prior to the beginning of such fiscal year. We refe r 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 periods627 for the Clinical Process of Care, Patient E xperience 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 performan ce and baseline periods using those new domains for the FY 2017 Hospital VBP Program. b. Previously Adopted Baseline and Perf ormance 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 considera tion of our policy goal to collect enough data to generate the most reliable scores po ssible, we adopted performance periods and performance standards for the 30-day mo rtality 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 Doma in 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 corresponding628 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 scor ing 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 therefor e 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 (J anuary 1, 2015, through December 31, 2015). We also are proposing to adopt a corr esponding 12-month baseline period of CY 2013 (January 1, 2013, through December 31, 2013) for purposes of calculating improvement points and calculating pe rformance standards. We invite public comment on these proposals. d. Proposed Patient and Caregiver-Centere d 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 correspond ing 12-month baseline period of CY 2012 (January 1, 2012 through December 31, 2012), fo r purposes of calculating improvement points and calculating performance standards. We continue to believe that a 12-month629 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 pe rformance standards. We invite public comment on these proposals. e. Proposed Safety Domain Performa nce 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 a dopted 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 ca lculating performance standards.

We continue to believe that a 12-m onth performance period provides us with sufficient data on which to score hospital pe rformance on NHSN meas ures in the Safety

domain. We also note that 12-month performance and base line periods are consistent with the reporting periods used for thes e 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 performan ce period of CY 2015 (January 1, 2015 through December 31, 2015), and a corresponding base line period of CY 2013 (January 1, 2013 through December 31, 2013) for purposes of calculating improvement points and calculating performa nce standards. We invite public comment on these proposals. f. Proposed Efficiency and Cost Reducti on 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), w ith a corresponding baseline period of CY 2012 (January 1, 2012, through December 31, 2012). This performance and baseline period enable us to collect sufficient measur e 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 domai n of CY 2015 (January 1, 2015 through December 31, 2015), with a corresponding base line 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 baseli ne periods for Clinical Care – Process, PEC/CC, and certain Safety measures under the new domain structure. We invite public co mments 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 previ ously adopted baseline and performance periods for the mortality and AHRQ PSI composite (PSI-90) measures noted).

Previously Adopted and Proposed Perfor mance 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, 2015Patient 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 Perf ormance Period and Baseline Period for the FY 2019 Hospital VBP Program for Clinical Care – Outcomes Domain Measures As described above, we have previous ly adopted the FY 2019 performance and baseline periods for the thr ee 30-day mortality measures th at we have adopted for the

former Outcome domain and that we have sinc e placed into the Clinical Care – Outcomes

domain under the new domain structure. In this proposed rule, we are proposin g to adopt the THA/TKA measure for the FY 2019 Hospital VBP Program and to pl ace 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 th e 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 performan ce period will not result in significant differences in measure scores. Further, a dopting this proposed pe rformance period would633

enable us to include the measure in th e FY 2019 Hospital VBP Program, which would ensure that hospitals continue focusing on measures of outcomes under the Hospital VBP Program and that we conti nue 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 Ho spital VBP Program. We have examined the correlation between hosp itals’ performance on the THA/TKA measure for 30-month and 36-month periods, and we believe that the 30-month period meet s 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 VB P Program with reporting periods under the Hospital IQR Program, while introducing measur es covering important clinical topics into the Hospital VBP Program as quickly as pos sible. 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 meas ure into the Program in FY 2019 and to accomplish that alignment beginning with the FY 2020 Hospital VBP Program. Therefore, we are proposing to ad opt 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 comme nts on these proposals.634 b. Proposed Performance Period and Baselin e 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 possibl e. 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 informa tion into their quality improvement efforts, rather than having to wait until the Hospita l VBP Program provides it s scoring reports to hospitals. We stated our further belief th at 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 peri od 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. Therefor e, 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 standa rds and awarding im provement points. We welcome public comme nts on these proposals. c. Summary of Previously Adopted and Proposed Performance Periods and Baseline

Periods for Certain Measures fo r the FY 2019 Hospital VBP Program The following table summarizes previous ly adopted and proposed performance and baseline periods for the FY 2019 Hospital VBP Program:

Previously Adopted and Proposed Perfor mance 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 th rough 50694), we adopted performance periods and baseline periods for the thr ee 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 scori ng, 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 app lies 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 po licy of measure readoption, we generally would readopt for the FY 2020 Hospital VBP Progr am if finalized. As stated above, we

have examined the correla tion between hospitals’ pe rformance 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 unde r the Hospital VBP Pr ogram with reporting periods under the Hospital IQR Program, wh ile introducing measures covering important clinical topics into the Program as quickly as possible. We believe that our proposal for a637 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 adop t 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/TK A 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 standa rds and awarding im provement points. The following table summarizes the pr oposed 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 performance638 period for the applicable fiscal year. The performance standards must include levels of achievement and improvement, as required by se ction 1886(o)(3)(B) of the Act, and must

be established and announced not later th an 60 days before the beginning of the performance period for the fiscal year invol ved, as required by s ection 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 ach ievement and improvement standards under the Hospital VBP Program. In addition, when establishing the perf ormance standards, section 1886(o)(3)(D) of the Act requires the Secretar y to consider appropriate fact ors, such as: (1) practical experience with the measures, including wh ether a significant pr oportion of hospitals failed to meet the performance standard during previous performance periods; (2) historical performance standards; (3) im provement 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 “ach ievement threshold” and “benchmark” at § 412.160 and adopted performance standard s for additional FY 2016 Hospital VBP639 Program measures. We also adopted an in terpretation of “achiev ement threshold” and “benchmark” under § 412.160 to not include the numerical values that result when the performance standards are calcu lated. 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 reader s to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50695 through 50698) for the complete set of FY 2016 perfor mance standards. c. Previously Adopted Performance St andards 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 thre e 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 Standa rds 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 propos ing to adopt the following additional performance standards for the FY 2017 Ho spital VBP Program. We note that the numerical values for the performance sta ndards 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’s640 performance standards are based on performan ce period data; therefore, we are unable to provide numerical equivalents fo r 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 measur es, 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 fo r SSI are computed separately for each measure stratum, and we will award achie vement 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 Perfor mance Standards for the FY 2017 Hospital VBP Program: Safety, Clinical Care – Ou tcomes, 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 Perfor mance Standards for the FY 2017 Hospital VBP Program: Safety, Clinical Care – Ou tcomes, 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 Experien ce 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 Experien ce of Care/Care Coordination Domain HCAHPS Survey Dimension Floor Achievement Threshold Benchmark Pain Management 49.47% 70.20% 78.18% Communication a bout 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 thes e proposed performance standards. e. Proposed Performance Standards fo r 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 pe riods 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. Therefor e, we are proposing to adopt the following performance standa rds for the FY 2019 Hospital VBP Program:643 Previously Adopted and Proposed Perfor mance Standards for Certain Safety and Clinical Care – Outcomes Domain Mea sures 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 thes e 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 0.909460644 Proposed Performance Standards for Clinical Care – Outcomes Domain Measures for the FY 2020 Hospital VBP Program Measure ID Description Achievement Threshold BenchmarkTHA/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 thes e 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 “ach ievement threshold” and “benchmark” at § 412.160 and adopted performance standard s for additional FY 2016 Hospital VBP Program measures. We also adopted an in terpretation of “achiev ement threshold” and “benchmark” under § 412.160 to not include the numerical values that result when the performance standards are calcu lated. 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 di splay Hospital VBP Program performance standards’ numerical values in rulemaking. We adopted this practice for the convenience of the public. Although we have typically e xpressed the performance standards for each Hospital VBP measure as a numerical value pr ior to the start of the performance period for that measure, we do not display numerical values for the MSPB measure because the645

measure is constructed as a measure of costs at tributable 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 constr ucted from baseline period data given the potential changes in market forces and u tilization practices that occur over time. Further, during the long interval be tween 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 sc ores 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 perfor mance period. For example, the software used to calculate the PSI-90 measure is regu larly updated to incor porate coding changes, refinements based on the consensus developm ent process, and refinements to improve specificity and sensitivity. The statistical m odeling we use to adjust measure calculations for PSI-90 and HCAHPS also needs to be peri odically updated to in corporate coefficient factors that more properly account for pa tient mix (both measures) and the HCAHPS survey data collection mode (HCAHPS survey ). These types of technical updates do not substantively affect the measure rate cal culation methodology, but they do sometimes affect our ability to make appropriate comp arisons between the baseline and performance period if, for example, the baseline performa nce 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 accurate646 comparison of hospital performance across tim e, we should use the most updated version

of the measure that is availa ble at the time we calculate that performance because the updated version will produce the most valid measure rates. Further, as part of its regular mainte nance 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 (o wner/developer) is re sponsible 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 spec ific 3-year cycle. The NQF’s annual or triennial maintena nce processes for endorsed measures may result in the NQF requiring updates to the m easures in order to maintain endorsement status. We believe that it is important to incorporate nonsubstanti ve updates required by the NQF, as well as nonsubstantive updates ma de to other measures, into the measure specifications we have adopted for the Hosp ital VBP Program so th at 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 determinati on on a case-by-case basis. Examples of647 nonsubstantive changes to measures might incl ude updated diagnosis or procedure codes, medication updates for categories of medica tions, broadening of age ranges, and exclusions for a measure (such as the a ddition of a hospice excl usion to the 30-day mortality measures). We believe that nonsubstantive changes ma y 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 perfor mance standards’ numerical values to incorporate nonsubstantive technical updates that are made to Hospital VBP Program measures between the time that they are a dopted 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 upda tes through postings on our Hospital VBP Program Web site, the QualityNet Web site, ot her 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 perf ormance period for the affected measures, but we believe them to be necessary to ensure th at 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 rulemaki ng to adopt substantive updates to the measures we have adopted for the Hospital VB P Program. Examples of changes that we might consider to be substantive would be those in which the changes are so significant648 that the measure is no longer the same meas ure, or when a standard of performance assessed by a measure becomes more stringent (for example: changes in acceptable timing of medication, procedure/pr ocess, or test administrati on). 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 th is change so that our policies governing updates to the performance st andards appear together. We welcome public comments on these propos als. 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 t echnical 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 schedul ed 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 Hosp ital VBP Program will remain the same, we

are concerned that the transition to a new coding system might have unintended649 consequences on quality measure data denominat ors, statistical adjustment coefficients,

and measure rates. We are concerned a bout 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 ensu re 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 re sult, retrospectively adjusting performance standards in order to ensure that they accu rately reflect the underlying methodology. We could also consider performi ng similar adjustments to hospitals’ measure rates, measure scores, or TPSs once our analysis is complete d. We also might consider scoring hospitals only on achievement if analysis indicates th at we are unable to reliably and validly calculate improvement scores when compari ng 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 analy ze ICD-10-CM/PCS potential impact before receiving ICD-10-CM/PCS-based fall 2015 disc harge data in May 2016. First, we will assess measure specifications to qualitativ ely assess impact to measure denominators

after CMS releases ICD-10-CM/PCS-based meas ure specifications in the future. Second, we intend to voluntarily solicit information from no more than 9 hospitals before650 October 1, 2015 to estimate the impact of ICD-10-CM/PCS on their Hospital VBP

measure rates and denominator counts. We inte nd 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 met hodology 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 invo lved extensive stake holder 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 extens ive 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, fo r reasons of simplicity, transparency, and consistency, it is important to score hosp itals using the same general methodology each year, with appropriate modi fications 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 VBP651 Program. In that rule, we stated that we believe these scoring me thodologies continue to appropriately capture hospital quality as refl ected by the finalized qu ality measure sets. We also noted that readopting the finaliz ed scoring methodology from prior program years represents the simplest and most consis tent policy for providers and the public. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50699), we readopt ed the finalized general scoring methodology adopted for th e 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 reas oning for the scoring methodology outlined in

the FY 2013 IPPS/LTCH PPS final rule and su mmarized above. Therefore, we are proposing to adopt the general scoring me thodology adopted for the FY 2016 Hospital VBP Program for the FY 2017 Hospital VBP Progr am, 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 fi nalized 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 domains652 with the NQS’ quality priorities, with certain modifications. We adopted this realignment beginning with the FY 2017 Hospital VBP Pr ogram. 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 Sc ore 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 Center ed 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 Clin ical Care – Process subdomain. We believe that the proposed substantial reduction in the number of measures adopted for the Clinical Care – Process subdomain, if finalize d, warrants reconsidera tion 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 VB P Program and subseque nt years, and, if finalized, they would raise th e total number of measures in this domain for FY 2017 to six. Because we are proposing to make cha nges in the number of measures in only two domains (Safety and Clinical Care), we focused our proposed domain weighting changes653 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 ar e proposing to add to that domain, we are proposing to revise the previ ously finalized domain weighting for the FY 2017 Hospital VBP Program for hospitals receiving a scor e 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 Center ed 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 orde r 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 wh ether it was appropriate to continue this policy. Therefore, in the FY 2013 IPPS/LTC H PPS final rule (77 FR 53606 through 53607), we finalized our propos al that, for the FY 2015 Hospital VBP Program and654 subsequent years, hospitals with sufficient da ta to receive at leas t 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 scor e on at least two doma ins) will receive a TPS. We also finalized our proposal that, fo r hospitals with at least two domain scores, TPSs would be reweighted propor tionately to the scored domai ns to ensure that the TPS is still scored out of a possible 100 points and that the relative we ights for the scored domains remain equivalent to the weighting which occurs when there are scores in all

four domains. We believe th at 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 Ho spital VBP Program and subsequent fiscal years for purposes of eligibility for th e 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 s ubdivided 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-b ased domains in order to recei ve 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 minimu m numbers of domains under the new domain655 structure is appropriate. We commissioned that analysis from our Reports & Analytics contractor for the Hospital VBP Program. Th e 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 duri ng the public comment pe riod. We believe that requiring three out of th e four NQS-based domains appropr iately balances our desire to be as inclusive as possible with Hosp ital VBP Program requirements while ensuring that TPSs under the Program are sufficiently reliable. Therefore, we are proposing to re quire that, for the FY 2017 Hospital VBP Program and subsequent years, hospitals mu st 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 wh ile ensuring that reliable TPSs result. However, we would only reweight hospitals’ TPSs once, and will therefore not reallocate

the Clinical Care – Process and Clinical Ca re – 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 receivi ng 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 percen t weighting from the Clinical Care – Process subdomain would be proportionately real located 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 Number s of Cases and FY 2016 Proposed Minimum

Numbers of Cases In the Hospital Inpatient VBP Progr am final rule (76 FR 26527 through 26531), we adopted minimum numbers of at least 10 cas es 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 meas ure (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 meas ures 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 provi de sufficiently reliable data for scoring purposes under657 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 propos al. 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 m easures, 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 ne w 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 de sire to be as inclusiv e as possible with the Hospital VBP Program and the need for reliab le 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 re spect to the CLABSI measure (77 FR 53608) and the SSI measure (78 FR 50684), the hospi tal has met CDC’s minimum case criteria, or one predicted infection dur ing the applicable period. We welcome public comments on this proposal.658 c. Proposed Minimum Number of M easures – 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 en sure that we place the appropriate domain weighting on measures of clinical processe s and measures of clin ical outcomes. We believe the same consideration is appropr iate for determining minimum numbers of measures for each subdomain, and based on prior independent analyses conducted of the appropriate minimum numbers for the Clinic al 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 reliab le 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 form er Outcome domain. We stated our belief that this minimum number is appropriate fo r the expanded Outcome domain that formed the basis for the Clinical Care – Outcomes subdomain because adding measure scores659 beyond the minimum number of measures has th e effect of enhancing the domain score’s reliability. As noted above, the Clinical Care – Ou tcomes subdomain now contains the three 30-day mortality measures, and based on pr evious independent analysis of the appropriate minimum number of measures for the Outcome domain that formed the basis

for the Clinical Care – Outcomes dom ain (available on our Web site at: http://cms.hhs.gov/Medicare/Quality -Initiatives-Patient-AssessmentInstruments/hospital-value-based-purchasi ng/Downloads/HVBP_Measure_Reliability- .pdf ), we continue to believe that a mini mum number of two measures within the subdomain appropriately balances scoring re liability with inclusiveness under the Program. As noted above, we intend to pos t a summary of the reliability and minimum numbers analysis on the CMS Web site during the public comment peri od. 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 Clin ical Care – Process measures for the FY 2017 Hospital VBP Program, or even requiring two out of th ree measures, could pr event a significant proportion of participating hospitals from r eceiving a Clinical Care – Process subdomain660 score. We are aware that relatively few hos pitals report data for the AMI-7a measure, and the proposed PC-01 measure will only in clude 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 w ith 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 propos ing to require that hospitals receive a

MSPB measure score in order to receive an E fficiency and Cost Reduction domain score. If we adopt additional measures for this dom ain in the future, we will consider if we should revisit this policy. We welcome public comments on this proposal. e. Proposed Minimum Number of Measur es – Patient and Caregiver Centered Experience of Care/Care C oordination (PEC/CC) Domain As with the MSPB measure adopted fo r the Efficiency and Cost Reduction domain described further above, we have not adopted additional measures for the

PEC/CC domain. Because the HCAHPS surv ey measure remains the only measure661 within the PEC/CC domain for FY 2017, we are proposing to require that hospitals receive a HCAHPS survey measure score in orde r 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, th e 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 “hos pital” 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 ex empt the hospital from the Hospital VBP Program if the State submits an annual report to the Secretary de scribing how a similar program in the State for a participating hosp ital or hospitals achie ves or surpasses the measured results in terms of patient health outcomes and cost savings established under the Hospital VBP Program. We have interpre ted the reference to section 1814(b)(3) of the Act to mean those Maryland hospitals that were paid under sec tion 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-year662 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 paym ent reform for the medical care of residents of the State, including dual-e ligible 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 se ction 1814(b)(3) of the Act. Maryland also represented that it is no longer in continuous operation of a demonstration pr oject reimbursement system since July 1, 1977, as specified under section 1814(b)(3) of the Act. Because Maryland hospital 

### s are no longer paid under section 1814( b)(3) of the Act, they are no longer subject to those provisions of the Ac t 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 a pplication of the Hosp ital 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 im plementing regulations, as set forth in the663 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 fr om the Hospital VBP Program under section 1886(o)(1)(C)(iv) of the Act and, but for the mode l, would be included in the Hospital VBP Program. In other words, although the exemption from the Hospital VBP Program no longer applies, Maryland hosp itals 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 paymen t 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 sec tion 1814(b)(3) of the Ac t because, at this time, there are no hospitals paid under that section. We welcome public comment on these proposals. 14. Disaster/Extraordinary Circumstan ce 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 th e process of revisi ng 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 th e 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 beginni ng 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 ad justed 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 woul d otherwise apply to such discharges under section 1886(d) or 1814(b)(3) of the Act, as applicable. Se ction 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 hos pital 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 Ac t requires the Secretary to establish and apply a risk-adjustment methodology.665 Sections 1886(p)(3) and (p)(4) of the Ac t define “hospital-acquired conditions” and “applicable period”, respectively. The te rm “hospital-acquired condition” means “a

condition identified in subsect ion 1886(d)(4)(D)(iv) of the Act and any other condition determined appropriate by the Secretary that an individual acquires du ring 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 pr ovides the delivery of confidential reports to applicable hospitals with respect to HACs of the applic able hospital during the applicable period. Section 1886(p)(6)(A) of the Act sets fort h the reporting requirements by which the Secretary would make information availabl e 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 ha s the opportunity to review, a nd 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. Sect ion 1886(p)(6)(C) of th e 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 Ac t limits administrative and j udicial 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 prov ision of confid ential reports666 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 implem entation of the HAC Reduction Program for the FY 2015 implementation. We included th e following provisions for the program: (a) the relevant definitions a pplicable 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) pe rformance scoring; (e) the process for making hospital-specific performance informa tion available to the public, including the opportunity for a hospital to review the information and submit corrections; and (f) limitation of administra tive 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 ba sis 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 sec tion 1886(p) of the Act, in the FY 2014 IPPS/LTCH PPS final rule, we included, under § 412.170, definitions for the terms667 “hospital-acquired condition,” “applicable hospital,” and “applicable time period” (78 FR 50967). In § 412.170, we defined “hospi tal-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, abse nt 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 provisi ons 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 requirem ents by which payments to “applicable hospitals” will be adjusted to account for HACs with discharges beginning on668 October 1, 2014. Section 1886(p)(1) of the Ac t 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 cal culated and made after payment adjustments under sections 1886(o) and 1886( q) of the Act, the Hosp ital VBP Program and the Hospital Readmissions Reduction Program resp ectively, are calculate d and made. (We note that the Hospital VBP Program is discusse d in section IV.I. of the preamble of this proposed rule and the Hospita l 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) hospita ls 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 hos pital that ranks in the top quartile (25 percent) of all subsection (d ) hospitals, relative to the nati onal average of hospitals that report conditions acquired duri ng 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, fo r applicable hospita ls, beginning with discharges occurring during FY 2015, the am ount of payment under § 412.172, or section 1814(b)(3) of the Act, as applicable, for such discharges shall be e qual to 99 percent of the amount of payment that would otherwis e apply to such discharges under § 412.172, or section 1814(b)(3) of the Ac t. This amount of payment will be determined after the application of the paymen t adjustment under the Hospital Readmissions Reduction Program under § 412.154, and the adjustment made under the Hospital VBP Program669 under § 412.162, and section 1814(l)(4) but without regard to this se ction 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 a pplication 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 hosp ital or hospitals achie ves or surpasses the measured results in terms of patient health outcomes and cost savings established under this subsection.” Accordingly, a program esta blished by the State of Maryland that could serve to exempt hospitals in the State fr om the HAC Reduction Program would focus on hospitals operating under the wa iver 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 prea mble of this proposed rule, because hospitals paid under section 1814(b)(3 ) of the Act are subsection (d) hospitals, they are included in determining “appli cable 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 determ ine whether Maryland will be exempted from670 the application of the payment adjustme nts 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 pros pective 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 a nnual report to the S ecretary describing how a similar program to reduce hospital acquire d 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 desc ribed 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 specif ied that Maryland’s annual repor t to the Secretary and request for exemption from the HAC Reduction Program must be resubmitted and reconsidered annually. We provided that, for FY 2015, Mary land 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 evalua te 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 noti ce 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 i nnovative payment and service delivery models, including

models that allow states to “t est and evaluate systems of all-payer payment reform for the medical care of residents of the State, incl uding dual eligible i ndividuals.” Section

1115A of the Act authorizes th e 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 sec tion 1814(b)(3) of the Act. Maryland also represented that it is no l onger in continuous operation of a demonstration project reimbursement system since July 1, 1977, as specified under Secti on 1814(b)(3) of the Act. Because Maryland hospitals are no l onger 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 provide s exemptions for hospitals paid under section 1814(b)(3) from the a pplication 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 se t forth in the agreement between CMS and Maryland and subject to Maryland’s complian ce 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 term s of the agreement. Consequently, we are proposing that the Total HAC scores for Mary land 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 conformi ng changes to these regulations and seek public comment on this proposal. Specificall y, we are proposing to remove the entire contents of paragraph (c) under § 412.172 a nd 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 secti on 1886(p) of the Act to address specific measure scoring met hodologies and domain weights regarding the HAC Reduction Program in notice-and-co mment rulemaking, as required under the673 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 rule making 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 th e 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 PP S 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 main tenance review. The PSI-90 composite consists of eight component indicators: PSI-3 Pressure ulcer rate; PSI-6 Iatrogenic pneumothorax rate; PSI-7 Central venous cathe ter-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 de hiscence rate; and PSI-15 Accidental puncture & laceration rate. AHRQ is consider ing the addition of PSI-9 (Perioperative hemorrhage rate), PSI-10 (Perioperative phys iologic 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 the674

FY 2014 IPPS/LTCH PPS final rule. Should th e changes be significant, we will issue notice-and-comment rulemaking prior to requiring reporting of this composite. Similarly, the CDC NHSN Catheter-Asso ciated Urinary Tract Infection (CAUTI)

and Central Line-Associated Blood Stream In fection (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 mainte nance 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 ru le (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 Su rgical Site Infection (SS I) measure for FY 2016; and (iii) addition of CDC NHSN Methicillin-R esistant 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 requirement675 (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 a nd 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 unf airly penalized. We noted that the risk-adjustment methodology for these measures meets NQF endorsement criteria. We believe that such risk-adjustment is appropria te, pursuant to secti on 1886(p) of the Act. We will continue to examine the imp act of the additional measures in the program, and propose refinements to the progr am if necessary. Should changes to the risk-adjustment models for the measures be adopted during NQF endorsement maintenance processes, we will propose a dopting 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 meas ures 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 th e 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 re port on whether a diagnosis is present on676 admission (78 FR 50718). (As noted in sec tion IV.J.3.b.(2) of the preamble of this proposed rule, in order to implement th e 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 th e Act, effective January 1, 2014. Although CMS has waived certain provisions of the Act for Maryland hosp itals 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 i ndicator reporting requirement. In other words, the changes to the status of Maryla nd hospitals under sec tion 1814(b)(3) of the Act as described above do not in any way change the POA indicator reporting requirement for Maryland hospitals.) We al so finalized that the same rules under the Hospital IQR Program be applied to de termine 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 da ta that would be used to ca lculate the Total HAC Score for FY 2015. For Domain 1 (AHRQ PSI-90 compos ite measure), we established a 2-year data period to calculate the measures based on recommendations from AHRQ, the measure developer, as we believed that th e 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 en hance 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 beneficiarie s discharged during this period will be

included in the calculation of measure resu lts 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. Howe ver, for the purpose of the HAC Reduction Program, we will use 2 years of data to calcu late 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 th e FY 2014 IPPS/LTCH PPS final rule at § 412.170. d. Criteria for Applicable Hospita ls and Performance Scoring Policy The HAC Reduction Program does not cont ain specific statutory directives on scoring methods, as found with other programs. Therefore, our main concern when establishing scoring methods for the HAC Re duction Program was to align with existing scoring methodologies in similar hospital programs. Accordi ngly, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50721), we finalized a scoring methodology that aligns with the achievement scoring met hodology currently used under the Hospital VBP Program (78 FR 27629). We believe alig ning the scoring methodologies reduces confusion associated with multiple scori ng 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 qu artile of applicable hospitals for HACs based on performance standards, where we w ould 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 eac h 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 Indicat ors 50 percent, Domain 2 – CDC NHSN Measures 50 percent), and adding together th e 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 cha nge to the proposed minimum benchmark for scoring each measure was nece ssary. We agreed with th ese 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 th e minimum value for each measure rather than

the 75 th 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 measur es 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 scor ing changes are necessary. Therefore, we finalized a di fferent weight for each Doma in 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 Scor e 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 quart ile 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 th e 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 i ndicator 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 calculati on for a hospital’s Domain 1 score. In this discussion, “complete data” refe rs to whether a hospital has enough eligible discharges to680 calculate a rate for a measure. Complete data for the AHRQ PSI-90 composite measure means the hospital has three or more eligib le 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 i ndicator for the AHRQ PSI-90 composite, we will calculate a Domain 1 score.

The calculation of the SIR for the CDC meas ures 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, Do main 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 ca nnot 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 indi cated in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50720 through 50725), points will be assign ed 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 each681 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 performan ce, the more points a hospital receives on a measure corresponds with a poorer score perf ormance. 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 Se lected Condition (PSI-90) composite in Domain 1, point assignment will be base d on a hospital’s scor e 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 Doma in 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 th e 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 th e hospitals, we will divide the results into percentiles in incremen ts of 10 with the lowe st percentile ranges meaning better performance. Hospitals w ith PSI-90 rates within the lowest tenth percentile will be given one point; those w ith PSI-90 rates within the second lowest percentile range (between the 11 th and 20 th percentile) will be given 2 points, and so forth. Figure A.--Point Assignment fo r Hospital A’s PSI-90 Score If Hospital A’s PSI-90 rate falls into th is percentile Then assign this number of points 1 s t

– 10 t h 1 11 t h – 20 t h 2 21 s t - 30 t h 3 31 s t - 40 t h 4 41 s t - 50 t h 5 51 s t - 60 t h 6 61 s t - 70 t h 7 71 s t - 80 t h 8 81 s t - 90 t h 9 91 s t - 100 t h 10683 For Domain 2, we will obtain measure re sults 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 th at elected to particip ate 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 subjec t 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 ac tive 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 per cent) that had no ICU

waiver failed to submit data to the NHS N. For the same quarter, of the 3,321 IPPS hospitals with an active IQR pledge, 2,935 (88.4 pe rcent) 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 be gin 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 th e 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 fo r the CDC HAI measures, we will assign 10 points to that measur e for that hospital.

○ If the hospital does submit data for at least one CDC NHSN measure:

▪ If there are “complete da ta” (that is, enough adverse even ts to calculate the SIR) for at least one measure, we will use those da ta 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 Do main 1 score to calculate its Total HAC

Score.685 Figure B. Calculation of Total HAC Sco re 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 d ata ?

Enough cases to calculate

SIR?686 (1) Clarification of Finali zed Measure Result Scoring fo r 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 th at 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 resu lt falls. Our preliminary analysis of the measures showed that multiple hospitals had th e 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 m easure 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 per cent 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 hospita ls. We note that randomly assigning some hospitals with the same SIR a higher (for ex ample, less favorable) score would be both arbitrary and capricious, which are prohibi ted by the Administrative Procedure Act. (2) Proposed Clarification of FY 2015 Fina lized Narrative of Ru les to Calculate the

Total HAC Score687 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 NH SN 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 collec ting CDC HAI measure data. The clarified rules that we are proposing are as follow s 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 wa iver or other waiver for the CDC HAI

measures:

○ If the hospital does not submit data fo r the CDC HAI measures, we will assign 10 points to that measur e for that hospital.

○ If the hospital does submit data for at least one CDC NHSN measure:

▪ If there are “complete da ta” (that is, enough adverse even ts to calculate the SIR) for at least one measure, we will use those da ta 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 Do main 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. Ho wever, 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 To tal 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 To tal HAC Score for this hospital. e. Reporting Hospital-Specific Informati on, 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 resp ect 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 confidentia l reports for the HAC Reduc tion 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 Reduc tion Program, and such information will be contained in the reports hospita ls currently receive as part of the Hospital IQR Program and can be reviewed and corrected through th e process specified for that program. We689

stated that we believe that this meth od 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 requ ires 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 policie s that the following information will be made public on the Hospital Compare Web site relating to the HAC Reduction Program: (1) hospital scores with resp ect 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 se ction 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 ru le, we codified the reporting of hospital-specific information at § 412.172( f) (78 FR 50968), in which CMS will make690 information available to the public regardi ng HAC rates of all hospitals described in section 1886(d)(1)(B) of the Ac t, including hospitals in Ma ryland 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 pream ble of this proposed rule, in order to implement the new Maryland All-Payer Model, Maryland electe d 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 report s 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 provi ded under paragraph (f )(1) to review and

submit corrections for the hos pital-acquired conditions dom ain score for each condition

that is used to calculate the Total HAC Sc ore for the fiscal year. The administrative

claims data used to calcul ate a hospital's Total HAC Scor e 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 conditio ns 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 paymen t changes for this FY 2015 IPPS/LTCH PPS proposed rule, we conducted a preliminary an alysis of the HAC Reduction Program using currently available historical data as a pr oxy for the actual data that will be used to determine hospital performance under the progr am. 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 Progr am. 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 opportuni ty to review and su bmit corrections as discussed in section IV.J.3.e.(3) of the preamble of this proposed rule.

f. Limitation on Administra tive 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 unde r section 1886(p)(2)(A) of

the Act.

● The specification of hospital acquire d conditions under section 1886(p)(3) of

the Act.

● The specification of the applicable pe riod under section 1886( p)(4) of the Act.692

● The provision of reports to applicable hospitals under sec tion 1886(p)(5) of the

Act.

● The information made available to the public under sectio n 1886(p)(6) of the

Act. In the FY 2014 IPPS/LTCH PPS final rule, we included these st atutory 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 th e 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 e xplained 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.a hrq.gov/Modules/PSI_TechSpec.aspx . Technical specifications

for the CDC NHSN’s HAI measures in Do main 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 an d 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 underg o maintenance of endorsement review every 3 years. In the measure maintenance process, the measure steward (owner/developer) is responsible for updating an d maintaining the curr ency 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 trienn ial 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 incorporat e 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 Specificat ions for Quality Measures” section found in section IX.A.1.b. of the pream ble of this proposed rule. We believe this proposal adequately bala nces our need to in corporate 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 an694

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 po tential waiver or exemption process for hospitals located in areas that experience di sasters or other extrao rdinary 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 operationa l 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 scor ing 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 Pr ogram 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/LTC H 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 unde r section 1886(p) of the Act to address specific measure scoring methodologies regard ing 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 di scussed and finalized in this year’s rulemaking relate to the performance met hodology used to determ ine the applicable hospitals subject to the payment adju stment under the HAC Reduction Program. (2) Measure Selection and Sc oring Methodology for FY 2016

In the FY 2014 IPPS/LTCH PPS final ru le (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 m easure 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 m easure 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 SSI696 measure explanation of SIR in the NHSN e-newsletter is available at: http://www.cdc.gov/nhsn/PDFs/Newsl etters/NHSN_NL_OCT_2010SE_final.pdf

. CDC’s SSI measure was finalized as a Doma in 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 th is 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 Do main 1 and the measure calculations for

CDC’s NHSN measures for Domain 2. In th is 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 be neficiaries discharged during this period

would be included in the calcu lation of measure results for FY 2016. This includes claims data from the 2012, 2013, and 2014 Inpatie nt Standard Analytic Files (SAFs). The Domain 2 CDC NHSN measures (C AUTI, CLABSI, and SSI) are currently collected and calculated on a quarterly basi s. 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 Ho spitals 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 finali zed for implementation in FY 2016. (1) Finalized Scoring Methodology for Domains 1 and 2 for FY 2015 We finalized a scoring methodology fo r 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 current ly 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 th e 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 Doma in 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 Pr ogram, we refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50719 through 50725).699 (2) Proposed Scoring Methodol ogy of Domain 2 and New We ighting of Domains 1 and

2 for FY 2016 We are proposing to adjust the sc oring 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 cu rrently specified under the Hospital IQR program and is restricted to colon pro cedures (including in cision, resection or anastomosis of the large intestine and large-to-small and small-to-large bowel anastomosis), and abdominal hysterectomy pr ocedures 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 in fections that occur with colonic procedures

and those that occur in abdomi nal hysterectomy procedures). We also note that patient age and a preoperative health score are risk factors ta ken 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 ar e proposing to calculate an abdominal hysterectomy procedure SSI SIR and a coloni c 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 provi de 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 weight ing of the surgical volume among the two700 procedures. We are proposing that a pooled SSI SIR for an applicable hospital is the sum of all observed infections among abdominal hys terectomy and colonic procedures divided by the sum of all predicted infections among abdominal hysterectomy and colonic procedures performed at the applicable hospita l. 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 I PPS/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 in stances in which applicable hospitals may

not have data on all four measures and theref ore 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 proposi ng to decrease Domain 1’s weight from 35 percent to 25 percent for two reasons. Fi rst, with the implementation of CDC’s SSI measure, we believe the weighting of both dom ains 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 ot hers stated that Domain 2 should be weighted more than Domain 1. Finally, th e Total HAC Score for applicable hospitals701 would be the sum of the weighted scores fr om Domain 1 (weighted at 25 percent) and Domain 2 (weighted at 75 pe rcent). 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 “Propo sed 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 reporti ng of data through health information technology will greatly simplify and str eamline reporting for many CMS quality reporting programs. Through electronic repor ting, 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 (E HR) 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-acquire d conditions that may not be captured by existing national measures (examples includ e measures of adverse drug events and hypoglycemia). Given that these measures ar e captured using clinical data from EHR systems, collection of HAC data will a llow 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. Speci fically, 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 th e 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, reli ability and validity testing as part of efforts to promote the adoption of Certified Electronic H ealth 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 a dded 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 hospi tals 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 hospita l-specific base-period per resident amount (PRA) that is calculated by dividing a hospital’ s allowable direct cost s of GME in a base period by its number of full-time equivalent (F TE) 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 ge neral, 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 sh are of total inpatient days. Section 1886(d)(5)(B) of the Act provid es for a payment adjustment known as the indirect medical education (IME) adjust ment under the hospital inpatient prospective payment system (IPPS) for hospitals that have residents in an a pproved GME program, in order to account for the higher i ndirect patient care costs of teaching hospitals relative to nonteaching hospitals. The regulations regard ing the calculation of this additional704 payment are located at 42 CFR 412.105. The hospital’s IME adjustment applied to the DRG payments is calculated based on the ra tio of the hospital’s number of FTE residents training in either the inpatie nt 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 Me dicare 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 ma y 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 re porting period is applied effective for discharges occurring on or af ter October 1, 1997. Dental a nd podiatric residents are not

included in this stat utorily mandated cap.

The Affordable Care Act made a numbe r 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 reside nt limits are calculated and applied to hospitals under certain circumstances. Regulations implementing these changes are705 discussed in the November 24, 2010 fina l 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 teachin g hospitals that are training residents in new medical residency training programs esta blished on or after January 1, 1995. Under section 1886(d)(5)(B)(v iii) of the Act, such rules also apply to the establishment of a hospital’s IME cap on the number of FTE re sidents 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 ne w medical residency training program (allopathic or osteopathic) on or af ter 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 resi dents in any program year during the third year of the first new program’s existen ce, for each new residency training programs established during that 3-year period, and the minimum accredited length for each type of706 program. The number of FTE resident cap sl ots that a teaching hospital receives for each new program may not exceed the number of accr edited 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 traini ng 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 perman ent FTE resident cap adjustment for training residents in a truly “new” resi dency training program; no permanent cap adjustment would be given for training reside nts associated with an existing program. That is, if a hospital that did not train any a llopathic or osteopathic residents in its most recent cost reporting period ending on or be fore 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” t eaching hospital does not receive a “new program” cap adjustment because it is not par ticipating 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 in to 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 a nd an existing medical residency training program, we refer readers to the Augu st 27, 2009 final rule (74 FR 43908 through707 43920). For a detailed discussion regarding pa rticipation in Medi care GME affiliation agreements, we refer readers to 74 FR 43574.) For new programs started prior to Octobe r 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 resi dent 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/LTC H 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 re sident cap is effective beginning with the sixth program year of the first new program’s ex istence. This revised policy is effective for urban hospitals that first begin to participate in traini ng residents in their first new program on or after October 1, 2012, and for rura l hospitals that star t 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 hos pital 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 numb er of FTE residents trained in any program year, during the fifth y ear 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 co mplete 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 enti re 5-year period to708

the total number of FTE residents that trai ned at all hospitals over the entire 5-year period. Finally, we made minor revisions to the regulation te xt 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 fi nal 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 effec tive beginning with the sixth program year of the first new program’s existence, for hospita ls 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- a nd resident-to-bed (IRB) ratio cap for IME is effective for FTE residents training in new programs. The regulations re garding the 3-year rolling average and the IRB ratio cap with respect to new medical reside ncy training programs were established in the following Federal Register rules: the FY 1998 IPPS final rule with comment period (62 FR 46002 thr ough 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 esta blished under paragraph (f)(1)(iv) of this section for new medical residency programs cr eated under paragraph (f)(1)(vii) of this section, the count of residents participati ng in new medical resi dency training programs

above the number included in the hospital’s FTE count fo r the cost reporting period709 ending during calendar year 1996 is added after applying the averaging rules in this paragraph (f)(l)(v) for a peri od of years. Residents pa rticipating in new medical residency training programs are included in th e hospital’s FTE count before applying the averaging rules after th e period of years has expired. Fo r purposes of this paragraph, for each new program started, the period of year s 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 me dical residency traini ng programs for IME at § 412.105(a)(1)(ii) state: “T he exception for new programs described in paragraph (f)(1)(vii) of this section app lies 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) regard ing the interplay of the 3-year rolling average with new medical resi dency training programs for di rect 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 pr ograms created under paragraph (e) of this section, the count of the re sidents participating in ne w 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 a dded after applying the averaging rules in this paragraph (d), for a pe riod of years. Residents pa rticipating in new medical residency training programs are included in th e 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 y ears equals the minimum accredited length for each new program. The period of years begi ns when the first resident begins training in each new program.” Therefore, the FTE resident caps for IM E 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 resi dent caps established (§ 413.79(e)(1)(iii)), and for rural hospitals, beginning with the st art 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 IM E 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 reside nts 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 re sidents 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, th e beginning of the sixth program year of the first new program’s existence; that is, fa mily medicine. However, the 3-year rolling711 average and the IRB ratio cap are effective at di fferent 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 medici ne 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 genera l surgery program woul d 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 accommoda te 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 ar e 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 th e new general surgery program started by Hospital A, where the FTE reside nt caps are effectiv e July 1, 2018, but the number of FTE residents in the general su rgery program would not be subject to the rolling average or the IRB ratio cap until Ju ly 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 reside nts 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 F TE resident caps for residents in new medical residency traini ng programs in an accurate manner on the Medicare cost report has prove d challenging to the point where we have had to deal with each instance brought to our attention by th e new teaching hospital or by a Medicare

contractor on an individual and manual ba sis (in order to ensu re 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 inst ructions 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 comple te this line if you have a ne w program for which the period of years is less than or greater than 3 years . . . .” The Medicare contractors, in turn, ha ve been instructed to contact CMS for instructions on how to report th e 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 w ith 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 reporti ng of the number of FTE residents in new medical residency training programs on an indi vidual basis when requests for assistance were brought to its attention.) However, th ese 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 me dical residency training progr ams are subject to the FTE resident cap, the 3-year rolling average, a nd the IRB ratio cap, both for urban teaching hospitals that have not yet had FTE reside nt caps established unde r § 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 th e same methodology instituted in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53415 th rough 53425) for new me dical residency training programs started on or after Oc tober 1, 2012, specified at § 413.79(e)(1). However, once the FTE resident caps are ca lculated, we are proposing to change the timing of when the FTE resident caps would be effective, to synchronize the effective dates and the applicatio n of the 3-year rolli ng average and the IRB ratio cap with each applicable hospital’s fiscal year begin date. Specifically, we are proposing that the FTE714 resident caps would continue to be calcul ated 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 traine d 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 th e 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 woul d 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 star ted 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 year s to grow its FTE resident caps, from July 1, 2013 through June 30, 2018. The FTE resi dent caps would be calculated based on the 5 program years in accordance with the methodology establishe d at § 413.79(e)(1) in the FY 2013 IPPS/LTCH PPS final rule; theref ore, the hospital would wait until after June 30, 2018 to obtain the FTE counts to calcul ate the FTE resident caps. However, we715 are proposing that those IME a nd 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 peri od 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 subjec t 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 co st reporting period that precedes the beginning of the sixth program year of the first new program star ted. Again, using the example of Hospital A that we presented earlier, th e FTE residents in the family medicine program, the sports medicine fellowship, and the general surgery pr ogram 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 date s of December 31, 2013 through and including December 31, 2017, we are proposing that the number of FTE residents in the family medicine program, th e 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 includ ed in the direct GME rolling average. (On716 the CMS Form 2552-10, for Hospital A’s fiscal year end dates of December 31, 2013 through and including December 31, 2017, this m eans 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 progr ams would be subject to the FTE resident cap, the 3-year rolling average, and the IRB ra tio 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 th e 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 re ported 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 I RB ratio cap.) We note that once the 3-year rolling average is effective in that cost reporting pe riod 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 be gin date would have been October 1, then, as proposed, while the sixth program year of th e first new program started would still be717 July 1, 2018, the FTE residents caps, the 3-ye ar rolling average, and the IRB ratio cap would be effective on October 1, 2017, the fi scal year begin date that precedes July 1, 2018, the sixth program year. If Hosp ital A’s fiscal year begin date would have been July 1, the FTE residents caps, the 3-ye ar 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 fi nalized, 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 y ear, 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 fu ll 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 reside nt 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 re sident count traini ng in the fifth and subsequent program years. Therefore, we believe that this proposal to streamline and synchronize the effective dates of the FTE resi dent caps, the 3-year rolling average, and the IRB ratio cap not only is easier to comprehend and to implement, but also is718 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, Work sheet E, Part A, line 10 and Worksheet E-4, line 6 to instruct hospitals to contact their contractor for in structions on how to complete those lines, as both hospitals a nd Medicare contractors would understand how to report the number of FTE residents in ne w programs, even when those programs have different accredited lengths. Instead, hosp itals and Medicare c ontractors 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 Medica re 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 pror ated, 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 ti me for participating in training residents in new programs, we are proposing a similar polic y, with modifications reflecting the fact that each new program in which the rural hosp ital participates rece ives 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 F TE resident caps, the 3-year rolling average, and the IRB ratio cap for each new program started would be effective beginning with the applicable hospita l’s cost reporting peri od that precedes the start of the sixth program year of each new program started . For example, rural Hospital B has a fiscal year that begi ns 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 Me dicare cost reporting, during Hospital B’s fiscal years end date s of December 31, 2013 through and including December 31, 2017, the number of family medi cine FTE residents would be reported so as not to be included in the IME 3-year rolli ng average or the IRB ra tio cap, and so as not to be included in the direct GME 3-year ro lling 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 fa mily 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 resident s would be reported on Worksheet E, Part A, line 16, and Work sheet E-4, line 15.) Then, beginning with720 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 th e 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 CM S Form 2552-10, beginning with Hospital B’s cost report ending December 31, 2018, the num ber 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 numbe r of general surgery FTE residents would be reported (on Worksheet E, Pa rt 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 av erage. Then, beginning with Hospital B’s cost report for fiscal year ending Decembe r 31, 2021, the number of FTE residents in the general surgery program would be subject to the FTE resi dent 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 fo r direct GME), in order to be subject to the FTE resident cap, the 3-year rolling aver age, and the IRB ratio cap. We note that once the 3-year rolling average is effective in that cost reporting pe riod that includes the sixth program year of each new program star ted, 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 count s, in order to effectuate the 3-year rolling average721 calculation on the IME Worksheet E, Part A, and the direct GME Worksheet E-4, respectively. We are proposing that this policy re garding the effective dates of the FTE residency caps, the 3-year rolling average, a nd 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 de scribed 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 peri od for establishing th e 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 th at first begin to participate in training resident s in their first new medical residency training program, and for rural hospitals, on or af ter October 1, 2012. We also are proposing to revise the regulations for IME and direct GME, respec tively, at § 412.105(a)(1)(ii) for the IME IRB ratio cap, at § 412.105(f)(1)(v) for the IME 3-y ear 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 th e 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 th e 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 accordance722 with § 413.79(e)(3). After the applicable hospital’s cost re porting period that precedes the start of the sixth program year of the fi rst 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 hospita l’s IRB ratio cap and the 3-year rolling

average. 3. Proposed Changes to IME and Direct GM E Policies as a Result of New OMB Labor

Market Area Delineations a. New Program FTE Resident Cap Adjust ment for Rural Hospitals Redesignated as

Urban As stated earlier in this proposed ru le, 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 resi dents 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 ne w teaching hospitals ends. (We refer readers to section IV.K.2. of the preamble of this pr oposed rule for a discussion of our proposal to change the effective dates for when the F TE resident cap, the 3-ye ar rolling average, and the IRB ratio cap are applied to new teach ing 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, th ereby losing their ability to increase their FTE resident caps for new programs started after their initial 5-year cap-building pe riod 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 proce ss of establishing another new pr ogram(s) can still receive a permanent cap adjustment for that new program(s). We believe that because the hospital had already started training resi dents in the new program(s) while it was rural, the former rural hospital should be permitted to conti nue 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 regulat ions to allow a hospital that was rural as of the time it started training residents in a new program(s) and is redesi gnated as urban for Medicare payment purposes during its cap-building peri od 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 adjust ment for that new program(s). Once the cap-building period for the new program(s) th at was started while the hospital was still rural expires, the teaching hos pital that has been redesigna ted 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 resi dents in the new program while it is still rural, that is, prior to the redesignation taki ng effect, in order for the hospital to continue724 receiving a cap adjustment for the new program . For example, if a rural hospital begins training residents in a new in ternal medicine program on Ju ly 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 hosp ital 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 be en redesignated as urban. However, if the rural hospital is redesignated as urban eff ective 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 su rgery program while it was stil l rural, that is, prior to October 1, 2014, the teaching hos pital would receive a perman ent 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 a nd § 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 fo llows: “A rural hospital re designated as urban after September 30, 2004, as a result of the most r ecent census data and implementation of the

new labor market area defi nitions 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 CMS725 and was training residents in a new progr am prior to the redesignation becoming effective, the redesignated urban hospital ma y retain any existing increases to its FTE resident cap and receive an in crease to its FTE resident cap for the new program in which it was training residents when the redesigna tion 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 implemen tation 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 co st 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 adopt ed by CMS, and was training residents in a new program prior to the redesignation becoming effective, the redesignated urba n 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 provisi on that, in the case of a hospital that is not located in a rural area (a n urban hospital) that establishes separately accredited approved medical residency training pr ograms (or rural tracks) in a rural area or has an accredited training program with an integrated rural track, the Secretary shall726 adjust the urban hospital’s cap on the number of FTE residents under subparagraph (F), in an appropriate manner in order to encour age 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 be ginning on or after April 1, 2000, and for IME payments applicable to discharges occurri ng 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 ru ral track in addition to those FTE residents subject to its cap up to a “rur al track FTE limitation” for th at hospital. In the FY 2006 IPPS final rule, we revised th e regulations at § 413.79(k) to add a new paragraph (7) to state that if an urban hospital had establishe d a rural track program with a rural hospital and that hospital subsequently becomes urban due to the im plementation 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 fo r rural track programs established before the implementation of the new labor market area defi nitions. 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 th is 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 rura l or from rural to urban, which may, in turn, affect GME policies that require the partic ipation of rural teac hing hospitals. For example, as noted above, in order for an urba n teaching hospital to re ceive a FTE resident cap adjustment for training residents in a rura l 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 redesigna ted as urban during the period that is used to establish the urban hospita l’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) addr ess the scenario wh ere a rural hospital that is participating as the rura l 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) stat e that if an urban hospital had established a rural track with a hospital located in a rural area and th at 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 progr ams established prior to the adoption of the728

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 reside nt cap adjustment for new programs that started while the redesignated hospital was still rural, we are proposing to revise th e existing regulations applicable to urban hospitals generally. Specifically, we are proposing to address the status of the “original” urba n hospital’s rural track FTE lim itation, in the situation where a rural hospital that is participating in the orig inal 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 ru ral 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 scen ario where a rural hospital that is participating as the rura l 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 § 413.7 9(k)(7), which applies to redesignations that occurred on June 6, 2003, in a similar ma nner, to redesignations announced by OMB729 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 whet her 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 hospita l can no longer qualify as the rural site and the “original” urban hospital would not be ab le 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 re sidents under its rural track FTE limitation when the 2-year transiti on period ends: (1) the redesignated newly urban hospital must reclassify back to rura l under § 412.103 of the re gulations; 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 la bor market area delineations take effect for Medicare payment purposes and would end exactly 2 years from that date. During730 this 2-year transition period, we would hold the “original” urban hospital harmless and would pay the “original” urban hospital for th e FTE residents in the rural track. At the end of the 2-year transition pe riod, in order for the urban hos pital to receiv e payment for a rural track program under § 413.79(k)(1) or (k)(2), eith er the redesignated urban hospital must be granted reclassification as rural under § 412.103 or the “original” urban hospital must already be training FTE resident s at a geographically rural site. We note that, because the rural re classification 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 sect ion 1886(h) of the Act. Th erefore, 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 pur poses. 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 redesigna ted as urban. Under such a scenario, the redesignated urban hospital does ha ve 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 lo cated 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 geogr aphically rural site within731 the 2-year transition period in order for the “original” urban hospita l to receive payment for a rural track program unde r § 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 hospita l and the rural hospital has been redesignated

as urban:

● An urban teaching hospital and a rura l teaching hospital ar e participating in training residents in a new rural track pr ogram that begins July 1, 2014. Effective October 1, 2014, the rural hospita l is redesignated as urban. We are proposing that the timeframe for the urban hospital to build the rural track prog ram for purposes of calculating its rural track FTE limitation w ould 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 partic ipating as a rural hospital and the urban hospital would count FTE residents it is training that are in the rural track for IM E and direct GME. However, in order for the “original” urban hos pital to continue to get paid for its rural track program after September 30, 2016, th en, 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 urba n hospital must find a new geographically rural hospital or nonprovider s ite 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 w ould not able to receive paymen t for that specific program as a rural training track under § 413.79(k)(1 ) or (k)(2) because it would no longer meet732 the requirement that more than one-half of the training must be provided in a rural setting.

● Another scenario could be one in wh ich the rural hospital is redesignated as urban after the 3-year cap-bu ilding 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 th e “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 specif ic 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 hosp ital was not able to meet one of the two proposed conditions noted earlier in this se ction by the end of the 2-year transition period, but at some point later is able to m eet one of the two proposed conditions, we are proposing that the “original” urban hospital w ould be able to “reviv e” and use its already

established rural track FTE limitation from that point forward. In the instance where the “original” urban hospital’s rural track F TE limitation was not set because the hospital was not able to meet one of the two propos ed 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 the733 “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 wa s not in compliance with the two proposed conditions. Consistent with similar polic y discussed in the FY 2002 IPPS final rule (66 FR 39905), it would be the responsibility of the hospitals invol ved to provide the necessary information regarding the rotations of the residents in the third program year to

the Medicare contractor in order for the calcu lation to be completed and the rural track

FTE limit to be set. In summary, we are proposing that an y time a rural hospital participating in a

rural track is in an area rede signated by OMB as urban after residents started training in the rural track and during the 3-year period that is used to calculat e the urban hospital’s rural track FTE limitation, the urban hospital ma y receive a cap adjustment for that rural track after it has been redesignated as ur ban. Furthermore, we are proposing that, regardless of whether the redesignation of th e rural hospital occurs during the 3-year period that is used to calculate the urban hos pital’s rural track FTE limitation, or after the 3-year period used to calculate the ur ban hospital’s rural track FTE limitation, the redesignated urban hospital can continue to be considered a rural hos pital 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 reclassificati on option only applies to IPPS hospitals, not nonprovider sites) or the “ori ginal” urban hospital must have found a new site in a734 geographically rural area that will serve as the rural site fo r 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 regula tions at § 413.79(k)(7) to implement these provisions and to establish that these cha nges 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) Effectiv e 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 ar ea 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 rura l track programs established prior to the adoption of such new labor market area definitio ns. 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 adopt ed by CMS. (ii) Effective for cost reporting periods beginning on or after Octobe r 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, dur ing the 3-year period that is used to calculate the urban hospital’s rural track FTE limit, that rural ar ea subsequently becomes an urban area due

to the most recent OMB standards for delin eating statistical areas adopted by CMS and the most recent Census Bureau data, the ur ban hospital may continue to adjust its FTE735 resident limit in accordance with this para graph (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 re porting periods beginning on or after October 1, 2014, if an urban hospital had established a rural tr ack 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 ar ea due to the most recent OMB standards for delineating statistical areas a dopted by CMS and the most recent Census Bureau data, regardless of whether the redesignation of th e rural hospital occurs during the 3-year period that is used to calculate the urban hos pital’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 ur ban hospital to receive or us e 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 cond itions must be met by the end of a 2-year period that begins when the most recent OM B standards for delinea ting statistical areas are adopted by CMS: the hospital that has be en 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 geographi cally 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 ne w rural track residency program, the urban736 hospital must establish a rural track program w ith sites that are geographically rural based on the most recent geographical loca tion 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 techni cal correction to the defini tion 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 a ddition to the number of FTE residents already included in the hospital’s FTE cap.” 4. Proposed Clarification of Policies on Counting Resident Ti me 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 nonprovide r 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 ru le (78 FR 50735). Section 5504( a) of the Affordable Care Act made changes to section 1886(h)(4)(E) of th e Act to reduce the costs that hospitals must incur for residents training in nonprovide r sites in order to c ount the FTE residents for purposes of Medicare direct GME payments on a prospective basis. Notably, section 5504(a)(3) of the Affordable Care Act ame nded the Act effective for “cost reporting periods beginning on or after July 1, 2010,” for direct GME, to permit hospitals to count737

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 trai ning in the nonprovider site. Section 5504(b)(2)

of the Affordable Care Act made similar ch anges to section 1886(d)(5)(B)(iv) of the Act for IME payment purposes, with the provision be ing 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 tr aining costs in a nonp rovider 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 Affo rdable Care Act, it re tained the statutory language which provides that a hospital can only count the time so spent by a resident under an approved medical residency training progr am in its FTE count if that one single hospital by itself “incurs all, or substantially all, of the co sts 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 explic itly make this longstanding substantive standard and requirement applicable to “cost reporting periods beginning before July 1, 2010” for direct GME, and to “discharges occurr ing 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 Secret ary 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 fo r direct GME and IME738 purposes if that single hospita l incurred “all of substantiall y all” of the costs of the training program in that setting. For a fu ll discussion of the longstanding substantive standard and requirement that a hospital can only count re sidents training if that one single hospital incurs all or s ubstantially all of the costs fo r the training, we refer readers to the discussion in the November 24, 2010 fi nal rule with comment period (75 FR 72134 through 72141), in the May 11, 2007 final ru le (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 applie d in a manner that requires reopening of any settled hospital co st 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 medi cal education...or for direct graduate medical

education costs....” The date of enact ment 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 th e 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.” Pa ragraph (g)(5) of § 413.78 also expressly states that the paragraph is limited to “cost reporting periods beginning on or after739 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 othe r preceding paragraphs of § 413.78” (78 FR 50735). In addition, we also revised th e 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 re quire that, for cost reporting periods beginning on and after July 1, 2007 a nd 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 al so revised the IME regulations at § 412.105 to reflect these statutory amendments, by incorporating by reference § 413.78(g). Despite the fact that sec tions 5504(a) and (b) of the A ffordable Care Act provide

clear effective dates with re spect to the amendments prov ided 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 comme nt period and in the August 19, 2013 final rule provide further explanation that, speci fically, nothing in sec tion 5504(c) overrides those effective date (75 FR 72136) , we have received questions about the applicability of section 5504(c) and the associ ated regulation text at § 413.78(g)(6). Specifically, questions have been raised with respect to the applicability of s ections 5504(c) of the Affordable Care Act and § 413.78(g)(6) of the regulations to periods prior to740 July 1, 2010, particularly if a hospital had, as of March 23, 2010, appealed an IME or direct GME issue for a settled cost reporti ng period occurring prior to July 1, 2010. As noted earlier, section 5504(c) of the Afford able 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 co st 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 consis tent with section 5504(c) of the Affordable

Care Act and reflective of our reading of that provision a nd 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 sect ion cannot be applied in a manner that would requir e the reopening of settled cost reports, except those cost repo rts on which there is a jurisdictionally proper appeal pending on direct GME or IME paymen ts as of March 23, 2010.” In this proposed rule, we are reiterating our existing interpre tation of the statutory amendments made by sections 5504(a), (b), and (c) of the Affordable Care Act an d 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 respec t 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 regardi ng recordkeeping requireme nt 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) a nd 1886(d)(5)(B)(iv)(I) of th e Act), for “cost reporting periods beginning before July 1, 2010” for di rect GME, and for “discharges occurring on or after October 1, 1997, and before July 1, 2010” for IME, these se ctions explicitly retained the statutory language that provides that a hospita l 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 “inc urs 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 nonprovide r site; and (3) under s ections 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 pe riods beginning on or after Ju ly 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 nonprovi der setting under certain circum stances, in order for each hospital to count a proportional share of th e 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 men tioned 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 co st 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 th e 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 th e 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, th erefore, would apply to prior cost reporting periods, section 5504’s applicab le 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 Nove mber 24, 2010 final rule with comment period (75 FR 72136), “Section 5504(c) is fully prospec tive 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 discre tionary 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 sett led cost report as to whic h a provider does not have a jurisdictionally proper ap peal pending. It does no t require reopening in any743 circumstance; and the new substantive standard is, in any event, expl icitly prospective. We believe if Congress had wanted to require such action or to apply the new standards to cost years or discharges prior to Ju ly 1, 2010, it would have done so in far more explicit terms.” We also noted in that ru le (75 FR 72139) that “[ the] statute does not provide CMS discretion to allow the counti ng of resident time spent in shared nonprovider site rotations for cost reporting pe riods beginning prior to July l, 2010.” We

continue to believe that Congress was clear in amendi ng 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 co st reporting periods beginning on or after, and discharges occurring on or after, July 1, 2010. We also co ntinue 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 jurisdic tionally proper appeal pending as of March 23, 2010, the date of the enactment of th e 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 c ontext, 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 regula tions at § 412.105(f)(1)(ii)(E) for IME, and § 413.78(g) for direct GME, to reflect th e 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 langua ge of § 413.78(g) explicitly states that744 paragraph (g) governs only “cost reporting periods beginning on or after July 1, 2010” and paragraph (g)(5) also expressly states th at 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 regula tions which precede paragraph (g), particularly paragraphs (c ) through(f), consistent with th e 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 substantiall y all, of the costs for the trai ning 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 impl emented by regulation at §§ 413.78(g) and 412.105(f)(1)(ii)(E), allowi ng cost sharing under certain circumstances do not ever apply to pre-July 1, 2010 cost reporting periods a nd pre-July l, 2010 patient discharges. Moreover, we continue to believe the langua ge in paragraph (g)(6 ) (along with the remainder of paragraph (g)) on ly applies to cost reporting periods beginning on or after July 1, 2010 and does not apply retroactively to cost re porting 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 secti on 5504(c) of the Affo rdable Care Act. Accordingly, we believe that it is ap parent that the provi sions of sections 5504(a)(3) and (b)(2) of the A ffordable Care Act are not to be applied prior to July l, 2010, irrespectively of whether a hos pital may have had a jurisdictionally proper745 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 interpreta tion 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 se ction 5504(c) of the

Affordable Care Act. We ar e 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 pr oper appeal pending as of March 23, 2010, on direct GME or IME payments. Cost reporti ng 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) incl ude 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 clos ed, its direct GME and IME FTE resident cap slots would be “lost” because those cap sl ots are associated with a specific hospital’s Medicare provider agreement, which would be retired upon the hospita l’s closure. Under existing regulations at § 413.79(h) for dire ct GME and § 412.105(f)(1)(ix) for IME, a hospital that is training FTE resi dents at or in excess of its FT E resident caps and takes in residents displaced by the closure of anothe r teaching hospital may receive a temporary746 increase to its FTE resident caps so that it may receive direct GME and IME payment associated with those displaced FTE resident s. However, those temporary FTE resident caps are tied to those specific displaced F TE 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 instru cts the Secretary to establish a process by regulation under which, in the event a teach ing 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 reside nt caps. The Secretary is directed to ensure that the aggregate number of FTE resi dent cap slots distributed shall be equal to the aggregate number of slots in the closed hospital’s dire ct GME and IME FTE resident caps, respectively. For a deta iled discussion of the regul ations implementing section 5506 of the Affordable Care Act, we refer readers to the November 24, 2010 final rule with comment period (75 FR 72212 thr ough 72238) and the FY 2013 IPPS/LTCH PPS final rule (77 FR 53434 through 53448).

a. Effective Date of Slots Awarded unde r Section 5506 of the Affordable Care Act In distributing slots permanently unde r the provisions of section 5506 of the Affordable Care Act, section 5506(d) pr ovides that “the Secretary shall give

consideration to the effect of the amendm ents 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 th at there is no duplication of FTE slots...” In consideration of this statutory language , in the FY 2013 IPPS/LTCH PPS final rule747 (77 FR 53437), we stated that in distribu ting slots permanently under section 5506, we would be cognizant of the num ber of FTE residents for whom a temporary FTE cap adjustment was provided under existing regul ations at § 413.79(h), and when those residents will complete their training, at which point the te mporary slots associated with those displaced residents would then be available for permanent redistribution. Therefore, in initially developing ranking crite ria 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 Ac t 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 with in 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 ca p adjustments under § 413.79(h) are in place, any slots awarded to hospitals that fall w ithin Ranking Criteria Four through Eight are permanently assigned only once the displaced reside nts 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 ad justments 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. Sp ecifically, 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 thos e residents and Hospital B, which is not receiving a temporary cap adjustment for trai ning any displaced residents, has applied under Ranking Criterion Five to e xpand its internal me dicine program, as explained in the November 24, 2010 final rule with comment period, we would only award permanent slots under section 5506 to Hosp ital B on a flow basis; that is, effective after each displaced resident completes his/her trai ning, and, therefore, the temporary cap adjustments associated with that resident expire at Hospital A. However, the policy of applying the “no duplication of FTE sl ot” 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 awar ding 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 hospita ls 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 rece ive temporary adjustments under§ 413.79(h). While we believe that awarding permanent sl ots to a hospital that is simultaneously receiving a temporary cap adjustment fo r 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 statutor y 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). Fu rthermore, in considering the specific statutory language regarding “no duplication of FTE slot s,” section 5506(d) in part provides that “The Secretary of Health and Human Services shall gi ve 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 t itle 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 refe rs 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 separa tely whether each hospital did or did not750 receive a temporary cap adjustment unde r § 413.79(h), rather than on a national all-hospital basis. Bearing in mind the stat utory language and our experience to date in awarding slots as well as the unnecessary bur den placed on hospitals that are receiving section 5506 slots, but ar e not receiving temporary cap adjustments under § 413.79(h), we believe it is appropriate to propose a pol icy that would provide for a more efficient and faster method for awarding of slots to hos pitals applying under Ranking Criteria Four through Eight. Therefore, we are proposing that, effective for s ection 5506 application rounds announced on or after October 1, 2014, for purposes of applying the requirement for “no duplication of FTE slots,” we would onl y 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 wo uld 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 awardi ng slots to the applying hospital, we would not be concerned whether any other hospital is receiving a temporary cap adjustment for training displaced resi dents 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 surg ery program but is applying under Ranking Criterion Five to start a pedi atrics program and Hospital B is not receiving a temporary cap adjustment for training displaced reside nts and is applying under Ranking Criterion Eight to expand a cardiology program, in aw arding section 5506 slots, we would only allow Hospital A to receive a permanent adju stment to its FTE cap for training residents in its pediatrics program once its temporary adjustments for the displaced residents751 training in the general surgery program have expired. We would not consider displaced residents when awarding sect ion 5506 slots to Hospital B. In conjunction with our proposal to inte rpret the “no duplication of FTE slots” requirement to apply on a hospita l-specific basis to hospitals that are receiving temporary cap adjustments under § 413.79(h), we are prop osing to amend the effective dates of

section 5506 slots rece ived under Ranking Criteria Four through Eight for those hospitals that are not receiving temporary cap adjustme nts under § 413.79(h). (We refer readers to section IV.K.5.c. of the preamble of this propos ed 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 resi dency training program are eff ective the later of when a hospital can demonstrate to the MAC that th e slots associated with a new program or program expansion are actually filled and, ther efore, are needed as of a particular date (usually July 1, possibly retroactive), or the Ju ly 1 after displaced residents complete their training. If a hospital is awar ded slots under Ranking Criteri on Eight for cap relief, slots

are effective the date of CMS’ award a nnouncement, or the July 1 after displaced residents complete their training, whichever is later. However, because we are proposing an alternative approach to in terpreting section 5506( d) that would permit us to apply the “no duplication of FTE slots” requirement on a hospital-speci fic basis, we are proposing to change the effective date for slots rece ived under Ranking Criteria Four through Eight so that if a hospital is no t receiving a temporary cap ad justment under § 413.79(h), the

slots awarded under section 5506 would be eff ective when the hospital can demonstrate752

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 hospita l 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 e xpansion are actually filled and, therefore, are needed as of a particular da te (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 applie s for two slots to expand an internal medicine program under Ranking Criterion Five. In January of 2017, CMS awards two permanent slots to the hos pital under Ranking Crite rion Five. For the program year starting July 1, 2017, the hospita l successfully demonstrates to the MAC

that it filled the two additional internal me dicine positions. Because one displaced FTE resident already graduated on June 3 0, 2016, the MAC may approve one slot on a permanent basis effective July 1, 2017. Howe ver, the hospital would have to wait until July 1, 2018, to receive from the MAC the permanent slot for the second displaced753

internal medicine resident because the sec ond displaced FTE resident is not graduating until June 30, 2018. We are not proposing any changes to th e effective date for slots awarded under Ranking Criterion One, Ranking Criterion Two, or Ranking Criterion Three. Consistent with existing policy, if a hospital is appl ying under Ranking Crite rion One or Ranking

Criterion Three and is not rece iving a temporary cap adjustme nt 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 hos pital is applying under Ranki ng Criterion One or Ranking

Criterion Three and is receivi ng a temporary cap for traini ng displaced residents under § 413.79(h), the effective date of the section 550 6 slots is after the displaced resident(s) graduate. If a hospital is receiving a temporary cap for tr aining displaced residents under § 413.79(h), and is applying under Ranking Crit erion One or Ranki ng Criterion Three and is also separately applying under Ra nking 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 th e displaced resident(s) gradua te. For slots awarded under Ranking Criteria Four or subs equent Ranking Criteria, the sl ots are awarded the later of when a hospital can demonstrate to the MA C that the slots associated with a new program or program expansion are actually f illed and, therefore, are needed as of a particular date (usually July 1, possibly retr oactive), 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 date s of slots awarded under Ranking Criteria One/Three, and Ranking Criteri a Four through Eight might coincide. Also, consistent754 with existing policy, if a hospital is appl ying under Ranking Criterion Two, the effective date of the permanent award of section 5506 slot s is the date of the hospital closure. We discuss these existing polic ies in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53437 through 53445). The following list includes the current and proposed ranking cr iteria along with the current and proposed effective dates.

● Current Ranking Criterion One: Th e 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 hosp ital 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 Criteri on One: The applying hos pital 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 hosp ital 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 hosp ital’s FTE resident cap s were erroneously reduced by CMS under section 1886 (h)(8)(A)(i) of the Act, c ontrary 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 th e FY 2015 IPPS proposed rule on the CMS Web site. (This language reflects the proposed modification of Ranking Criterion One. We755 refer readers to section IV.K.5.c. of the preambl e 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: Th e 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 Medica re 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 leas t the number of FTE re sidents 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 hospi tal that itself has closed or is closing, preference would be given to an applying hospital that was liste d 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 wh ich the first closed hospital was a member before the hospital closed, and that applyi ng hospital received slots from the closed hospital under the terms of that affiliation agreement.756

● Clarified Ranking Criter ion 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 hos pital 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 con tinue 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 hospi tal closed was with a hospital that itself has closed or is closing, pref erence would be given to an ap plying hospital that was listed as a participant in the next most rece nt Medicare GME affiliation agreement or emergency Medicare GME affiliation agreement (but not one which was entered into more than 5 years prior to th e 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 affilia tion agreement. (This language reflects our clarification in this proposed rule regard ing 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 applyi ng 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 c ontinue training residents in the same programs as the displaced residents, even afte r those displaced residents comp lete their training (that is, the applying hospital is permanently expanding its own existing programs).

◦ Current Policy: If the hospital is r eceiving 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 prog ram 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 pr ogram, but the program does not meet Ranking Criterion 5 or 6 because the hospital is also separately applying758 under Ranking Criterion 8 for slots to esta blish 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 pr ogram, 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 esta blish or expand a nonprimary care or nongeneral surgery program. (This language reflec ts our proposal in this proposed rule to revise Ranking Criteria Seven and Eight. We refer readers to se ction 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 th e slots associated with a new program or program expansion are actually filled, and ther efore, 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 Crit erion Four through Proposed Ranking Criterion Seven: If the hospital is receiv ing a temporary cap adjustment for training displaced residents, the later of when the hospital can dem onstrate 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 retro active), or the July 1 after displaced residents complete their training. If the hos pital is not receiving a temporary cap adjustment, when the hospital can demonstrate to the MAC that the slots759 needed for a new program or program expansion are actually filled, and therefore, are needed as of a particular date (u sually 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 Criter ion 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 surg ery 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 propos ed 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 Cr iterion Eight: If the hospital is receiving a temporary cap adjustment for traini ng displaced residents, the later of when the hospital can demonstrate to the MAC that the slots associated wi th a new program or program expansion are actually filled and, ther efore, 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 r eceiving a temporary cap adjustment, when the760 hospital can demonstrate to the MAC that the slots needed for a new program or program expansion are actually filled, a nd therefore, are needed as of a particular date (usually July 1, possibly retroactive). In summary, we are proposing that, e ffective for section 5506 application rounds announced on or after October 1, 2014, the statutory provision at section 5506(d) requiring the Secretary to c onsider temporary cap adjust ments under § 413.79(h) and to ensure no duplication of FTE sl ots, 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 awar ded under section 5506 w ould 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, ther efore, 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 s eamlessly 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 inst ances 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 de monstrating a strong761 commitment to maintain GME programs in the community for the long term and should we awarded slots under higher ranking criter ia (75 FR 72216). Therefore, we required that, in order to receive slots under Ranking Criterion On e and Three, the applying hospital must demonstrate that upon graduation of the displaced FTE residents that it is training, the slots held by t hose displaced FTEs are seamle ssly 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 requir ement. We stated that in the instance where a teaching hospital closed after December 31 of an acad emic 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 di splaced FTE residents, the ap plying 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 clos ure. 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 Thr ee for cap slots associ ated 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 seam lessly fill slots vacated by di splaced FTE residents by that July 1; that is, the day imme diately after the June 30 that the displaced FTE residents graduate (77 FR 53441 through 53442). We also revised the CMS Application Form to762 instruct a hospital applying under Ranking Crit erion One or Three to list the names and graduation dates of specific displaced reside nts who, upon their graduation, have been or will be seamlessly replaced by new resident s (77 FR 53446). Because Ranking Criteria

One and Three fall under Demonstrated Likelihoo d Criterion 2, the hospital is taking over all of part of an existing residency program from the closed hosp ital, or expanding an existing residency training progr am, 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 Li kelihood Criterion 2 on the CMS Application

Form.

In addition to the match deadlines associ ated 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 comp lexity of tracking va rious match deadlines

as well as the intersec tion between these deadlines and wh en the section 5506 awards are announced by CMS, we are proposing to rem ove the seamless requirement for slots awarded under Ranking Criterion One and Thre e 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 conti nue operating that program in the same manner in which it was operated by the closed hospital or the hospital must take over part763 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 unde r Ranking Criterion One or Three that indicates that they have made a commitment to take over th e closed hospital’s program or that they have made the commitment to pe rmanently 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 resi dents that were displaced by the closed hospital and receiving a temporary cap adju stment under § 413.79(h), the hospital would

work with its MAC to determine when it co uld be permanently awarded the slots based on the graduation dates of the displaced reside nts it is training. Consistent with our proposal, we are proposing to remove the following requirement under Demonstrated Likelihood Criterion 2 on the CMS Applicati on Form: “Hospitals applying for slots under option (a) which correlates to Ranking Cr iterion 1 or (b) which correlates to Ranking Criterion 3 must list the names a nd 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 attach ment to this applicati on.” 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 ca p 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 receiving764 temporary cap adjustments for training disp laced 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 resi dents they are training. In summary, we are proposing to re move the seamless requirement currently included as part of Ranking Cr iterion One or Three. We also are proposing to remove from the CMS Application Form, the followi ng requirement: “Hospitals applying for slots under option a) which correlates to Ra nking Criterion 1 or b) which correlates to Ranking Criterion 3 must list the names a nd 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 Ra nking 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 th e three first statutory priority categories (that is, same or contiguous CBSAs, same St ate, and same region) to be used to rank applications for assignment of slots under sec tion 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 Cr iterion 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 applicat ions that were due to CMS on Ap ril 1, 2011), we observed that the overwhelming majority of applications fe ll under Ranking Criterion Seven; that is, the applying hospital seeks the slot s for purposes that do not fit into any of Ranking Criterion One through Ranking Criterion Six. These appl ications included applications from hospitals that applied for FTE cap slots for both primary care and/orgeneral surgery and for nonprimary care specialties as well as appl ications for general cap relief. The sheer number of applications we received under Ranking Criterion Seven indicate a need to further prioritize among the a pplicants 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 (Ra nking 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 ru le, a hospital that is applying both for the purpose of establishing or expanding prim ary care or general surgery programs, and in addition is requesting sl ots for the purpose of establ ishing or expanding nonprimary care or nongeneral surgery programs and/or fo r 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 Ranki ng Criterion Eight. Prio r to this change, if a hospital applied for additional FTE slots to establish or expand both a primary care or766 general surgery program in addition to a nonpr imary care or nongene ral 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 ru le, 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 maki ng awards under seve ral more rounds of section 5506 applications, we ha ve observed that, as hospital cl osings continue to occur, there has been a significant increase in the time between a hospital’s cl osure 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 hospi tal 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 F TE 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 pr operly apply the process established by CMS in reviewing section 5506 applica tions and awarding FTE cap slots. Since the initial implementation of section 5506, we have attemp ted to be responsive to these unexpected delays by refining the ranking criteria to make the review process less administratively767 burdensome. However, these changes did not al leviate 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 purpos es of general cap relief, we have more often than not awarded no slots at all for cap reli ef. This is due in large part to the limited number of slots available (many of the clos ed teaching hospitals di d not have large FTE resident caps) and an overwhelming demand fo r those slots from applicants who apply for FTE slots for reasons other than cap reli ef. Since we finalized the modified Ranking Criterion Seven and added Ranking Criterion Ei ght 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 receive d a total of 424 applicat ions from hospitals seeking cap relief. Of those 424 applicati ons, 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 applicatio ns does not warrant the administrative burden and the delay in announc ements of section 5506 awards that result from the large number of cap relief applica tions submitted to CMS that are invariably denied. Therefore, in an effort to stre amline the review process and to facilitate publishing section 5506 awards in a more tim ely manner, we are proposing to modify Ranking Criterion Eight so that Ranking Criterion Eight w ould only apply to hospitals seeking FTE slots to establish or expa nd a nonprimary care or nongeneral surgery program. Ranking Criterion Eight would no long er 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 pol icy goals to increase training in primary care768 and general surgery. By proposing to eliminat e awarding of FTE slot s for residents that are already being trained by a hos pital, there will be more F TE resident slots available to award to other hospitals seeking to establis h 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 ar e proposing to Ranking Criterion Eight, we believe it is also necessary to modify th e language of proposed Ranking Criterion Seven to specify the types of app lications that would properly be made under this Ranking Criterion; that is, we are pr oposing 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 pr ogram, 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 esta blish or expand a nonprimary care or nongeneral surgery program. Separately, we also are proposing a cha nge related to Ranking Criterion One. Current ranking Criterion One is for an appl ying hospital that assume d an entire program or programs from the hospital that closed. We are proposing to revise Ranking Criterion769 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. S ection 1886(h)(8)(A)(ii) of the Act provides specific exceptions to the application of th e reduction at section 1886(h)(8)(A)(i) of the Act, a nd expressly states: “Excep tions—This subparagraph shall not apply to (I) a hospital locat ed in a rural area (as define d 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 ag ency’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 erroneous ly 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 contra ry 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 applyi ng 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 statutory770 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 Tw o 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)(i i) of the Act, hospitals may form a Medicare GME affiliated group and elect to aggregate their re spective 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, providi ng specific rules for sharing FTE resident cap slots among members of the Medicare GME affiliated gr oup, 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 agreem ent, the applying hospital received slots from the hospital that closed, and the applying hospital will use th e additional slots to continue to train at least the number of FT E residents it had trai ned under the terms of771 the Medicare GME affiliation agreement. If the most recent Medicare GME affiliation agreement of which the closed hospital was a me mber before the hospital closed was with a hospital that itself has clos ed or is closing, preference would be given to an applying hospital that was listed as a participant in th e 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 th e 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 agreemen t with the closed hospital prior to its closure may be considered under Ranking Crit erion Two as well. The regulations at 42 CFR 413.79(f)(7) govern emergency Medica re GME affiliation agreements, which are applicable in the instance where a statutor y 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 te mporarily transfer F TE resident cap slots to “host” hospitals that would train the di splaced 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 a dded 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 th e hospital that closed. We believe that, generally, if the applying hospital was affiliated to receive slots from the hospital that772 closed, then the applying hosp ital 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 resi dents 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. A ccordingly, we proposed this ranking criterion to allow hospitals that were affiliated with th e 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 Crit erion 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-tr aining or jointly oper ated programs between the applicant hospital and the hos pital 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 hosp ital 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 rela tionship. In the event where, following the disaster that triggers the section 1135 waiver , a hospital should actually clos e, the “host” hospital that accepted the residents perhaps might even contin ue 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 th at the “host” hospital received FTE cap slots from the “home” hospital to train the “home” hos pital’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 receive d 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 ev en 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 reside nts it had trained unde r 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 closed774 hospital would have the most im mediate 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 hosp ital 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 le ast 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 immediat e 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 th e terms of that Medicare GME affiliation

agreement or emergency Medicare GME affiliation agreement , the applying hospital received slots from the hospital that cl osed, and the applying hospital will use the

additional slots to contin ue to train at least the number of FTE residents it had trained775 under the terms of the Medica re GME affiliation agreement, or emergency Medicare GME affiliation agreement . If the most recent Medica re 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 list ed as a participant in the

next most recent Medicare GME affiliation agreement or emergency Medicare GME affiliation agreement (but not one which was entered in to 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 hospita l received slots from the cl osed hospital under the terms of that affiliation agreement. We are making these changes to Rank ing Criterion Two in the Section 5506 Application Form. We are including below a revised Secti on 5506 Application Form that reflects all of the proposed changes discussed above.776 CMS Application Form As Part of the Application for the Increa se in a Hospital's FTE Cap(s) under Section 5506 of the Affordable Care Ac t: 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 us e the increase in its FTE cap(s). If the hospital is applying for slots for a particul ar program, but the reque sted slots in that program qualify under two different ranki ng criteria, submit two separate application forms accordingly. If the hospital is applying for slot s associated with a Medicare GME affiliation agreement with a ho spital that closed, that application must be submitted separately fr om an individual program request.

NAME OF HOSPITAL:

MEDICARE PROVIDER NUMBER (CCN):

_________________ ________________ NAME OF MEDICARE CONT RACTOR:_______________

____________________ CORE-BASED STATISTICAL ARE A (CBSA in which the ho spital is physically located--write the 5 digit code here):

_______________ ________________________ COUNTY NAME (in which the ho spital is physically locate d): ________

__________ Complete the followin g, as applicable: 1. Name of Specialty Training Program: ___________________________________ 2. Medicare GME Affiliated Group:________________________________ (Check one): □ Allopathic Program □ Osteopathic Program NUMBER OF FTE SLOTS REQUESTE D FOR SPECIFIC PROGRAM (OR OVERALL IF SEEKING SLOTS ASSO CIATED WITH A MEDICARE GME AFFILIATED GROUP) AT YOUR HOSPITAL: Direct GME:_______________ IME: ________________

Section A: Demonstrated Likelihood Cr iteria (DLC) of Filling the FTE Slots The applicant hospital must provide docum entation to demonstrate the likelihood of filling requested slots under section 5506 within the 3 academic years immediately following the application deadline to receive slot s 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 of777 DLC1, DLC2, or DLC3, you must complete a separate CMS Application Form for each DLC and specify the distinct criterion fr om 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 fo r IME and/or direct GME under 42 CFR 413.79(h) for residents displaced by the closur e 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 fo r the new program, or other types of communication from the accrediting bodies concerning the new program approval process (such as notifi cation of site visit). (The hospital must attach a copy.) The hospital has other documentation demonstr ating 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 esta blished and approved residency program resulting from taking over part of a residency program from the closed hospital, or (c) is permanently e xpanding 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 fo r IME and/or direct GME under 42 CFR 413.79(h) for residents displaced by the closur e 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 cl osed 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 th e 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 it s current number of filled positions )

. The hospital has submitted an institutional re view 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: R eceiving Slots by Virtue of Medicare GME Affiliated Group Agreement or Emergency Medicare GME Affiliated Group Agr eement 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 me mber 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 addi tional slots to continue to train at least the number of FTE residents it had trai ned 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 wh ich the first closed hospital was a member before the hospital closed, and that applyi ng 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 affilia tion agreement (or emergency Medicare GME779 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 appropriat e 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 loca ted in the same State as the closed hospital. Third, to hospitals located in the same region as the hosp ital that closed. Fourth, if the slots ha ve not yet been fully distribute d, to qualifyi ng hospitals in accordance with the criteria established unde r section 5503, "Distribution of Additional Residency Positions" Section C. Ranking Criteria (Place an "X" in the box for each criterion that is a ppropriate for the applicant hospital and for the program for which th e increase in the FTE cap is requested.)

□ Ranking Criterion One. The applying hospital is requestin g the increase in its FTE resident cap(s) because it is assuming (o r assumed) an entire program (or programs) from the hospital that closed, and the applyi ng 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 th e terms of that Medicare GME affiliation agreement or emergency Medicare GME affiliation agreement , the applying hospital received slots from the hospital that cl osed, and the applying hospital will use the780

additional slots to contin ue to train at least the number of FTE residents it had trained under the terms of the Medica re GME affiliation agreement, or emergency Medicare GME affiliation agreement . If the most recent Medica re 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 list ed as a participant in the next most recent Medicare GME affiliation agreement or emergency Medicare GME affiliation agreement (but not one which was entered in to 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 hospita l received slots from the cl osed 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 en tire program or programs, and will use the additional slots to continue training resident s in the same programs as the displaced residents, even after those displaced residents complete their training (that is, the applying hospital is permanently ex panding its own existing programs). Ranking Criterion Four. The program does not meet R anking 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 Rank ing Criteria 1 through 4, the applying hospital is loca ted 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 loca ted 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 addi tional 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 hospita l is also separately applying under Ranking Criterion 8 for slots to establish or ex pand 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 slot s to establish or expand a nonprimary care or a nongeneral surgery program. Application Process and CMS Ce ntral Office Mailing Address for Receiving Increases in FTE Resident Caps781 In order for hospitals to be considered for increases in their FTE resident caps, each qualifying hospital must submit a timely applic ation. 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 GM E or IME, or both. A completed copy of the CMS Application Fo rm for each residency program for which the hospital intends to use the reque sted 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 recen t 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 unde rstand that misrepresentati on 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 id entified in this application were provided or procured through payment directly or indirectly of a ki ckback 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 th e 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 21244-1850782 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 quali fied 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 circumstan ces. Specifically, the regulations at § 405.2468(f)(1) state: “Effective for that por tion of cost reporting periods occurring on or after January 1, 1999, if an RHC or an FQHC incurs ‘all or substa ntially 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 dire ct graduate medical education payment for

those residents.” We refer readers to the July 31, 1998 fi nal 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. Sec tion 413.75(b) is base d on the statutory provision at section 1886(h)(4)(E ) of the Act, which establishes the requirements that hospitals must meet in orde r to receive direct GME paym ent for residents training in nonprovider settings. The statutory use of the phrase “all or subs tantially all of the costs for the training program in that setting” is located in s ection 1886(h)(4)(E) of th e Act, as added by783 section 9314 of the Omnibus Budget R econciliation Act of 1986 (Pub. L. 99-509) (OBRA ‘86). For a detailed discussion of the implementatio n of section 9314 of OBRA ‘86, we refer readers to the Septem ber 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 orde r to receive direct GME paym ent 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 nonprovi der sites in order to count the FTE residents for purposes of direct GME payments. In making these ch anges to section 1886(h )(4)(E) of the Act, section 5504(a) of the Affordable Care Act am ended 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 th at residents train in activities related to patient care in a nonprovider site if the hospital incu rs the costs of the residents’ salaries and fringe benefits for the time that the resi dent spends training in the nonprovider site. In effect, this amendment reduced the costs th at 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 a ddition, we revised the re gulatory definition of “all or substantially all of the costs for th e training program in th e nonhospital setting” in784 order to implement the statutory amendment a nd apply the effective da te as set forth in the statute to cost reporting periods begi nning on or after July 1, 2010. Specifically, the regulations at § 413.75(b), which define “all or substantiall y all of the costs for the training program in the nonhospital se tting” were revised as follows: “(1) Effective on or after January 1, 1999 and for cost reporting periods beginning before July 1, 2007, the residents’ sa laries and fringe benef its (including travel and lodging where applicable) and the portion of the cost of teaching physicians’ salaries and fringe benefits attribut able to direct graduate me dical education (GME); and “(2) Effective for cost reporting peri ods beginning on or after July 1, 2007 and before July 1, 2010, at least 90 pe rcent of the total of the cost s of the residents’ salaries and fringe benefits (includi ng travel and lodging where app licable) and the portion of the cost of teaching physicians’ salaries at tributable 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 F TE 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 co st 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 dire ct GME payments to hospitals at §§ 413.75(b) and 413.78(g) to reflect the changes made by sec tion 5504(a) of the Affordable Care Act. However, at that time, we inadvertently did not make conforming changes to the785 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 longstandi ng policy that FQHCs and RHCs must meet the same requirements applicable to teachi ng 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 amendmen ts 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: “Howev er, 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 be nefits (including trav el and lodging where applicable) of residents training at the RH C or FQHC, the RHC or FQHC may receive direct graduate medical educati on payment for those residents.” L. Rural Community Hospital Demonstration Program 1. Background Section 410A(a) of Pub. L. 108-173 re quired the Secretary to establish a demonstration program to test the feasibilit y and advisability of establishing “rural community” hospitals to furnish covered inpatient hospital services to Medicare beneficiaries. The demonstration pays rural community hospita ls under a reasonable cost-based methodology for Medicare paymen t purposes for covered inpatient hospital786

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 ar ea under section 1886(d)(8)(E) of the Act;

● Has fewer than 51 beds (excluding be ds in a distinct part psychiatric or rehabilitation unit) as reported in its most recent cost report;

● Provides 24-hour emerge ncy 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 specifi ed 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 popula tion densities. Using 2002 data from the U.S Census Bureau, we identified the 10 Stat es with the lowest population density in which rural community hospitals were to be located in order to participate in the demonstration: Alaska, Idaho, Montana, Ne braska, Nevada, New Me xico, North Dakota, South Dakota, Utah, and Wyoming. (Source: U. S. Census Bureau, Sta tistical 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 hosp itals withdrew from the program and converted to CAH status. This left nine hospi tals participating at that time. In 2008, we announced a solicitation for up to six additi onal hospitals to participate in the787 demonstration program. Four additional hospita ls were selected to participate under this solicitation. These four additional hospita ls 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 we re participating in the demonstration. Five hospitals (3 of the hospitals were among the 13 hospitals that were original participants in the demonstration progra m and 2 of the hospitals were among the 4 hospitals that began the demonstrati on program in 2008) withdrew from the demonstration program during CYs 2009 and 2010. (Three of these hos pitals indicated that they would be paid more for Medicare inpatient hospital servic es under the rebasing option allowed under the SCH methodology pr ovided for under section 122 of the Medicare Improvements for Patients and Pr oviders Act of 2008 (Pub. L. 110-275). One hospital restructured to b ecome a CAH, and one hospital closed.) In CY 2011, one hospital that was among the original set of hospi tals that participated in the demonstration

withdrew from the demonstration. These actions left seven of the or iginally participating hospitals (that is, hospitals that were sele cted to participate in either 2004 or 2008) participating in the demonstration program as of June 1, 2011.

Sections 3123 and 10313 of the Affordab le Care Act (Pub. L. 111-148) amended section 410A of Pub. L. 108-173, which esta blished the rural community hospital demonstration program. Sections 3123 and 10313 of the Affordable Care Act changed the rural community hospital demonstration prog ram in several ways. First, the Secretary is required to conduct the demonstration pr ogram for an additional 5-year period that begins on the date immediately following the last day of the initi al 5-year period.788 Further, the Affordable Care Act requires, in the case of a rural community hospital that is participating in the demons tration program as of the last day of the initial 5-year period, the Secretary to provide for the contin ued participation of su ch rural hospital in the demonstration program during the 5-year extension, unless the hospital makes an election, in such form and manner as th e 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 pr ovides 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 (secti on 410A(g)(2) of Pub. L. 108-173, as added by section 3123(a) and amended by section 10313 of th e Affordable Care Act). Further, the Secretary is required to use the same criteria and data that the Secret ary 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 rura l community hospitals in such States to participate in the dem onstration 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 demons tration 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, Ka nsas, Maine, Minnesota, Mississippi,789 Montana, Nebraska, Nevada, New Mexic o, North Dakota, Oklahoma, Oregon, South Dakota, Utah, and Wyoming (Source: U.S. Ce nsus Bureau, Statisti cal 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 fi rst cost report ing period beginning on or after April 1, 2011. Three of these 19 hospitals declined part icipation prior to the start of the cost reporting periods for which they would have be gun the demonstration. In addition to the 7 hospitals that were selected in either 2004 or 2008, the new selecti on led to a total of 23 hospitals in the demonstration. Duri ng CY 2013, one additional hospital among the

set selected in 2011 withdrew from the demons tration, 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 P ub. L. 108-173 required that, “[i]n conducting the demonstration program under this secti on, 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 am ount that would be paid to those same hospitals in the absence of the demonstrati on program. Typically, this form of budget790 neutrality is viable when, by changing paymen ts or aligning incentives to improve overall efficiency, or both, a demonstr ation 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 expend itures offset increased payments elsewhere under the demonstration program, thus ensuri ng that the demonstration program as a whole is budget neutral or yields savings. Ho wever, the small scale of this demonstration program, in conjunction with the payment me thodology, makes it extremely unlikely that this demonstration program could be viable under the usual form of budget neutrality. Specifically, cost-based payments to part icipating small rural hospitals are likely to increase Medicare outlays without produc ing any offsetting reduction in Medicare expenditures elsewhere. Therefore, a rural community hospital’s participation in this demonstration program is unlikely to yield be nefits to the particip ant if budget neutrality were to be implemented by reducing othe r payments for these same hospitals. In the past 10 IPPS final regulati ons, 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 acro ss the payment system as a whole rather than merely across the participants in the demo nstration 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 th at the language of the statutory budget neutrality requirements permits the agency to implement the budget neutrality provision791 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 ne utrality adjustment f actor to the FY 2015

national IPPS rates. In general terms, in each of these previ ous years, we used available cost reports for the participating hospitals to derive an es timate 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 grow th in the prices of inputs for inpatient hospitals were applied to these cost amount s. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53452), we used “as submitted” cost repo rts (for cost reporting periods ending in CY 2010) for each hospital participating in th e 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 app licable percentage incr ease, as applicable, to several years of data as opposed to solely using the market basket percentage increase) for the calculation of the budget neutrality offs et 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 inpa tient operating services was also applied. For the budget neutrality calculations in the IPPS final rules fo r 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 ru le 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 demonstr ation in an earlier given year. For these periods, we derived that estim ated cost by subtracting the estimated amount that would otherwise be paid without the demonstration in an earlier gi ven 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 methodol ogy authorized by sect ion 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 earlie r 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 in ception 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, th e finalized cost reports for the first 2 years of the demonstration, that is , cost reports for cost repor ting years beginning in FYs 2005 and 2006 (CYs 2004, 2005, and 2006) were available. These data showed that the actual793 costs of the demonstration for these years exceeded the amounts originally estimated in the respective final rule s 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 base d on the amount that the costs of the

demonstration for FYs 2005 and 2006 exceed ed the budget neutrality offset amounts

finalized in the IPPS rules a pplicable 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 co sts in the upcoming fiscal year and an amount by which the actual demonstration cost s 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 demonstrati on, we were unable to finalize this component of the budget neutrality offset amount account ing for the amount by which the actual demonstration costs in a given year ex ceeded the budget neutrality offset amount finalized in the corresponding year’s IPPS fina l rule for cost reports of demonstration hospitals dating to thos e 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 calcula ting the budget neutrality offset amount794 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 th at 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 per centage increase) for the calculation of the budget neutrality offset amount. We stated that we beli eved this approach would maximize the precision of our calculation because it would more closely replicate payments made with and without the demons tration. 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 o ffset 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 fis cal year and the amount by which the actual demonstration costs corresponding to an earlie r year (which would be determined once we have finalized cost reports for that year) exceeded the budget neutrality offset amount finalized in the corresponding y ear’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 offset795

calculation. We stated in the fi nal rule that we expected set tled cost reports for all of the demonstration hospitals that participated in th e 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 comprise d of two distinct components: (1) the final resulting difference betw een the estimated reasonable co st amount to be paid under

the demonstration to the 22 participating hospitals in FY 2014 for covered inpatient hospital services and th e estimated amount that would otherw ise 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 de monstration for FY 2007, as shown in the finalized cost reports for the hospitals that participated in th e 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 th e 9 hospitals that participated in the demonstration during that year). 2. Proposed FY 2015 Budget Neutrality Offset Amount

For the reasons discussed in th e FY 2013 IPPS/LTCH PPS final rule (77 FR 53449 through 53453), we are pr oposing in this FY 2015 IPPS/LTCH PPS proposed rule to continue to use the me thodology 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 PPS796 final rule (77 FR 53451), we revised our methodol ogy in that final rule to further improve and refine the calculation of the budget neut rality 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 fi nal rule, the proposed methodology for calculating the estimated FY 2015 demonstration co st for the participating hospitals is as

follows: Step 1: For each of the pa rticipating hospitals, we ar e 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 repo rting period ending in CY 2012). Th e general reasonable cost amount

calculated under the reasonabl e cost methodology is hereaf ter 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 us e 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 predic tor of the costs of the demonstration in FY 2015 because they give us a recent pict ure of the participating hospitals’ costs. Because section 410A of Pub. L. 108-173 stip ulates swing-bed services are to be included among the covered inpatient hospita l 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 the797 general total estimated FY 2012 reasonable co st amount for covered inpatient hospital

services under the demonstration. As i ndicated 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 abov e-referenced amounts to calculate the general total estimated FY 2012 reasonable co st amount for covered inpatient hospital services for all part icipating hospitals. We are proposing to multiply this sum (that is, the general total estimated

FY 2012 reasonable cost amount for covere d 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 th e FY 2015 IPPS market basket percentage increase provided by the CMS Office of the Ac tuary is specified in section IV.B.1. of the preamble of this proposed rule. We are pr oposing to use the fina l 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 described798

above to model the estimated FY 2015 reasona ble cost amount under the demonstration. We are proposing to use the IPPS market bask et percentage increases because we believe that these update factors appr opriately 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 sti pulated by the CMS Office of the Actuary and is being proposed because it is intended to accurate ly reflect the tendency of hospitals’ inpatient casel oads 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 ar e proposing to identify the general estimated amount that would othe rwise be paid in FY 2012 under applicable Medicare payment methodologies for covered in patient hospital servi ces (as indicated on the “as submitted” cost report for cost re porting periods ending in CY 2012) if the demonstration was not implemented. Similarl y, as in Step 1, for the hospitals that provide swing-bed services, we are proposi ng to identify the estimated amount that generally would otherwise be paid for these services (as indicated on the “as submitted” cost report for cost reporti ng 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 proposin g to sum these two amounts

in order to calculate the estimated FY 2012 total payments that generally would799 otherwise be paid for covered inpatient hospi tal 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 otherw ise be paid for covered inpatient hospital services for all part icipating hospitals without th e demonstration) by the FYs 2013 through 2015 IPPS applicable per centage 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’ ge neral total FY 2012

estimated reasonable cost amount for covered in patient hospital services . We believe that the IPPS applicable percentage increases are appropriate fa ctors to update the estimated amounts that generally would otherwise be pa id without the demons tration. This is because IPPS payments would constitute the ma jority of payments that would otherwise be made without the demonstration and the appl icable percentage incr ease is the factor used under the IPPS to update the inpatient hospital payment rates. Hospitals participating in the demonstration woul d be participating under the IPPS payment methodology if they were not in the demonstr ation. (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 demonstra tion and the applicable IPPS percentage increases for the years involved by a 3-perc ent annual volume adjustment for FYs 2013 through 2015. The result would be the general total estimated FY 2015 costs that would800 otherwise be paid without the demonstration fo r covered inpatient hospital services to the participating hospitals. Step 3: We are proposing to subtract the amount deri ved in Step 2 (representing the sum of estimated amounts that generally w ould otherwise be paid to the participating hospitals for covered inpatient hospital serv ices 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 genera lly would be paid under the demonstration to all participating hospitals for covered inpa tient hospital services for FY 2015). We are proposing that the resulting diffe rence would be one component of the estimated amount for which an adjustment to the national I PPS rates would be calculated (as further discussed below). For this proposed rule, the resul ting difference is $53,673,008. This estimated amount is based on the specific assumptions id entified 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 cost s of the demonstration program in FY 2015. Therefore, this estimated budget neutrality offs et 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 give n year (which would be determined once we had finalized cost reports for that year) exceeded the budge t neutrality offset amount finalized in the801 corresponding year’s IPPS final rule. Fo r this FY 2015 IPPS/LTCH PPS proposed rule, we have calculated the amount by which the act ual costs of the demonstration in FY 2008 (that is, the costs of the dem onstration for the 10 hospitals that participated in FY 2008, as shown in these hospitals’ finalized cost re ports for the cost report period beginning in that fiscal year), exceeded the budget neutrali ty 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 us e them to the extent appropriate to determine this amount. Therefore, this amount might change in the final rule, depending on the availability of updated da ta. We also are currently working with the MACs that service the hospitals participating in the dem onstration to obtain fina lized cost reports for FYs 2009, 2010, and 2011. Similar to previous y ears, we are proposi ng that if settled cost reports for all of the demonstration hospita ls 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 demonstrati on for the year (FYs 2009, 2010, or 2011) exceed the budget neutrality offset amount applicable to such year as finali zed in the respective year’s IPPS final rule. Therefore, the total budget neutrality o ffset 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 th e total estimated FY 2015 reasonable cost amount to be paid under the demonstration to the 22 participating hospitals for covered802 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 ac tual costs of the demonstrat ion 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 de monstration during FY 2008) excee d 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 I PPS 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 bi lled charges, hospital report ed 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 discharg e under the IPPS or a service furnished under the OPPS is not based directly on the hos pital’s charges for th e individual services provided, we believe that hospital charges ne vertheless remain an important component of our healthcare system. For example, hospital charges are often billed, in full, to uninsured patients who cannot benefit from di scounts negotiated by insurance companies. Hospital charges also vary significantly by hosp ital, making it challenging for patients to compare the cost of simila r services across hospitals.803 In 2013, we released data that demons trated significant variation across the country and within communities in what hospitals charge for a number of common inpatient and outpatient servic es. These data also showed that hospital charges for services furnished in both the inpatient setti ng 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-Tre nds-and-Reports/Medi care-Provider-ChargeData/index.html . Our intent in releasing these data was to enable the public to examine the relationship between the amounts charge d by individual hospita ls for comparable services and Medicare’s paymen t for that inpatient or outpatient care. We believe that providing charge data comparis ons is introducing both transpar ency 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 provi sion that is consiste nt 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 th at “[e]ach hospital operating within the United States shall for each year establish (and update) and make public (in accordance with guidelines develo ped by the Secretary) a list of the hospital’s standard charges for items and services provided by th e hospital, including for diagnosis-related groups established under s ection 1886(d)(4) of the So cial Security Act.”804 In this proposed rule, we are reminding hospitals of their obligation to comply with the provisions of secti on 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 availa ble to the public. Therefore, we are providing hospitals with th e flexibility to determine how they make a list of their standard charge s public. Our guidelines for im plementing 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 its elf 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 undertak e efforts to engage in consumer friendly communication of their charges to help patien ts 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 hos pitals. We expect that hospitals will update the information at least annually, or mo re often as appropriate , to reflect current charges. We are confident that hospital compliance with this statutory transparency requirement will greatly improve the public a ccessibility of charge information. As hospitals make data publicly available in co mpliance 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 inform ation: May and June 2013 hospital charge data releases; 2013 physician data requests fo r information; and the April 2014 physician805 data releases and data provided on geographi c variation in payments and payments per beneficiary.806

N. Medicare Payment for Short Inpatient Hospital Stays Some members of the hosp ital community have expre ssed support for the general concept of an alternative payment met hodology under the Medicare program for short inpatient hospital stays. We are interest ed in public comments on such a payment methodology, specifically how it might be desi gned. 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 additiona l questions, suggestions, and input from

stakeholders.

● Defining short or low cost inpatient hospital stays:

One issue would be how to define a shor t inpatient hospital stay for the purpose of determining the appropriate Medicare paymen t. 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 Severi ty Diagnosis-Related Groups (MS-DRGs), Relative Weighting Factors, and Geometric a nd Arithmetic Mean Length of Stay for this proposed rule, which is available via the Inte rnet on the CMS Web site.) For example, many frequently billed MS-DRGs have histor ically had mean lengths of stay of approximately 2 days, such as MS-DRG 313 (C hest Pain). Other MS-DRGs such as MS-807 DRG 871 (Septicemia or Severe Sepsis wit hout Mechanical Ventil ation 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 typi cal patient. Such a policy is less likely to apply to MS-DRG 313 because the typical cas e is already low cost or short stay.

● Determining appropriate payment fo r short inpatient hospital stays:

Another issue would be how to determ ine the appropriate payment once a short stay has been identified. Some have suggested a per diem based payment amount, perhaps modelled on the existi ng 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 paymen t 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 ad mitted to the hospital as an inpatient, pursuant to a physician order. Under wh at 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 the808 payment amount to be higher, how would the amount of the additional payment be

determined? We welcome input on these and other issu es related to an alternative payment methodology under the Medicare program fo r 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 fo r payment purposes. Under that final rule, we established a 2-midnight benchmark for determining the appropriateness of an inpatient hospital ad mission 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 proc edures, 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) adm its the beneficiary to the hospital based upon that expectation. The FY 2014 policy responde d to both hospital calls for more guidance about when an inpatient admission and Part A payment are appropriate, and

beneficiaries’ concerns a bout 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 benefici ary’s death or transfer, results in a shorter beneficiary stay than the physic ian’s expectation of at leas t 2 midnights, the patient may809 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, electi on 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 appr opriate. For example, we specified that procedures on the OPPS inpatient only list ar e always appropriatel y 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 th e 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 exp ected to last less than 2 midnights would nonetheless be appropriate fo r inpatient hospital admission and Part A payment. We indicated that we would explore other poten tial 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 anticipat ed intubations related to mi nor surgical procedures or other treatment) as the first rare and unus ual exception to the 2-midnight rule and

announced it on the CMS Web site. We recognize that there could be add itional rare and unusual circumstances that we have not identified that justify inpatie nt admission and Part A payment absent an expectation of care spanning at least 2 midnights and are invi ting further feedback on this issue. Suggestions can be sent to CMS via written co rrespondence or emailed to SuggestedExceptions@cms.hhs.gov with “Suggested Excep tions 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 Secret ary.” Under the statute, the Secretary has broad authority in establishing and implementing the IPPS for acute care hospital i npatient 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 co st reporting peri ods 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 duri ng and after the transition period.) The basic methodology for determining cap ital prospective pa yments 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 Wei ght) x (Geographic Adjustment Factor (GAF)) x (COLA for hospitals located in Alaska and Hawaii) x (1 + Capital DSH Adjustment Factor + Capital IME Ad justment Factor, if applicable). In addition, under § 412.312(c) , hospitals also may rece ive 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 fo r certain exception payments under the capital IPPS. The regular exception pa yments provided under §§ 412.348(b) through (e) were available only during the 10-year tran sition period. For a certain period after the transition period, eligible hos pitals 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 reader s 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 cu rrent ownership) for less than 2 years and lists examples of hospitals that are not c onsidered new hospitals. In accordance with § 412.304(c)(2), under the capital IPPS a new hosp ital is paid 85 percen t of its allowable Medicare inpatient hospital cap ital-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 pa yments to new hospitals under the capital

IPPS. 3. Hospitals Located in Puerto Rico Section 412.374 of the regulations provi des for the use of a blended payment amount for prospective payments for capital-rela ted 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 co sts. In general, hospitals lo cated 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 hospi tals located in Puerto Rico are computed based on a blend of 25 percent of the capital IP PS Puerto Rico rate and 75 percent of the capital IPPS Federal rate. For additional de tails on capital IPPS payments to hospitals located in Puerto Rico, we refer reader s 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 Addendu m to this proposed rule. We note that, in section II.D. of the pr eamble 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 se ction 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 th e operating IPPS standardized amount, we are not proposing a similar adjustment to the nati onal or Puerto Rico capital IPPS rates (or to the operating IPPS hospital-specific rates or Pu erto Rico-specific standardized amount). This approach is consistent w ith our historical approach re garding 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 ru le 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 additiona l 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 an815 additional prospective adjustment in FY 2014 for the cumulative MS-DRG documentation and coding effect through FY 20 10, consistent with the approach taken for the operating IPPS standardized amount (and hos pital-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 hos pital-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 Hosp itals Excluded from the IPPS A. Proposed Rate-of-Increase in Paym ents to Excluded Hospitals for FY 2015 Certain hospitals excluded from a pr ospective payment system, including children’s hospitals, 11 cancer ho spitals, and hospitals locate d 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 th e 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 annua lly 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 tota l inpatient operating costs fo r a hospital’s cost reporting period. In accordance with § 403.752(a) of th e regulations, RNHCIs also are subject to

the rate-of-increase limits esta blished under § 413.40 of the re gulations discussed above. As explained in the FY 2014 IPPS/ LTCH PPS final rule (78 FR 50747), beginning with FY 2006, we have used the pe rcentage 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 hosp itals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and Amer ican Samoa. For the reasons explained in817 the FY 2014 IPPS/LTCH PPS final rule (78 FR 50747), we are proposing to continue to use the percentage increase in the IPPS ope rating 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 Isla nds, Guam, the Northern Mariana Islands, and

American Samoa for FY 2015 and subsequent fiscal years. In addition, because we have revise d and rebased the IPPS operating market basket to a FY 2010 base year, we are propos ing 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 y ears. (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 operati ng 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 Is lands, Guam, the Northern Mariana Islands, and American Samoa would be the FY 2015 pe rcentage 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 recen t data become available for the final rule, we would use them to calculate the IPPS operati ng market basket update for FY 2015.818 B.. Proposed Updates to the Reasonable Compensation Equivale nt (RCE) Limits on Compensation for Physician Services Provided in Providers (§ 415.70) 1. Background

Under section 1848 of the Act and 42 CF R 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-fo r-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 s ubject to reasonable co mpensation equivalent (RCE) limits. Under these limits, Medicare recognizes as reasonable, for purposes of payment to the provider, the lower of the ac tual 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 physicia n’s services” to the provider. On March 2, 1983, we publis hed a final rule in the Federal Register that codified regulations to implement sect ion 1887(a)(2)(B) of the Act (c urrently at 42 CFR 415.70)

and established the first se t of RCE limits (48 FR 8902). In accordance with § 415.70(a)(2), RCE limits do not apply to the costs of physician compensation819 attributable to furnishing inpatient hospital services for which payment is made under the IPPS or to the costs of physician compensa tion 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 recei ves 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 co mpensating physicians for services furnished

to the CAH. The RCE limits apply equally to all physic ians’ 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 hi s or her services to the provider (that is, those services that benefit pa tients generally), payment to t hose providers for the costs of such compensation is subject to the RCE li mits. The RCE limits are not applied to payment for services that ar e identifiable medical or surg ical services to individual patients and paid under the MPFS, even if th e physician agrees to accept compensation (for example, from a hospital) for those serv ices. 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 use820 these limits when the physician is comp ensated by any other provider-related organization for physician administrative, supe rvisory, 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 compensa tion covers all dutie s, activities, and services furnished to the provider and, unde r a reassignment, all physicians’ services furnished to individual patients of the pr ovider, 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 reflec ts 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 compen sation costs (§ 415.60). In the absence of an allocation agreement, we would assume th at 100 percent of the compensation paid to the physician by the provider is related to phys icians’ services for which payment is made

under the MPFS and that there are no allowa ble physician compensation costs to the provider (§ 415.60(f)(2)).821 If a physician’s compensation from th e provider represents payment only for services that benefit patients generally (t hat is, the physician b ills for all services furnished to individual patie nts), 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 prov ider’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 rura l 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 de monstrate to the MAC its inabili ty to recruit or maintain physicians at a compensation level allowabl e under the RCE limits (as documented, for example, by unsuccessful advertising th rough national medical or health care publications), the MAC may grant the pr ovider 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 methodol ogy 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 genera l authority to develop,822 publish, and apply RCE limits (currently at § 415.70). Sect ion 415.70(b) of the regulations specifies that we establis h the methodology for determining annual RCE limits, considering, to the extent possible, average physician incomes by specialty and type of location, using th e best available data. The methodology for establishing the ini tial RCE limits was based on the analysis contained in an internal working pape r, “A Methodology for Determination of Reasonable FTE Compensation fo r 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 in itial reasonable levels of compensation includes the following five steps (for additi onal 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 aver age (mean) income for all physicians using 1979 physician net incomes from the Ameri can 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 ba se net income levels to the appropriate future year to account for changes in net in come levels occurri ng after the period for which we have data using the Consumer Pr ice Index for All Urban Consumers (CPI-U), and projected the results using foreca sts 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 relations hip 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 co mpensated by providers for services that generally benefit Medicare bene ficiaries 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 thes e specialty (including th e “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 averag e hours practiced per year for each specialty and lo cation adjuster combination, wh ich we then related to a standard full-time equivalent (FTE) work y ear of 2,080 hours. We used these ratios to weight the specialty-location adju sters from the previous step. This same methodology was used to upda te 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 peri ods 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 fina lized a policy to use the Medicare Economic Index (MEI) to update the RCE limit s (rather than the CPI-U), effective for cost reporting periods beginni ng on or after January 1, 1998. We adopted the MEI as the applicable update factor in order to achieve a measure of consistency in the824 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 pa tients. 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 begi nning on or after January 1, 2004. We updated the RCE limits using the CPI-U to adjust the data to 1997, a nd the MEI to adjust the data from 1998 to 2004. In addition, we continued to adjust th e 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 classi fications of the providers on Metropolitan Statistical Areas (MSAs) (the OMB changed th e 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 da ta to account for specialty and location (as

discussed earlier in this sectio n). 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 the825 RCE limits. In addition, for the reasons disc ussed below, we are proposing to eliminate the location adjustment to the RCE data, wh ile 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 ex ceptions to the RCE limits. In establishing the initial and subseque ntly updated RCE limits, we included an adjustment to account for differences in sa lary levels based on the location of the provider using geographic classifications base d on the MSAs as defined by the OMB. We assigned an appropriate MSA designati on 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 popul ation greater than 1 million, metropolitan areas with a population less than 1 million, and non-metr opolitan areas. The MSA designation of the provider is then used to iden tify the appropriate RCE limit. To update the current RCE limits by lo cation under the current methodology, we would need to use, as in past updates, th e MSA designations that correspond with the update period. However, since 2003, the OM B no longer updates or uses MSAs. We considered continuing to use the MSA designation s, 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 geographi c definitions, and the counties included in each area, to account for population shifts due to migrations , birth, and death rate s but currently the OMB uses Core-Based Statistical Area (CBSA) designations rather than MSAs. If we826 were to continue to use the MSA designation, providers could potenti ally be underpaid or overpaid if the population of their MSA changed significantly from 2004. Therefore, we determined that, because the MSA designati ons are no longer updated, it would not be appropriate to continue usi ng 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 a nd 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 MS A designations to the CBSA designations in order to update th e RCE limits using the current location adjustment methodology. Even if it was possi ble to crosswalk the MSAs to the CBSAs, it would not be appropriate to use th e MSA-based AMA PSP data to develop CBSA-based RCE limits. There have been sign ificant changes in th e populations of the

MSA-based locations contained in the AMA PSP data that co uld 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 us ing the new CBSA designations. For instance, in OMB’s 2010 “Standards for De lineating Metropolitan and Micropolitan827 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 doe s not take into account or attempt to anticipate any public or private sector nonsta tistical uses that may be made of the delineations. These areas are not designed to serve as a general-purpose geographic framework applicable for nonstatistical activi ties or for use in program funding formulas

. “Furthermore, the Metro politan and Micropolitan St atistical 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 c ontain both urban and rural territory and populations. . . . OMB urges ag encies, organizations, and policy makers to review carefully the goals of nonstatistical programs a nd policies to ensure that appropriate geographic entities are used to determine eligibility for the allocation of Federal funds.” (Em phasis in original.) For CMS to accurately update the loca tion-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 P SP 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 on828

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 th e most current, reliable source of income data for physicians. Although, the BLS OES is very reliable and collects data points for physician specialties, salary, a nd 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 informati on, 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 bur den 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, locat ion, hours worked, and other practice information against the benefit of using updated, CBSA-based information to include a location adjustment for the provi ders 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 cost829 basis. Since then, providers such as skill ed nursing facilities (SNFs), long-term care hospitals (LTCHs), inpatient rehabilitation facili ties (IRFs), inpatient psychiatric facilities (IPFs), and home health agencies (HHAs) that previously were paid on a reasonable cost basis have transitioned to prospective paymen t 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 a nd 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 appr opriateness 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 speci alties collected by the BLS OES. As mentioned above, the BLS OES data are co llected 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 refl ect the same number of hours worked per year. Because many physicians do not work a 2,080 hour work year, their salary may830 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 wo rk 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 physic ian mean annual income data for the same year, to determine whether RCE limits ba sed on the AMA PSP data, but without a location adjustment, would continue to reason ably reflect mean annual physician income data. For 2012, the BLS OES had income in formation 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 loca tion 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 lim its ranged from 10.41 percent above the BLS OES mean annual income data to 3.58 percen t below the BLS OES data. Only three of the eight specialties had RCE limits slightly less than th e 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 be lieve 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 numb er 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 adjustme nt 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 elim inate the location adjustment under the RCE limit methodol ogy, 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 physicia ns to providers for cost reporting periods beginning on or after January 1, 2015. To cal culate these proposed RCE limits, we used the same methodology that was us ed 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 classifi cation. We then update d 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 $261,100833 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 inv iting public comments on our proposal to revise § 415.70(b) of the regu lations 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, repl aced 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 se ction 1820(e)(3) of the Act, a CAH must meet other criteria that the Secretary specifies. The regulations that govern the conditi ons of participati on (CoPs) for CAHs under the statutory requirements of sec tion 1820 are codified at 42 CFR Part 485, Subpart F.834 2. Proposed Changes Related to R eclassification 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 lo cal 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 facili ty 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 reader s to section III.B. of the pr eamble 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 stat us of a facility that is cu rrently 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 tr ansition period during which CAHs that had previously been located in rural areas bu t, as a result of new OMB delineations, were now located in urban areas, could reclassi fy as rural under § 412.103. Specifically, in

both the FY 2005 IPPS final rule and th e FY 2010 IPPS/LTCH PPS final rule, we835 provided for a 2-year period during which a C AH located in an urban area as a result of the new OMB delineations could continue part icipating 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 facil ity 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, respectiv ely. As a result, in the absence of a new amendment to the regulations each ti me there are new OMB delineations, a CAH

that becomes located in an urban area as a result of those OMB de lineations would not be given 2 years to reclassify as rura l 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 woul d 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 designa ted as being located in an urban area as a result of the redesignat ion of its county from rural to ur ban. After further consideration, we believe that it is appropriate to propose to change the regulations to provide for a transition period that is not rest ricted to a timeframe, but rath er 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, e ffective October 1, 2014, a CAH that was previously located in a rural area but is now lo cated in an urban area as a result of a new836 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 Februa ry 28, 2013 discussed in section III.B. of the preamble of this proposed rule ar e 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 ru ral status through September 30, 2016. An affected CAH would be require d to reclassify as a rura l facility under § 412.103 within that 2-year period in order to continue pa rticipating in the Medicare program as a CAH after the 2-year transition period ends. Ther efore, taking into consideration the example above, any CAH affected by a new OMB delinea tion that is implemented in the FY 2015

IPPS/LTCH PPS final rule would be re quired 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 re vise § 485.610 by making a conforming change to the introductory text of paragraph (b) and adding a new pa ragraph (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 ru ral 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 transiti on period following the implementation of new OMB delineations is more efficient than pr oviding for a regulatory change limited to a timeframe, and, as a result, will be more e ffective in reducing any disruption caused by

new OMB delineations.837

3. Proposed Revision of the Requirements for Ph ysician Certification of CAH Inpatient

Services For inpatient CAH services to be pa yable under Medicare Part A, section 1814(a)(8) of the Act requires that a physicia n certify “that the individual may reasonably be expected to be discharged or transferre d to a hospital within 96 hours after admission to the critical access hospital.” The regulati ons implementing this statutory requirement

are located at 42 CFR 424.15. Prior to FY 2014, this physician certifi cation 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 certif ication of inpatient CAH services. Specifically, we revised § 424.15(b) to state: “Certification begins with the order for inpatient admission. The certific ation must be completed, si gned, 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 w ith greater flexibility in meeting this certification requirement, we are now proposing to amend th e regulations governing the timing of the 96-hour certification requireme nt 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 to838 discharge and are proposing to reinstate the tim ing 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). Sect ion 424.11(d)(5) states “[f]or all inpatient hospital or critical access hospital inpatient services, including inpatient psychiatric facility services, a delayed cer tification may not extend past discharge.” Because we are proposing to change the timing requirement fo r physician certification of CAH inpatient services at § 424.15(b), such that the certification could be co mpleted past discharge, we are proposing to revise § 424.11(d)(5) to rem ove the phrase “or critical access hospital inpatient”. We are seeking public comment on these proposed changes to the regulations governing the requirement fo r physician certification of CAH inpatient services.839 VII. Proposed Changes to the Long-T erm 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, Medicai d, 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-rela ted costs of hospital inpatient stays in long-term care hospitals (LTCHs) under Medi care Part A based on prospectively set rates. The Medicare prosp ective 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 de termined 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 firs t 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 inpa tient discharges with a principal diagnosis that reflects a finding of neopl astic 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 ot her 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 a nd 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 character istics and expected resource needs. Beginning in FY 2008, we a dopted the Medicare severity long-term care diagnosis-related groups (MS-LTC-DRGs) as th e 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 impleme nting the TEFRA reasonable cost-based payment provisions are located at 42 CFR Part 413.) With the implementation of the PPS841 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 subjec t 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 y ear Medicare discharges. (Gen erally, 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 provi ded 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 Fede ral rate. Beginning with LTCHs’ cost reporting periods begi nning on or after Octo ber 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 presente d an in-depth discussion of the LTCH PPS, including the patient classifi cation system, relative weights, payment rates, additional payments, and the budget neut rality requirements mandated by section

123 of the BBRA. The same final rule that established regulations for the LTCH PPS842 under 42 CFR Part 412, Subpart O, also contai ned LTCH provisions related to covered inpatient services, limitation on charges to be neficiaries, medical review requirements, furnishing of inpatient hospital services dir ectly or under arrangeme nt, and reporting and recordkeeping requirements. We refer re aders to the August 30, 2002 final rule for a comprehensive discussion of the research and data that supported th e establishment of the LTCH PPS (67 FR 55954).

We refer readers to the FY 2012 I PPS/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 Ac t 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 addi ng 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 s ection 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 th reshold payment adjustment policy (except for “grandfathered” hospitals-within-hospita ls (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 the843 Protecting Access to Medicare Act (Pub. L. 113-93), which, subject to certain defined exceptions, provide for statutory moratori a on the establishment of new LTCHs and LTCH satellite facilities and a new statutory mo ratorium on the increase in the number of hospital beds in LTCHs or LTCH satell ite 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 establis h 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 pream ble of this proposed rule, we discuss the findings of a review of payments to certa in 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)” LTC Hs beginning in FY 2015 that would result in payments to this type of LTCH rese mbling 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 agr eement with Medicare. Furthermore, § 412.23(e)(2)(i), which implements section 1886(d )(1)(B)(iv)(I) of the Ac t, requires that a hospital have an average Medica re inpatient length of stay of greater than 25 days to be844 paid under the LTCH PPS. Alternatively, § 412 .23(e)(2)(ii) states th at, for cost reporting periods beginning on or after August 5, 1997, a hos pital that was first excluded from the

PPS in 1986 and can demonstrate th at at least 80 pe rcent of its annual Medicare inpatient discharges in the 12-month cost reporting period ending in FY 1997 have a principal diagnosis that reflects a fi nding of neoplastic disease must have an average inpatient length of stay for all patients, including bot h Medicare and non-Medi care 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 St ate 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 se ction 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 furnishi ng emergency services to Medicare

beneficiaries. 3. Limitation on Charges to Beneficiaries845 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 establis h 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 amoun t, consistent with other established hospital prospective payment systems, a LTC H may not bill a Medicare beneficiary for

more than the deductible and coinsura nce amounts as specified under §§ 409.82, 409.83, and 409.87 and for items and services specifi ed 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 exce eded. Therefore, if the Medicare payment was for a SSO case (§ 412.529) that was le ss than the full LTC-DRG payment amount because the beneficiary had insufficient rema ining Medicare days, the LTCH could also charge the beneficiary for services delivered on those uncovered days (§ 412.507). 4. Administrative Simplification Complia nce 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) (P ub. L. 107-105), and the Health Insurance Portability and Accountability Act of 1996 (H IPAA) (Pub. L. 104-191). Section 3 of the ASCA requires that the Medica re 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 by846 section 3(a) of the ASCA) pr ovides that the Secretary shal l waive such denial in two specific types of cases and ma y also waive such denial “i n such unusual cases as the Secretary finds appropriate” (68 FR 48805). Section 3 of the ASCA operates in the context of the HIPAA regulations, whic h include, among other provisions, the transactions and code sets standards requi rements codified under 45 CFR Parts 160 and 162 (generally known as the Transactions Rule). The Transactions Rule requires covered entities, including covered heal th care providers, to conduct ce rtain 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 adop tion of health information technology and promote nationwide health information exchange to improve health care. The Office of

the National Coordinator for Health Informa tion Technology (ONC) leads these efforts in collaboration with other ag encies, including CMS and the Office of the Assistant Secretary for Planning and Evaluation (A SPE). Through a number of activities, including several open gove rnment initiatives, HHS is promoting the adoption of

electronic health reco rd (EHR) technology certified unde r the ONC Health Information Technology (HIT) Certification Program developed to support secure, interoperable, health information exchange. While certifi ed EHR technology is not yet available for LTCHs and other types of provi ders that are not eligible for the Medicare and Medicaid EHR Incentive Programs, ONC has request ed the HIT Policy Committee (a Federal Advisory Committee) to explore the expans ion of EHR certificati on under the ONC HIT Certification Program, focusing on EHR certific ation criteria needed for long-term and847 postacute care (including LTCHs) and behavior al health care providers. ONC has issued a proposed rule concerning a voluntary 2015 Edit ion of EHR certificat ion criteria that would more easily accommodate HIT certifica tion for health care settings where

individual or institutional heal th care providers are not typi cally eligible to qualify for meaningful use incentive paym ents under Medicare or Medi caid, such as behavioral health or long-term postacute care settings. We believe that the use of certified EHRs by LTCHs (and other types of provi ders that are ineligible fo r the Medicare and Medicaid EHR Incentive Programs) can effectively and e fficiently help provide rs improve internal care delivery practices, support the exchange of important information across care partners and during transitions of care, and could enable the repor ting of electronically specified clinical quality meas ures (eCQMs) (as described else where in this rule). More information on the proposed rule con cerning 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-resear chers-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/Long itudinal+Coordination+of+Care

. B. Proposed Medicare Severity L ong-Term Care Diagnosis-Related Group (MS-LTC-DRG) Classifications a nd Relative Weights for FY 2015848 1. Background Section 123 of the BBRA requires that th e Secretary implement a PPS for LTCHs (that is, a per discharge system with a di agnosis-related group (DRG)-based patient classification system reflecting the differences in patient resources and costs). Section 307(b)(1) of the BIPA modified the requi rements of section 123 of the BBRA by requiring that the Secretary examine “the f easibility and the impact of basing payment under such a system [the long-term care hospi tal (LTCH) PPS] on the use of existing (or refined) hospital DRGs that have been modifi ed to account for different resource use of LTCH patients, as well as the use of the most recently available hospi tal discharge data.” When the LTCH PPS was implemented for cost reporting periods beginning on or after October 1, 2002, we adopted the same DR G patient classificati on 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 cla ssification system as the “long-term care diagnosis-related groups (LTC-DRGs).” Althou gh the patient classification system used

under both the LTCH PPS and the IPPS are the sa me, the relative weights are different. The established relative weight methodology an d data used under the LTCH PPS result in relative weights under the LTCH PPS that reflec t “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 recogni ze 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 diagnos is-related groups (MS-LTC-DRGs) were adopted under the IPPS and the LTCH PPS, respectively, effective beginning849 October 1, 2007 (FY 2008). For a full descript ion of the development, implementation,

and rationale for the use of the MS-DRGs a nd 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 Pa rt 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. Fo r 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 pr evious LTC-DRG patient classi fication system that was in effect before October 1, 2007.) The MS-DRGs adopted in FY 2008 represen t an increase in th e 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 desc ribed 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 fr om LTCH PPS patient records to classify LTCH discharges into distinct MS-LTC-DRG s 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 characteristi c of LTCHs. Below we provide a general850 summary of our existing methodology for de termining the proposed MS-LTC-DRG relative weights. In a departure from the IPPS, and as disc ussed in greater detail below in section VII.B.3.f. of this preamble, we are proposi ng to continue to use proposed low-volume MS-LTC-DRGs (that is, proposed MS-LTC-D RGs 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 hospita ls. For purposes of determining the proposed relative weights fo r the large number of proposed low-volume MS-LTC-DRGs, we are proposing to group al l of the low-volume MS-LTC-DRGs into five quintiles based on average charge per disc harge. (A detailed discussion of the initial development and application of the quinti le 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 fo r the MS-LTC-DRG). Furthermore, we are proposing to make adjustments to account for nonmonotonically increasing weights, when necessary. That is, theoretically, cas es 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 seve rity levels within a base MS-LTC-DRG, the proposed relative weights should increase monotoni cally with severity from the lowest to highest severity level. (W e discuss nonmonotonicity in gr eater detail and our proposed methodology to adjust the proposed MS-LTC -DRG relative weight s to account for851 nonmonotonically increasing proposed relative we ights 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 structur e. 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 ma jor 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 a nd medical DRGs. Surgical DR Gs are assigned based on a surgical hierarchy that orders operating r oom (O.R.) procedures or groups of O.R. procedures by resource intens ity. The GROUPER software program does not recognize all ICD-9-CM procedure codes as procedur es affecting DRG assignment. That is, procedures that are not surgical (for exampl e, 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 base d 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 pa yment 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 si x, 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 r eaders to section II.G.11.c. of the preamble of the FY 2011 IPPS/LTCH PPS final rule for a complete di scussion of this change (75 FR 50127).

Under HIPAA transactions and code se ts 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 requ ired 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 El ectronic Data Intercha nge Technical Report Type 3, October 2007, ASC X12N/005010X233A1 for the health care claims or equivalent encounter informa tion transaction (45 CFR 162.1102).853 HIPAA requires covered entities to use the applicable medical data code set requirements when conducting HIPAA transa ctions (45 CFR 162.1000). Currently, upon the discharge of the patient, the LTCH must assign appropriate di agnosis and procedure

codes from the most current version of the Internal Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-C M). 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 codi ng practices in the August 30, 2002 LTCH PPS final rule (67 FR 55981 through 55983). Additi onal coding instructions and examples are published in the Coding Clinic for ICD-9- CM, a product of the American Hospital Association. (We refer reader s to section II.G.13. of the prea mble of this proposed rule for additional information on the annual revisions to the ICD-9-CM codes.)

Providers use the code sets under th e ICD-9-CM coding system to report diagnoses and procedures for Medicare hos pital inpatient services under the MS-DRG system. We have been discussing the conve rsion 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 implemen tation of the ICD-10 coding system. To create the MS-DRGs (and by extens ion, 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 CC854 or a major complication or comorbidity (MCC). We refer readers to section II.D. of the FY 2008 IPPS final rule with comment period fo r a detailed discussion about the creation of MS-DRGs based on severity of ill ness levels (72 FR 47141 through 47175).

Medicare administrative c ontractors (MACs) enter the clinical and demographic information submitted by LTCHs into their claims processing systems and subject this

information to a series of automated screeni ng processes called the Medicare Code Editor (MCE). These screens are designed to identif y 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 th e MS-LTC-DRG assignment, the Medicare contractor determines the prospective pa yment 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 assi gnments 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 Medicare855 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 th e 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 upda ted 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 upda te the MS-LTC-DRG classifications effective October 1, 2014, through September 30, 2015 (FY 2015) consistent with the proposed changes to spec ific MS-DRG classifi cations presented in section II.G. of this preamble (that is, proposed GROUPER Ve rsion 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 Developm ent 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 efficien t delivery of medical care to Medicare patients. The system must be able to acc ount adequately for e ach LTCH’s case-mix in

order to ensure both fair di stribution of Medicare payments and access to adequate care857 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 relativ e weight in determining payment to LTCHs

for each case. The basic methodology used to devel op the MS-LTC-DRG relative weights generally continues to be c onsistent with the general methodology established when the LTCH PPS was implemented in the Augus t 30, 2002 LTCH PPS final rule (67 FR 55989 through 55991), with the exception of some modifi cations of our histor ical procedures for assigning relative weights in cases of zero vol ume and/or nonmonotonicity resulting from the adoption of the MS-LTC-DRGs. (For deta ils 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 wei ghts 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 patie nts classified to each MS-LTC-DRG have access to an appropria te 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 inpatien t LTCH case in that MS-LTC-DRG. For example, cases in a MS-LTC-DRG with a re lative 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 fina l 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 me thodology 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 P PS 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 establ ished policies related to the data, the hospital-specific relative va lue (HSRV) methodology, the treatm ent of severity levels in the MS-LTC-DRGs, low-volume and no-vol ume MS-LTC-DRGs, adjustment for nonmonotonicity, and the steps for calculati ng the MS-LTC-DRG rela tive weights with a budget neutrality factor. Below we presen t the methodology that we are proposing to

continue to use to determine the MS-LTC-D RG 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 una ffected, that is, would be neither greater than nor less than the estimated aggregate LTCH PPS paymen ts that would have been made without859 the classification and relative weight ch anges (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-D RG classifications and relative weights. We are proposing to co ntinue to apply our established two-step budget neutrality methodology such that th e annual update to the MS-LTC-DRG classifications and relative weights for FY 2015 are based on the FY 2014

MS-LTC-DRG classifications a nd 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 establis hed two-step budget neutrality methodology,

we refer readers to the FY 2008 IPPS fi nal rule (72 FR 47295 through 47296).)

c. Data

For the FY 2014 IPPS/LTCH PPS final ru le (78 FR 50755), to calculate the MS-LTC-DRG relative weight s for FY 2014, we obtained to tal charges from FY 2012

Medicare LTCH bill data from the Decem ber 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 fo r 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 f ile, 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 ru le and consistent w ith our historical methodology, we are proposing to exclude the da ta from LTCHs that are all-inclusive860 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 historic al practice, we are proposing to exclude Medicare Advantage (Part C) claims, which ar e now included in the MedPAR files, in the calculations for the proposed relative we ights under the LTCH PPS that are used to determine payments for Medicare fee-for-ser vice 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 A dvantage claims from the proposed relative weight calculations. Ac cordingly, in the development of the proposed FY 2015 MS-LTC-DRG relative weights in this pr oposed rule, we excluded the data of 12 all-inclusive rate providers and one LTC H 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 Relativ e Value (HSRV) Methodology By nature, LTCHs often speci alize in certain areas, such as ventilator-dependent patients and treatment of inf ections 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 nonra ndom distribution of cas es with relatively high (or low) charges in specific MS-LTC-D RGs has the potential to inappropriately

distort the measure of av erage charges. In this proposed rule, to account for the fact that cases may not be randomly distributed acro ss LTCHs, consistent with the methodology we have used since the implementation of the LTCH PPS, we are proposing to continue861 to use a hospital-specific relative value (HSRV) methodol ogy to calculate the proposed MS-LTC-DRG relative weight s for FY 2015. We believe this method removes this hospital-specific sour ce of bias in measuring LTCH average charges (67 FR 55985). Specifically, under this methodology, we reduce th e 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 sta ndardize 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 relativ e charge value by its case-mix. In this way, each LTCH's relative charge value is adju sted by its case-mix to an average that reflects the complexity of the cases it treats re lative to the complexity of the cases treated by all other LTCHs (the average case-mix of all LTCHs).

In accordance with our established met hodology, we are proposing to continue to standardize charges for each case by first di viding 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 intensit y of the health care services delivered by a862 particular LTCH and the average cost leve l 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 LTC H's case-mix index accounts for the fact that the same relative charges are given grea ter 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 ca se-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 char ges 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 adju sted charge of an individual case more accurately reflects actual resource use for an individual LTCH because the variation in charges due to syst ematic 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 propos ed MS-LTC-DRG relative weights, under our historical methodology, ther e are three different categories of MS-DRGs based on volume of cases within specific MS-LTC-DRG s. Proposed MS-LTC-DRGs with at least 25 cases are each assigned a unique proposed relative weight; proposed low-volume863 MS-LTC-DRGs (that is, proposed MS-LTC-DRG s that contain between 1 and 24 cases based on a given year’s claims data) are gr ouped 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 ye ar’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 pr oposed 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 sa me three categories of MS-LTC-DRGs for purposes of the treatment of severity leve ls in determining the proposed MS-LTC-DRG relative weights for FY 2015. (We provide in-d epth 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 ru le and for proposed no-volume MS-LTC-DRGs, under Step 5 in section VII.B.3.g. of the pream ble 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 deta il below in Step 6 of section VII.B.3.g. of this preamble. We refer readers to th e 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 w ith our existing methodology for purposes of864 determining the proposed FY 2015 MS-LTC-DRG relative weights, we are proposing to continue to employ the quintile methodol ogy 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 a nd 24 cases annually) into one of five categories (quintiles) based on averag e 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 th e initial assignment of a proposed low-volume MS-LTC-DRG to a quintile resu lts 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 monotoni city, 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 th e 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 assi gn a proposed low-volume MS-LTC-DRG to a specific low-volume quintile by sorting th e proposed low-volume MS-LTC-DRGs in ascending order by average charge in acco rdance 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-DRG s by ascending order by average charge, we are proposing to assign the first fifth (1 st through 59 th ) of proposed low-volume MS-LTC-DRGs (with the lowest average ch arge) into proposed Quintile 1. The proposed MS-LTC-DRGs with the highest av erage charge cases were assigned into proposed Quintile 5. Because the average charge of the 119th proposed low-volume

MS–LTC–DRG in the sorted lis t 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 (pr oposed 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 th e 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 and866 (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 assi gn 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-volum e quintile. We note that, as this system is dynamic, it is possible that the number and specific t ype of proposed MS-LTC-DRGs with a low volume of LTCH cases will vary in the future. Furthermore, we note that we will con tinue to monitor the volume (that is, the number of LTCH cases) in the proposed lo w-volume quintiles to ensure that our proposed quintile assignments used in dete rmining the proposed MS -LTC-DRG relative weights result in appropriate payment for su ch 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 propos ing 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 taki ng into account the proposed low-volume867 quintile (as described above). After grouping the cases to the appropriate proposed MS-LTC-DRG (or proposed low-volume quin tile), we are proposing to calculate the FY 2015 relative weights by first removing statis tical 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 re moving statistical outlier s (Step 1 below) and cases with a length of stay of 7 days or le ss (Step 2 below), the SSO adjusted discharges and corresponding charges were then used to calculate “relative ad justed weights” for each proposed MS-LTC-DRG (or proposed low-volume quintile) using the HSRV

method.

Below we discuss in detail the st eps 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 ex cluded 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 st atistical 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 fr om the mean of the log distribution of both charges per case and the charges per da y for each proposed MS-LTC-DRG. These statistical outliers are removed prior to calcu lating the proposed rela tive weights because868 we believe that they may represent aberrations in the data that di stort the measure of average resource use. Incl uding 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 pr oposed MS-LTC-DRGs. (For additional information on this step of the relativ e weight methodology, we refer readers to 67 FR 55989 and 74 FR 43959.) Step 2--Remove cases with a leng th of stay of 7 days or less. The proposed MS-LTC-DRG relative wei ghts 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 sta y, 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-D RG relative weights, the value of many proposed relative weights would decrease and, therefore, paym ents 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, cons istent with our histor ical relative weight methodology, in determining the proposed FY 2015 MS-LTC-DRG relative weights, we are proposing to remove LTCH cases with a leng th 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 me thodology, we are proposing to adjust each LTCH’s charges per discharge for those remaining cases fo r 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 im pact of the lower charges for the SSO cases in calculating the average char ge 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 we ights 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 w ould 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 more870 appropriate payments for all LTC H cases. (For additional info rmation on this step of the relative weight methodology, we refer re aders 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 hist orical relative weight me thodology, 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-specifi c relative charge value by dividing the SSO adjusted charge per discharge (see Step 3) of the LTCH case (a fter removing the statistical outliers (see Step 1) and LTCH cases with a length of st ay 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 relati ve 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 adjust ed hospital-specific re lative charge values (from above) for the proposed MS-LTC-DRG by the overall average hospital-specific relative charge value across a ll cases for all LTCHs. Usi ng these recalculated proposed MS-LTC-DRG relative weights, each LTCH’s aver age relative weight for all of its cases (that is, its case-mix) was calculated by di viding 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 the871 hospital-specific case-mix i ndexes. The hospital-specific case-mix adjusted relative charge values were then used to calculat e a new set of propose d MS-LTC-DRG relative weights across all LTCHs. This iterativ e 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 Medica re 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). Us ing these data, we id entified 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 we re treated in LTCHs during FY 2013 and, therefore, no charge da ta were available for these proposed MS-LTC-DRGs. Therefore, in the proce ss of determining the proposed MS-LTC-DRG relative weights, we were unable to calculat e 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 LT CHs, consistent with our historical methodology, we are proposing to assign a propos ed relative weight to each of the proposed no-volume MS-LTC-DRGs based on clin ical similarity and relative costliness (with the exception of proposed “transpl ant” MS-LTC-DRGs and proposed “error”872 MS-LTC-DRGs, as discussed below). (For additional information on this step of the relative weight methodology, we refer read ers 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 th e 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 rela tive weight (determi ned 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 whic h 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 databa se (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-DRG s (with the exception of th e 8 proposed “transplant” MS-LTC-DRGs and the 2 proposed “error” MS -LTC-DRGs, which are discussed below) based on clinical similarity and relati ve 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 discu ssion, we refer to the proposed “cross-walked”873 MS-LTC-DRGs as the proposed MS-LTC-DRGs to which we cross-walked one of the 237 proposed “no volume” MS-LTC-DRGs, w ith the exception of the 8 proposed “transplant” MS-LTC-DRGs and the 2 proposed “error” MS-LTC-DRG s, for purposes of determining a proposed relative weight.) Th en, 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-walk ed the proposed no-volume MS-LTC-DRG to a proposed MS-LTC-DRG for which th ere 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 co stliness as determined by crite ria such as care provided during the period of time surroundin g surgery, surgical approach (if applicable), length of time of surgical procedure, postoperative ca re, and length of stay. We evaluated the relative costliness in determining the app licable proposed MS-LTC-DRG to which a proposed no-volume MS-LTC-DRG was cross-wa lked in order to assign an appropriate proposed relative weight for the proposed no-volume MS-LTC-DRG s in FY 2015. (For more details on our process for evaluating re lative costliness, we refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (7 3 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 woul d result in an appropriate LTCH PPS874 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 relativ e 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 pr oposed MS-LTC-DRGs (that is, the proposed no-volume MS-LTC-DRG and the proposed cro ss-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 propo sed 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 th e proposed low-volume quintiles for purposes of determining the proposed relative weights, we assigned the proposed relative weight of the applicable proposed low-volume quintil e 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-vol ume 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 th e proposed no-volume MS-LTC-DRGs and the proposed MS-LTC-DRGs to which each was cross-walked (that is, the proposed875 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 availa ble 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 de termined 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-D RG 70 of 0.8657 for FY 2015 to proposed MS-LTC-DRG 61 (obtained from Table 11, wh ich 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 vol ume 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 Assist876 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 Tran splant (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 cer tified 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, re moving these proposed MS-LTC-DRGs would be administratively burdensome. (For additiona l information regardi ng our treatment of transplant MS-LTC-DRGs, we refer read ers 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 th is section, the MS-DRGs cont ain base DRGs that have been subdivided into one, two, or three sever ity of illness levels. Where there are three severity levels, the most seve re level has at least one sec ondary diagnosis code that is referred to as an MCC (that is, major comp lication or comorbidity). The next lower severity level contains cases with at least one secondary diagnosis c ode that is a CC (that877 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 coul d 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 “w ith 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, theoreticall y, cases that are more se vere typically require greater expenditure of medical care resources and will result in higher average charges. Therefore, in the three severity levels , proposed relative wei ghts should increase by severity, from lowest to highe st. If the proposed relative we ights decrease as severity increases (that is, if within a base pr oposed MS-LTC-DRG, a proposed MS-LTC-DRG with CC has a higher proposed relative wei ght than one with MCC, or the proposed MS-LTC-DRG “without CC/MCC” has a higher pr oposed relative weight than either of the others), they are nonmonotonic. We c ontinue to believe that utilizing nonmonotonic proposed relative weights to adjust Medicare payments would resu lt 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 the878 same base proposed MS-LTC-DRG (which are ge nerally expected to have lower resource use and costs)

. Consequently, in determining the proposed FY 2015 MS-LTC-DRG relative weights in this propos ed rule, consistent with our historical methodology, we are proposing to combine MS-LTC-DRG sever ity levels within a base proposed MS-LTC-DRG for the purpose of computing a proposed relative weight when necessary to ensure that monotonicity was maintaine d. For a comprehensive description of our existing methodology to adjust for nonmonotoni city, 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 dete rmining the proposed FY 2015 MS-LTC-DRG relative weights in this pr oposed 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 th e 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 wit hout the MS-LTC-DRG classification and relative weight change s. (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).)879

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 wi th § 412.503). Under the budget neutrality requirement at §412.517(b), for each annual upda te, the MS-LTC-DRG relative weights are uniformly adjusted to en sure that estimated aggreg ate payments under the LTCH PPS would not be affected (that is, decreased or increased). Consistent with that provision, we are proposing to update th e 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 propos ing 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 norma lization factor to the recalib rated 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 rela tive weights (that is, the process itself) neither increases nor decreases the average CMI. To calculate the proposed normalization f actor for FY 2015 (the first step of our proposed budget neutrality methodology), we ar e proposing to use the following three steps: (1.a.) we use the most recent avai lable LTCH claims data (FY 2013) and group880 them using the proposed FY 2015 GROUPER (Version 32.0) and the recalibrated proposed FY 2015 MS-LTC-DRG relative weig hts (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 (V ersion 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 (determine d 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 neutra lity 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 relativ e weights) are equal to estimated aggregate LTCH PPS payments before reclassification and reca libration (that is, th e FY 2014 MS-LTC-DRG classifications and relative weights). A ccordingly, consistent with our existing methodology, we are proposing to use FY 2013 discharge data to simulate payments and compared estimated aggregate LTCH PPS pa yments using the FY 2014 MS-LTC-DRGs and relative weights to estimate aggreg ate LTCH PPS payments using the proposed881 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 prop osing to determine the proposed FY 2015 budget neutrality adjustment factor using the fo llowing three steps: (2.a.) we simulate estimated total LTCH PPS payments using th e proposed normalized relative weights for FY 2015 and proposed GROUPER Version 32.0 (a s described above); (2.b.) we simulate estimated total LTCH PPS payments usi ng the FY 2014 GROUPER (Version 31.0) and

the FY 2014 MS-LTC-DRG rela tive weights in Table 11 of the Addendum to the

FY 2014 IPPS/LTCH PPS final rule available onthe 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 usi ng the FY 2014 GROUPER (Version 31.0) and

the FY 2014 MS-LTC-DRG relativ e weights (determined in Step 2.b.) by the estimated total LTCH PPS payments using the propos ed 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 th e 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 availabl e via the Intern et, lists the proposed MS-LTC-DRGs and their respective pr oposed 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 Comparab le 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 propos ed 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 o ccurring 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). Fo r subsequent updates to the LTCH PPS standard Federal rate as implemented unde r § 412.523(c)(3), we refer readers to the following final rules: RY 2004 LTCH PPS final rule (68 FR 34134 through 34140);883 RY 2005 LTCH PPS final rule (68 FR 25682 through 25684); RY 2006 LTCH PPS final rule (70 FR 24179 through 24180); RY 2007 LT CH 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 fina l 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 st andard 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 upd ate 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 sta ndard Federal rate for FY 2015 so that the effect of any significant difference between the data used in the orig inal computations of budget neutrality for FY 2003 and more recent data to determine budget neutrality for FY 2003 is not perpetuated in the prospectiv e payment rates for fu ture years . In addition, as discussed in sect ion V.A. of the Addendum of this proposed rule, we are884 proposing to make an adjustment to the standa rd 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 a nnual update for LTCHs that fail to submit quality reporting data under se ction 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 sec tion VII.C.3. of this preamble, and the proposed budget neutrality adjustment for changes in the ar ea wage levels under section V.A. of the Addendum of this proposed rule.) 2. Proposed FY 2015 LTCH PPS A nnual Market Basket Update

a. Overview Historically, the Medicare program has used a market basket to account for price increases in the services furnished by provi ders. 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 an d 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 ma rket 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 refe r 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 standa rd Federal rate and refers to the timeframes associated885 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 ru le.) We note that because the annual update to the LTCH PPS policies, rates, and factor s now occurs on October 1, we adopted the term “fiscal year” (FY) rather than “r ate 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 purpos es of clarity, when discussing the annual update for the LTCH PPS, including the provisio ns of the Affordable Care Act, we use “fiscal year” rather than “rate y ear” for 2011 and subsequent years. b. Proposed Revision of Certai n Market Basket Updates as Required by the Affordable

Care Act Section 1886(m)(3)(A) of the Act, as a dded 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 pr oductivity (MFP) adjustment”) described in section 1886(b)(3 )(B)(xi)(II) of the Act.886 Section 1886(m)(3)(B) of the Act provides th at 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 ra te year being less than such payment rates for the preceding rate year. Section 1886(b)(3)(B)(xi)(II) of the Act de fines 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, cale ndar year, cost repor ting 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 applie d 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 adju stment to determine the annual update to

the LTCH PPS standard Federal rate for FY 2015. (For deta ils on the development of the proposed MFP adjustment, including our finalized methodology for calculating and887 applying the MFP adjustment, we refer re aders to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51689 through 51692).) c. Proposed Adjustment to the Annual U pdate to the LTCH PPS Standard Federal Rate under the Long-Term Care Hospital Qu ality Reporting (LTCHQR) Program 1. Background In accordance with section 1886(m)(5) of th e Act, as added by section 3004(a) of the Affordable Care Act, the Secretary esta blished 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 ch ange in the terminology used under the LTCH PPS from “rate year” to “fiscal year,” for pur poses of clarity, when discussing the annual update for the LTCH PPS, including the provisio ns 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 Ac t 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 rate s for a year being less than such LTCH PPS payment rates for the preced ing year. Furthermore, section 1886(m)(5)(B) of the888 Act specifies that the 2.0 percentage poi nts 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 take n 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 au thority 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 su bmit quality reporting data under the LTCHQR Program with respect to such a fiscal year, any annual update to a st andard Federal rate for discharges for the LTCH during the fiscal year and after applic ation 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 esta blishing an update to the LTCH PPS standard

Federal rate for FY 2014 and s ubsequent fiscal years, the full LTCH PPS market basket increase estimate, subject to an adjustment based on changes in economy-wide productivity (“the MFP adjustment”) require d under section 1886(m )(3)(A)(i) of the Act and an additional reduction required by secti ons 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. Th e reduction in the annual update to the

LTCH PPS standard Federal rate for failure to report quality data under the LTCHQR889 Program for FY 2014 and subsequent fiscal y ears is codified under § 412.523(c)(4) of the regulations. Specifically, consistent with sec tion 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 th e 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 reducti on of the annual update to the standard Federal rate under § 412.523(c)(4)(i) will apply on ly to the fiscal year involved and will not be taken into account in computing the a nnual update to the standard Federal rate for a subsequent fiscal year. La stly, consistent with section 1886(m)(5)(B) of the Act, under § 412.523(c)(4)(iii), the a pplication of any reduction of th e annual update to the standard Federal rate under § 412.523(c)(4)( i) may result in an annual upda te that is less than 0.0 percent for a fiscal year, and may result in pa yment rates for a fiscal year that would be less than such payment rates for the preceding rate year. We discuss the application of th e 2.0 percentage point reduction under § 412.523(c)(4)(i) in our discussion of the pr oposed annual market basket update to the

LTCH PPS standard Federal rate for FY 2015 be low 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 th e 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 newly890 created FY 2009-based LTCH-specific market basket for use under the LTCH PPS beginning in FY 2013. The FY 2009-based LTCH-s pecific 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 a dditional 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 th e 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 di scussed when we adopted the FY 2009-based LTCH-specific market basket for use unde r 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 histor ical 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 firs t 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 pe rcent, as discussed in section IV.B. of the preamble of this proposed rule. In additi on, consistent with our hi storical practice of using the best available data, we are proposing that if more recent data is available, we891

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 th e Act requires that any annual update

to the standard Federal rate be reduced by the productivity ad justment (“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 determ ine the market basket update for LTCHs for FY 2015, as reduced by the MFP adjust ment, consistent with our established methodology, we are proposing to subtract th e 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 a ny annual update to the standard Federal rate for FY 2015 be reduced by the “other adjustme nt” 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 in crease less the proposed MFP adjustment) by the “other adjustment” specified by sec tions 1886(m)(3)(A)(ii) and 1886(m)(4) of the Act. (For additional details on our esta blished methodology for adjusting the market basket increase by the MFP and the “other ad justment” 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 fo r LTCHs that do not submit quality reporting data under the LTC HQR Program, any annual update to a892 standard Federal rate, after application of the adjustment s 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 sect ion 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 w ith the statute, we are proposing to reduce the proposed FY 2015 full market basket estim ate of 2.7 percent (based on IGI’s first quarter 2014 forecast of the FY 2009-base d LTCH-specific market basket) by the proposed FY 2015 MFP adjustment (that is, th e 10-year moving average of MFP for the period ending FY 2015, as described in secti on IV.B. of the preambl e of this proposed rule) of 0.4 percentage point (based on IGI’s first quarter 2014 forecast). Following application of the proposed productivity adjustme nt, the adjusted mark et basket update of 2.3 percent (2.7 percent minus 0.4 percentage point) w ould then be reduced by 0.2 percentage point, as requi red by sections 1886(m)(3)(A)(i i) and 1886(m)(4)(E) of the Act. Therefore, in this proposed rule, unde r the authority of section 123 of the BBRA as amended by section 307(b) of the BIPA, we ar e 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 point893 required under section 1886(m)(4)(E) of th e 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 poi nts 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 mi nus 2.0 percentage points) for FY 2015 for LTCHs that fail to submit qua lity 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 r ecent data is availabl e, we would use such data to establish an annual update to the LTCH PPS standard Fede ral rate for FY 2015 under § 412.523(c)(3)(xi) in the fina l rule. (We note that, we also are proposing to adjust the proposed FY 2015 standard Federal ra te by applying a one-time prospective adjustment under the final year of the 3-ye ar 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 implemen ting 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 require d that the system “maintain budget neutrality” in the August 30, 2002 LTCH PPS final rule (67 FR 55954). The statutory budget neutrality requirement me ans that estimated aggregate payments under the LTCH PPS for FY 2003 would be equa l 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 desc ribed 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 severa l assumptions (for example, costs, inflation factors, and intensity of serv ices 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 the895 implementation of the LTCH PPS). To the extent the later data significantly differed from the data employed in the original calc ulations, 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 calcula tions were based. Therefore, in that same final rule, under the broad authority conferred upon the Secretary in devel oping the LTCH PPS, including the authority for establishing appr opriate 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 possi bility of making a one-time pr ospective adjustment to the LTCH PPS rates, so that the effect of any si gnificant 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 co mplete discussion of the history of the development of the one-time prospective adju stment 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 th e 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 impl emented. Specifically, using the methodology we adopted in that same final rule, we dete rmined that permanently applying a factor of 0.9625 (that is, a permanent redu ction of approximately 3.75 pe rcent) to the standard896 Federal rate is necessary to ensure esti mated total FY 2003 LTCH PPS payments equal estimated total FY 2003 TEFRA payments consis tent with our stated policy goal of the one-time prospective adjustment under § 412.52 3(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 fina l 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 adjust ment, 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 adjustme nt of 0.9625, under the phase-in of this adjustment, in that same final rule, we expl ained that we will apply a factor of 0.98734 to

the standard Federal rate in each year of the 3-year phase-i n, 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 st andard 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 Fede ral rate. Accordingly, under § 412.523(d)(3), we applied a897 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-relate d 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. Specifical ly, the application of th e LTCH PPS area wage-level adjustment, which is codified under existing § 412.525(c) of the regul ations, is based on

the location of the LTCH--either in an “urban” area or a “r ural” area. Currently, under the LTCH PPS, as codified under § 412.503 of th e regulations, an “urban area” is defined as a Metropolitan Statistical Area (whi ch 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 occu rring on or after July 1, 2005, based on the Executive OMB's898 Core-Based Statistical Area (CBSA) desi gnations (“CBSA designations”), which are

based on 2000 Census data. We made this revision because we believed that the CBSA designations (geographic classifications) w ould ensure that the LTCH PPS wage index adjustment most appropriately accounts for a nd reflects the relative hospital wage levels in the geographic area of the hospital as comp ared 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 codi fied under § 412.64(b) of the regulations, beginning in FY 2005. (For a further discus sion 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 t hose 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 th ese 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 we re announced by OMB on February 28, 2013. OMB issued Bulletin No. 13-01, which announc ed revisions to the delineation of899 Metropolitan Statistical Areas, Micropolitan St atistical 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 refe r readers to the following Web site: http://www.whitehouse.gov/sites/defaul t/files/omb/bulle tins/2013/b-13-01.pdf . This bulletin specifically provides the delineations of all Metropolitan Statistical Areas (MSAs), Metropolitan Divisions, Micropolitan Statistical Ar eas, 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 th at, 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 boundari es of Metropolitan Statistical Areas (MSAs) based on 2010 standards, we are usi ng the term “new OMB delineations” rather

than the term “CBSA-based labor market area de finitions” 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/LTC H 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 OM B delineations for each county and hospital in the country. While the revisions OM B 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 significan t changes. For example, under the new OMB delineations, there are new CBSAs, urban counties that have become rural, rural counties that have900 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 ramifi cations to be extens ively reviewed and verified, we were unable to undertake such a lengthy process before publication of the FY 2014 rulemaking cycle. That is, by th e time the update was issued, the FY 2014 IPPS/LTCH PPS proposed rule was in the adva nced stages of development, and the proposed FY 2014 LTCH PPS wage indexes base d on the CBSA designations that are currently used under the LTCH PPS had been de veloped. 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 in tended to propose the adoption of the new OMB delineations and the corresponding changes to th e wage index based on those delineations under the LTCH PPS for FY 2015 through notic e and comment rulemaking, consistent with the approach used under the I PPS (78 FR 50994 through 50995). As discussed below, in this proposed rule, under the author ity of section 123 of the BBRA, as amended by section 307(b) of the BIPA, we are pr oposing 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 appr oach proposed for the IPPS as discussed in section III.B. of the preamb le 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 ma rket 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 re flect the local economies and wage levels of the areas in which hospitals are currently located, we ar e proposing to adopt the new

OMB delineations based on the 2010 Decenni al Census data under the LTCH PPS, beginning in FY 2015, for the r easons 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 nationa l average hospital wage level. (We refer

readers to the RY 2003 LTCH PPS final ru le (67 FR 56016) and the RY 2006 LTCH PPS final rule (70 FR 24184).) Because we belie ve that the new OMB delineations based on902 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 occurr ing on or after October 1, 2014 (that is, effective for FY 2015). We note that, becau se 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 OM B. 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 th e 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 pr oxy 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 th e LTCH PPS since its implementation in903

FY 2003. MSAs also are used to define la bor market areas for purposes of the wage index for many of the other Medicare paymen t 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 th e BIPA, we are proposi ng 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 i ndex transition policy (as discussed in more detail below) for LTC Hs 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 us e 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 Statisti cal Areas to define the labor market areas for the purpose of the LTCH PPS wage index. OMB defines a “Micropolitan Statistical Area” as a Consolid ated Metropolitan Statistical Area (CMSA)904

“associated with at least one urban cluster that has a popul ation of at l east 10,000, but less than 50,000” (70 FR 24183). We refer to thes e areas as “Micropolitan Areas.” After conducting an extensive impact analysis, we de termined that the best course of action would be to treat all hospitals located in “Mic ropolitan Areas” as “rural,” and to include these hospitals in the calculation of each Stat e’s rural wage index. Because Micropolitian Areas tend to encompass smaller population centers and contain fe wer hospitals than MSAs, we determined that if Micropolitan Ar eas were to be treated as separate labor market areas, the IPPS wage index would incl ude drastically more single-provider labor market areas. This larger number of labor ma rket areas with fewer providers could create instability in year-to-year wage index va lues for a large numbe r of hospitals; could reduce the averaging effect of the wage inde x, 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 sy stem 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 acr oss 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 Micr opolitan Areas, while ot her counties that once were part of a Micropolitan Area under prev ious OMB CBSA designa tions, have become

either urban or rural under the new OMB delineations. Overall, there are fewer905 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 establis hed 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 define d as having relatively small urban cores (populations of 10,000-49,999). We do not beli eve that it would be appropriate to calculate a separate wage index for areas th at typically may include only a few hospitals

for the reasons set forth in the RY 2006 LTC H 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 secti on 123 of the BBRA, as amended by section 307(b) of the BIPA, for FY 2015, we are propos ing to continue to treat Micropolitan Areas as “rural,” and to assign the Micropolit an Area the statewide rural wage index for

the State in which the LTCH is located. We also are proposi ng that, beginning in FY 2015, the wage data for any IPPS hospitals located in the Micr opolitan 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 wa ge data of IPPS hospitals.) We note that this proposal is consis tent 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 “u rban” 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 “r ural” 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 countie s that would be defined as rural if we finalize our propos al to use the new OMB delineations. Under our proposal to

use the new OMB delineations for the LTCH PP S, we are proposing that LTCHs located in any of the 37 counties listed in the table und er section III.B.2.b. of the preamble of this proposed rule would be considered “rural,” and would receive th eir 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 countie s 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 al so proposing that, if finalize d, 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 in907 FY 2015. (As discussed in sec tion V.B.2. of the Addendum to this proposed rule, the LTCH PPS area wage index valu es are calculated using th e area wage data of IPPS hospitals.) We note that th is proposal is cons istent with the pr oposal 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 pr oposed 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 “rur al” 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 coun ties (and county equiva lents) 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 ru le. There are currently no LTCHs located in

the 105 “rural” counties lis ted 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 t hose 105 counties now would be included in their new respective “urban” CBSAs and w ould receive the respective “urban” CBSA’s area wage index. We also are proposing th at, beginning in FY 2015, the wage data for any IPPS hospitals located w ithin 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 valu es are calculated using th e area wage data of IPPS hospitals.) We note that th is proposal is cons istent 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 pr oposed 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 Differe nt Urban CBSA under the New OMB Labor

Market Area Delineations

In addition to “rural” counties that w ould become “urban” and “urban” counties

that would become “rural” under the new OM B delineations, we found that several urban

counties shifted from one urban CBSA to anot her 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 exis ting urban CBSAs and new urban CBSAs, changing the constituent makeup of those CBSAs. For example, in909 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, in cluding examples, on ur ban counties that are

moved from one urban CBSA to a diffe rent urban CBSA under the new OMB

delineations. LTCHs located in these affect ed counties that would move from one urban CBSA to a different urban CBSA under our pr oposal 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 th e preamble of this proposed rule for a discussion of our propos als to moderate the impact imposed upon hospitals because of our propos al 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 i ndex values being more representative of

the actual costs of labor in a given area. However, we al so recognize that some LTCHs would experience decreases in their area wage index values as a resu lt of our proposal. We also realize that many LTCHs would ha ve 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. Wh ile we believe that using the new OMB delineations would create a more accurate payment adjustment for differences in area910 wage levels, we also recognize that adopti ng such changes may cause some short-term instability in LTCH PPS paymen ts. Therefore, under the au thority 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 OM B 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 beginni ng 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 us ing the proposed area wage data discussed above and in section V.B.4. of the Addendum to this pr oposed 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 delinea tions 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 wa ge 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 wa ge 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 the911 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 leve ls are made in a budget neutral manner such that estimated aggregate FY 2015 LTCH PPS pa yments 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 th at is applied to the standard Federal rate (under § 412.523(d)(4)) to ensure that any cha nges 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 inde x values solely as a result of our finalized policy to adopt

the new OMB delineations under the LTCH PPS w ould 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 cal culations for the proposed area wage-level adjustment budget neutrality factor that w ould be applied to the proposed standard Federal rate to ensure that any changes to the area wage-level adjustment are budget neutral. Specifically, cons istent 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 va lues 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-relat ed 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 ar e available via the Internet on the CMS Web site), including the proposed tr ansitional 50/50 blended wage i ndex values, if applicable (as discussed in section V.B.4. of the Addendum of this propos ed rule), and the proposed FY 2015 labor-related share of 62.571 percent (a s 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 es timated total LTCH PPS payments using the FY 2014 area wage-level adjustments (calcula ted 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 dete rmine the proposed FY 2015 area wage-level adjustment budget neutrality factor.

• Proposed Step 4 —We are proposing to then ap ply the proposed FY 2015 area wage-level adjustment budget neutrality fact or from proposed Step 3 to the proposed

FY 2015 LTCH PPS standard Federal rate afte r 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 en sure 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 step s 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 sectio ns III.B.2.e.(5) and (6) of the preamble of this proposed rule. As noted previously in section VII.D.2.b. of th e preamble of this proposed rule, there are curre ntly 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 inde x policy that is consistent with the IPPS proposal presented in section III.B.2.e.(2). of the preamble of th is proposed rule for hospitals that are curr ently located in an “urban” county that would become “rural” under the proposed adoption of the new OMB delinea tions. We also note that we are not proposing any transitional polic ies under the LTCH PPS that would be consistent with those presented under the IPPS for hospitals w ith a reclassification or redesignation as discussed in section III.B.2.e.(3). of the pream ble 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 Cert ain Payment Rules for LTCH Services--The 25-Percent Threshold Payment Adjustment

1. Background Section 1206(b)(1)(A) of the Pa thway for SGR Reform Act of 2013 (Pub. L. 113-67), enacted on December 26, 2013, provides for the retroactive reinstatement and extension, for an additiona l 4 years, of the moratorium on the full implementation of the 25-percent threshold pa yment 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 ex emption from the application of the 25-percent policy for certain grandfathere d 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 refe rred 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 exte nsions) of the 25 pe rcent rule describe d in sections 412.534 and 412.536 of title 42, Code of Federal Regulati ons, particularly taking into account the application of section 1886(m )(6) of the Social Security Act, as added by subsection915 (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 adju stment 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 analys es of Medicare discharge data that indicated that patterns of patient shifting appeared to be occurring more for provider financial advantage than for pa tient benefit. In order to discourage such activity, a payment adjustment was applied for LTCH disc harges of patients who were admitted to the LTCH from the same referring hospital in excess of an app licable percentage threshold, which was to transition to a 25- percent threshold after specified phase-in periods. (For rural and si ngle-urban LTCHs and those w ith MSA-dominant referring hospitals, a 50-percent threshold was applied.). Under this policy, disc harges in excess of the threshold are paid at an “IPPS equivale nt” rate, instead of the much higher LTCH PPS rate. (We refer readers to detailed di scussions 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 LTC Hs in the RY 2008 LTCH PPS final rule (72 FR 26919 through 26944).)

The results of the different rulemaki ng 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-lo cated LTCHs and LTCH satellite facilities916 governed under § 412.534, the 25-pe rcent policy was effective for cost reporting periods beginning on or after October 1, 2005 (“ October” LTCHs); for LTCHs and LTCH satellite facilities gove rned 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 th e 25-percent policy was applied to these

facilities in the RY 2008 LTCH PPS final rule. Section 114(c) of the MMSEA, as ame nded by section 4302(a) of the ARRA and sections 3106(c) and 10312(a) of the Affo rdable 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 ot her 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 th e 25-percent policy, we refer readers to the May 22, 2008 Interim Fi nal Rule with Comment Period (73 FR 29699 through 29704) and the August 27, 2009 Interim Fi nal 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 moratori um for both “July” and “October” LTCHs was delayed because CMS established regul atory 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 throug h 63753). Specifically, we established a917 1-year extension (that is, fo r cost reporting periods begi nning on or after October 1, 2012, and before October 1, 2013) on the full appli cation 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 regulat ory relief (for cost reporting periods beginning on or after October 1, 2012), we al so provided for an additional moratorium based on LTCH discharges occurring on or af ter October 1, 2012 and ending at the start of the LTCHs’ next cost reporting period. Fo r those “July” LTCHs with cost reporting periods beginning on or after October 1, 2012, th e regulatory extensi on of the statutory moratorium, described above, effective for the hospital’s first co st reporting period beginning on or after October 1, 2012, result ed in seamless coverage for that group. However, for those “July” LTCHs with co st reporting periods be ginning 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 s econd 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 pe riod that began on or after July 1, 2012, and before October 1, 2012). Therefore, by providing for the above described regulatory extension for “July” LTC Hs, we eliminated the distinction between “July” and “October” LTCHs, which resulted in the 25-percent policy being applied for all cost reporting periods be ginning on or after October 1, 2012, following the expiration918

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 “Oct ober” and “July” LTCHs) for cost reporting periods beginning on or afte r 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 th e 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 effectiv e 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 po licy 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 gr andfathered 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), revi sing (a)(2), and removing paragraph (a)(3) of § 412.536 to reflect the statutory changes. F. Proposed Changes to the Fixed-Day Th resholds under the “Greater Than 3-Day Interruption of Stay” Policy under the LTCH PPS 1. Background The interrupted stay policy is a paymen t 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 hospitaliza tion, a patient is discharged to an inpatient acute care hospital, an IRF, or a SNF for treatment or services not availabl e 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 re presented a continua tion 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 numb er 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 Me dicare beneficiary spends as an inpatient at920 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 a ppropriate 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 c onditions, 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 su rgeries. 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 refe r 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 Medica re 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 th reshold period begins with the calendar date of discharge from the LTCH and ends not la ter than midnight of the third day, if an921 LTCH patient’s “interruption” exceeds this threshold, payment is governed by the “greater than 3-day interruption of stay” pol icy. (We refer readers to the RY 2005 LTCH PPS final rule (69 FR 25690 through 25700), th e 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 polic y.) We are not proposing to revise the 3-day or less cate gory of interrupted stays, but we make mention of the policy for clarity in making a distinc tion between the 3-day or less interruption of stay policy and the greater than 3-day in terruption of stay policy that we are proposing to revise. The “greater than 3-day interrupti on 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 sp ecified in regulations under § 412.531(a)(2)(i) through (a)(2)(iii).” For a disc harge to an acute care hospita l, 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 9 th 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 countin g of the days begins on the calendar day of discharge from the LTCH and ends on the 27 th day. For a discharge to a SNF, the applicable fixed-day period is between 4 a nd 45 consecutive days; the counting of the days begins on the calendar day of disc harge from the LTCH and ends on the 45 th day.922 These timeframes reflect our policy of only paying for more than one discharge if the patient’s length of stay exceeds one sta ndard 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 in centives of both the LTC H 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 financia l incentives” (67 FR 56002). As we stated at that time, we

believed that a threshold of one standard devi ation 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 averag e 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 av erage 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 unde r the acute care hospital inpatient prospective payment system. Under that system, “the cost of a new technology must exceed one standard deviati on beyond the mean standardized charge for

all cases in the DRG to which the new t echnology is assigned in order to receive additional payments” (67 FR 56002).923 Therefore, if an LTCH readmission occu rs within the fixe d-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 instan ces, the beneficiary’s readmittance to the LTCH is paid for with a single LTC-DRG paym ent 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 applicab le payment policies for those providers when the interruption of stay exceeds 3 days. Ther efore, 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 LT CH PPS final rule (67 FR 56007), our concerns about patient shifti ng were significantly increased in the context of transfers

between co-located LTCHS and LTCH satellite facilities, or for LTCH hospital-within-hospital transfers. Collec tively, we refer to these arrangements as transfers to “onsite” providers. In the regulations under § 41 2.532(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.” U nder this LTCH PPS policy, if mo re than 5 percent of the Medicare patients discharged from an LTCH during a cost reporting period were discharged to an “onsite” SNF, IRF, or psyc hiatric facility, or to an “onsite” acute care hospital, and directly readmitted to the same LTCH, the LTCH would be paid one924 MS-LTC-DRG payment to cover both LTCH disc harges, regardless of the length of the interrupted stay. As is the case in regard to the greater than 3-da y 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 am ong “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 regulati on under § 413.40(a)(3), which applied a payment adjustment to hospitals paid under the TEF RA payment system, including LTCHs, to address inappropriate discharg es of patients to a host hos pital paid under the inpatient prospective payment system from an excl uded 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 ru le (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 “addr ess inappropriate shifting of patients among these providers without c linical justification to maxi mize Medicare payment” due to inappropriate incentives to prematurely disc harge 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 appr opriate 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 Prescr iption 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 relations hips 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, public ly reports, among other things , inpatient outcome measures, including 30-day readmissions for specifi c medical conditions (acute myocardial infarction, heart failure, pneumonia, total hip/ knee arthroplasty, hos pital-wide all-cause unplanned, stroke, and COPD). The Hosp ital 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 readmi ssions, effective for discharges beginning on October 1, 2012. Under that program, we de fine a “readmission” as an admission to a subsection (d) hospital within 30 days of a di scharge 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 m easures. 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 substantial926 proportion of readmissions attributable to an index hospitalization...and yet it is short enough that outcomes can be attributed to a nd 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 estab lished 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 da ta indicates that interrupted stays at acute care hospitals c onstitute the vast majority of the intervenin g stays under the interruption of stay policy. When implementing policies under the Hospital IQR Program and the Hospital Readmissions Reducti on 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 “great er than 3-day interrup tion of stay” policy is based on the number of days that elapsed between the initial LTC H 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 interr uption of stay that exceeds the fixed-day threshold would currently result in two se parate Medicare payments under the LTCH PPS. However, we believe that it would be mo re appropriate to use a 30-day interval as the fixed-day threshold under the greater than 3-day interruption of stay policy under the927

LTCH PPS because that is consistent with the intervals used in the Hospital Readmissions Reductions Program and th e Hospital Inpatient Quality Reporting Program. As such, we are proposing to revise the fixed-day thresholds under the greater than 3-day interruption of st ay policy to provide for a 30-day fixed threshold as an “acceptable standard” for determining a linka ge between an index discharge and a readmission from an inpatient facility as sp ecified under this polic y, 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 standa rd 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 re flect this proposed policy change. Under our proposed policy revision, Medi care payments to LTCHs for patients discharged on or after October 1, 2014, who are treated in an acute ca re 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 tr eated 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 govern s discharges from LTCHs to “onsite” providers that subsequently readmit the pati ent 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 longe r believe that the regulatory requirements928 under § 412.532 are necessary and, th erefore, we are proposing to remove that section in its entirety. Furthermore, a determinati on as to whether an LTCH has exceeded its 5-percent threshold under the LTCH PPS 5-perc ent 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 paymen t 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 provi der 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 proposi ng to remove § 412.532 in its entirety and make a conforming change to § 412.525 by re moving and reserving paragraph (d)(3), which references payments under § 412.532.

G. Moratoria on the Establishment of LTCHs and LTCH Satellite F acilities and on the

Increase in the Number of Beds in Ex isting 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 sect ion 114(d) of the MMSEA of 2007, as previously amended by section 4302 of the Am erican Recovery and Reinvestment Act (ARRA) of 2009 (Pub. L. 111-5) an d sections 3106(b) and 10312(b) of the Affordable Care Act (Pub. L. 111-148). As further am ended 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 th e establishment of new LTCHs and LTCH929 satellite facilities, and on the increase in the number of hospital beds in existing LTCHs and LTCH satellite facilities, “for th e 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 amende d 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, e xpired on December 28, 2012. For clarity and brevity, we will refer to the “expired” morato ria or moratorium to reference those that expired on December 28, 2012, and the “new” mo ratoria or moratorium to reference those that began on April 1, 2014, as a pplicable, throughout this discussion. The primary difference between the “expi red” moratoria and the “new” moratoria is that, while the “expired moratoria” pr ovided for specific exceptions to both the

moratorium on the establishment of new LTC Hs and LTCH satellite facilities and on

increases in the number of beds in existi ng LTCHs and LTCH satellite facilities, the “new” moratoria only provides exceptions to th e moratorium on the establishment of new

LTCHs and LTCH satellite faci lities. No exceptions ar e provided under the “new” moratorium on increases in the number of hospital beds in existing LTCHs and LTCH satellite facilities. (For a detailed desc ription of the “expired” moratoria provisions (including the applicable exceptions) that we re in effect from December 29, 2007 through December 28, 2012, we refer readers to th e 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” moratori a 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 acco rdance with section 114(d)(1) of the MMSEA, as amended by s ection 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 exceptio ns (described below) is

met. Additionally, as of April 1, 2014, in accordance with se ctions 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 th e timeframe between April 1, 2014, and September 30, 2017, a hospital or entity mu st meet the following criteria: • The hospital or entity must have be gun 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 th e estimated cost of the project or, if less, $2,500,000.931 • The hospital or entity must have obta ined an approved certif icate of need in a State where one is required. While this exception only applies to th e “new” moratorium on the establishment

of new LTCHs and LTCH satel lite 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 “expi red” 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 inte rnally inconsistent. A strictly literal reading of the statutory langua ge 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 impl ementation in light of the established LTCH

classification criteria unde r § 412.23(e) of the re gulations. Therefore, we adopted interpretations that we believed would reas onably reconcile seemingly inconsistent provisions and that would resu lt 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 disc uss 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 which932 are subject to the “new” mora toria. Sections 114(d)(2) and (3) of the MMSEA, as amended, only address exceptions under the “ex pired” moratoria. Section (d)(6) of the MMSEA, as amended, defines when the exceptio ns addressed in sections 114(d)(2) and (3) expired. Section (d)(7) of the MMSE A addresses the exception under the “new”

moratorium on the establishment of new LTCHs and LTCH satellite f acilities. There are no exceptions to the “new” moratorium on the in creases in the number of beds in existing

LTCHs and LTCH satellite f acilities, as noted above. Section 114(d)(7)(A) of the MMSEA, as amended, mirrors the expired provisions of section 114(d)(2)(A). Bo th 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 dur ing that qualifying period; the facility or entity would typically be classified as an IPPS hospital. For a full discussion of our rationale for interpreting sect ion 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 29 707) 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 a nd sections 3106(b) and 10312(b) of the Affordable Care Act, we note that the exception under section 114(d)(7)(A) of the933 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 sate llite 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 speci fies the conditions for an exception to

the moratorium on the establishment of new LT CHs 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 per cent of the estimated cost of the project (or, if less, $2,500,000).” As draf ted, this provision is also problematic. In cases in which a hospital ha s 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 woul d complete the construction would not be classified as an LTCH. Prior to the designati on or classification of a hospital or an entity as an LTCH, a hospital must first be establis hed 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 reclas sified 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 a nd 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 moratorium934

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 expe nded 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, l ease, 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 subs tantially 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 unde r the statutory language of the exception requirements. With respect to the second prong, the stat ute 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 rega rd to the interpre tation of section 114(d)(2)(B) of the MMSEA, as amended by section 4302 of the ARRA and section935 3106(b) and 10312(b) of the Affordable Care Act, we are proposing to interpret the phrase “cost of the project” to mean the activ ities enumerated in the first prong: “the actual construction, renovation, lease, or demo lition for a long-term care hospital.” That is, the statute requires the hospi tal or entity to have spen t the amount specified in the

statute on the actual construc tion, renovation, lease, or demo lition 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 AR RA 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 phras e), 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 asp ects 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 addre ssed 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-te rm care hospital...” and there is no reason to believe that the second prong of the test, which requires th e “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 hospita l’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 expe nditure indicates that

an additional threshold must be met.936 Finally, section 114(d)(7 )(C) of the MMSEA include s 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 LTC Hs 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 clarifyi ng 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 ev idenced 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 certifi cate of need to convert th e 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 approve d certificate of need for a hos pital (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 we re already actively engaged in becoming an LTCH. The fact that a hospital may have ha d 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 outsi de of what is contemplated in these937 LTCH-specific statutory provisi ons. We are proposing to only apply this exception requirement where the certificate of need wa s 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 ex isting LTCHs and existing LTCH satellite

facilities. H. Evaluation and Proposed Treatmen t of LTCHs Classified under Section 1886(d)(1)(B)(iv)(II) of the Act Section 1206(d) of the Pathway for SG R Reform Act (Pub. L. 113-67) instructs the Secretary to evaluate payments and regulations governing “hospitals which are classified under subclause (II) of subsecti on (d)(1)(B)(iv)...” as part of the annual rulemaking for payment rates under subsect ion (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 this938 evaluation, the Secretary is authorized to adjust the payment rates under section 1886(b)(3) of the Act for this type of hospita l (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 Se cretary would have to propose changes to the existing regulations govern ing subclause (II) LTCHs. For this proposed rule, under the require ments of section 1206(d)(1) of Pub. L. 113-67 to evaluate the paymen t rates and regulations gove rning 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 ar e 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 establ ished the meaning of “subsection (d) hospitals,” which are paid under the IPPS, and in doing so, excluded two categories of hospitals that experience extende d average inpatient length of stays. It also authorized the Secretary to define how an average inpa tient length of stay would be calculated for these excluded hospitals. These pr ovisions are incl uded 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. S ubclause (II) LTCHs are only required to have an average inpatient length of stay of greater than 20 days. The subclause (II) LTCH definition939

further limited the classification of a subc lause (II) LTCH by includ ing the requirement

that the LTCH must have been first excl uded from the IPPS in CY 1986, and treated a Medicare inpatient population in which 80 pe rcent 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 st atutory requirement is implemented under 42 CFR 412.23(e)(2)(ii). In establishing the category of subc lause (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 le ngth 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 populatio n. We refer readers to the RY 2003 LTCH PPS final rule (67 FR 55974) fo r 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 paym ent, while other cases’ costs will be less than the payment, creating an adequate balan ce 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 PPS940 we were aware that a per disc harge PPS system that pays the same amount for every case in a specific MS-LTC-DRG could encourag e hospitals to make decisions based on financial considerations (such as prematurely discharging pati ents 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 th e 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 st ay that do not exceed 5/6 of th e 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) LTC H’s patient population, it may not be reasonable to expect a balancing of more and less co stly cases, as these LTCHs ar e 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 rate s and regulations governing subclause (II) LTCHs. We analyzed MedPAR claims data for FY 2010 and estimated Medicare costs incurred by the one LTCH currently classi fied as a subclause (II) LTCH, a 225-bed LTCH located in New York. We also evaluated the same metrics for two comparison941 groups of LTCHs, that is, approximately 40 LTCHs located in the same census region (that is, the Northeast Census Region, whic h 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 asse ss 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) th at correlate to the discharg e 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 group s of LTCHs using the calculated FY 2010 costs and payments. Our analysis found th at, 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. Specificall y, the subclause (II) LTCH had a negative margin for its Medi care 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) an d 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 disc harges. Four of the top five MS-LTC-DRGs942 for the subclause (II) LTCH involve a neopl astic disease, and its case-mix differs significantly from the subclause (I) LTCHs, wh ich had large proportions of ventilator and respiratory patients. The five most common MS-LTC-DRGs for the subclause (I) LTCHs were: Respiratory system dia gnosis 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 sup port < 96 hours (MS-LTC-DRG 208). In comparison, for the subclause (II) LTCH, th e five most common MS-LTC-DRGs were: Respiratory neoplasms with CC (MS-LTC-D RG 181); Digestive malignancy with CC (MS-LTC-DRG 375); Respiratory neoplasms with MCC (MS-LTC-DRG 180); Organic disturbances & mental retardation (M S-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 definiti on of a subclause (II) LTCH. In evaluating “both the payment rates and regulations governing hospitals which are classified under subclause (II)...,” as re quired by section 1206( d) of Pub. L. 113-67, we also analyzed the imp acts 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 pr oposed rule, we are not proposing any specific943 policy and payment changes in this proposed ru le to implement the provisions of section 1206(a) of Pub. L. 113-67. We intend to esta blish policies related to the types of LTCH cases expected to meet the legislative pati ent-level criteria for the “standard LTCH PPS payment” and cases expected to meet the cr iteria for the “site neutral” payments under the LTCH PPS in the FY 2016 rulemaking cy cle. Although we are not making any proposals in this proposed ru le related to the provisi ons of section 1206(a) of Pub. L. 113-67 at this time, we discuss these pr ovisions in this section because they relate to our analysis of the LTCH PPS payment ra tes and regulations gove rning subclause (II)

LTCHs. Absent policy proposals for the impl ementation 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 beginni ng with discharges occurring in cost reporting periods beginning on or after Oc tober 1, 2015 (that is, FY 2016 and beyond). Due to the changes required by the provi sions 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 disc harges meeting specified patient-level clinical criteria will be paid a “standard LTCH PPS paymen t 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 psychiat ric 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 serv ices 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 begi nning on or after FY 2020, any LTCH with an “LTCH discharge payment percentage” that de monstrates that more than 50 percent of that LTCH’s discharges were paid for base d 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 s ubsection (d) hospital.” We refer readers to section VII.I. of the preamble of this pr oposed rule for a further discussion of the provisions of section 1206(a) of Pub. L. 113-67. In light of these forthcoming statutor y changes, we evaluated MedPAR claims data from the only hospital meeting the stat utory 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 simulati ons included analyses of the pot ential financial impact of applying the patient-level criteria and “site ne utral” 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 neutra l” payment rate. In conducting this analysis in the absence of rules imp lementing the changes mandated by section 1206(a) of Pub. L. 113-67, we assumed that there would be no changes in LTCH admission patterns945 in response to the LTCH PPS payment ch anges required by se ction 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 change s 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 LTC H PPS payment” and for discharges that would be expected to receive “site neutral” payments under the LTCH PPS. Our analysis

found that the subcla use (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 LTC H PPS payment” than the comparison groups of subclause (I) LTCHs (that is, Northeas t 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 projec t that a significant negative financial impact would be imposed upon the subclause (II) LTCH’s paym ents. Without considerable behavioral changes, the subclause (II) LTCH would be expected to have more than 50 percent of its946 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. Furt hermore, our analysis revealed that, given the particular medical profile of their pa tient 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 cove r 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 evaluati on 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 reasona ble-cost based model, such as the TEFRA payment system under which certain PPS-excl uded 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 pa yment of certain PPS-excluded hospitals, the TEFRA payment system was also previ ously used to pay LTCHs prior to the implementation of the LTCH PPS. As de scribed in the RY 2003 LTCH PPS final rule947 (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 reim bursement 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 Sept ember 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, Medicar e allowable capital co sts are paid on a

reasonable cost basis. To evaluate reasonable cost-based pa yments under a TEFRA-payment model for subclause (II) LTCHs, we estimated operati ng 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, paym ents for operating costs under the TEFRA payment system are based on hospital-specific limits (that is, a cei ling). The ceiling on payments is determined as the product of a hospital’s base year co sts (the year on which its target reimbursement limit is based) pe r 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 discharg e (prior to the implementation of the948 LTCH PPS) using the annual upda te factors as establishe d 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 incl ude the increased target am ounts 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 increa se 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-pe rcent increase to the hospita l-specific TEFRA target amounts for LTCHs, subject to the increased 75th pe rcentile 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 th e 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 paym ents 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 upda ted 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 cap ital-related costs, we used the hospital’s949 capital cost data from Worksheets D, Parts I and II, as reported on their FY 2000 cost report. As described previously, Medi care 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 paym ent 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 subcla use (II) LTCH’s projected payments under a TEFRA-payment model indicate d that such payments would reasonably cover the costs for most of their discharges, and consequent ly, the subclause (II) LTCH is not projected to experience a negative aggregate margin for its Medicare di scharges, unlike our projections under both the current LTCH PPS and the forthcoming payment changes to the LTCH PPS required by secti on 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 manda ted policies for FY 2016 on a subclause (II)

LTCH under the LTCH PPS based on FY 2010 discha rge data, including payments, costs and case-mix. As discussed above, our eval uation 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 consid erations that have been made in structuring current LTCH PPS policies to acknowledge the uniqueness of a950 subclause (II) LTCH, may not be sufficient to cover the costs incurred for the treatment of patients of the particular medical prof ile 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 ev aluate the impact of the LTCH PPS on subclause (II) LTCHs, and, based on those findings, authorized the Se cretary to adjust payment rates and other regulations, as appropriate, fo r this category of LTCHs. Accordingly, in recognition of the subclause (II) LTCH’s current estimated payment-to-cost ratio under the LTCH PPS a nd further anticipated losses that would likely otherwise occur under the forthcomi ng statutory changes to the LTCH PPS, which would render this type of speci ally recognized facility fisca lly untenable, we believe that it is appropriate to exerci se the authority under secti on 1206(d)(2) of Pub. L. 113-67. Therefore, in this proposed rule, for co st reporting periods beginning on or after October 1, 2014 (FY 2015 and beyond), we are pr oposing to apply a payment adjustment to subclause (II) LTCH payments under th e 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 occu rring on or after October 1, 2014, because it is consistent with the annual update of the hos pital-specific limits (ceiling) for inpatient951 operating costs under the TEFRA payment sy stem (as described below). We are proposing to implement this proposed paymen t 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 esta blish 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 th at 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 th e 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 reasonabl e-cost based TEFRA payment system are subject to a hospital-spec ific 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 fo r the year. Medicare allowable inpatient capital-related costs are paid on a reasonabl e cost basis, in ac cordance with section 1886(g) of the Act. Under this proposed payment adjustment under new § 412.526 for inpatient operating costs, the adjusted payment am ount would generally be determined in accordance with the cited provisions of § 413.40. Accordingly, we are proposing to establish a “target amount” for a subclaus e (II) LTCH for purposes of calculating a hospital-specific ceil ing on payments for inpatient ope rating costs under this proposed payment adjustment. We are proposing to de termine such a target amount based on the952 subclause (II) LTCH’s target amount that wa s used to determine its payments for inpatient operating costs under the TEFRA pa yment 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 de termining a subclaus e (II) LTCH’s target amount for purposes of this proposed payment ad justment, consistent with the statute (as explained below), we are proposing not to in clude 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 pe riods beginning in FY 2001 and a 25-percent increase to the hospital-specific TEFRA target amounts for LTCHs, subject to the increased 75th percentile ca p. 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 wi th the statutory requirement under section 307(a)(2) of the BIPA, under new § 412.526, we are proposing to dete rmine a subclause (II) LTCH’s updated target amount based on it s 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 t hose increases to the TEFRA payment system953 target amounts is consistent with the met hodology that was used to develop the one-time prospective adjustment to the standard Federa l rate in which we cal culated what amount would have been paid under the TEFRA payment system had the LTCH PPS not been implemented (77 FR 53497 through 53500). Th erefore, 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 usi ng the applicable rate-of-increase percentages for FYs 2001 through 20 15 established under § 413.40(c)(3). In addition to payment for inpatient operating costs, the proposed adjusted payment amount for subclause (II) LTCHs th at 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 re gulations under 42 CFR Part 413, Medicare allowable capital costs are pa id 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 w ould include reasonable cost-based payments for capital-related costs. Payments under the LTCH PPS encompass both inpatient operating and capital-related co sts of furnishing covered inpatient LTCH services, including routine and ancillary costs (67 FR 55983). Accordingly, under new § 412.526, the proposed adjusted payment amount th at would be equivalent to an amount

determined under the reasonable cost-based reimbursement rules is based only on inpatient operating and capital-related co sts incurred by the subclause (II) LTCH for954 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 period s 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 woul d be equivalent to an amount determined

under the reasonable cost-based reimbur sement rules for both operating and capital-related costs in acco rdance with the cited portions of Part 413. Under this proposed payment adjustment, Medicare inpa tient operating costs would be reimbursed on a reasonable cost basis, subject to a cei ling; that is, an a ggregate 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 di scharges during that period. For cost reporting periods beginning duri ng 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 co st reporting period upda ted by the applicable annual rate-of-increase percentage specifi ed in § 413.40(c)(3) for the subject cost reporting period. Payment for Medicare allo wable inpatient capita l-related costs under955 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 adju stment 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 pro posed 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 LTC Hs and a potential framework fo r developing changes to the

LTCH PPS. The framework was based on th e 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 Medica re 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). Alt hough 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 i ndicated that any public comments submitted would be evaluated and considered by our cont ractors with the expect ation 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-le vel criteria for payments under the LTCH PPS for implementation beginning in FY 2016. Ther efore, our prior intention to present a proposal for a CCI/MC framework for th e LTCH PPS (as discussed in the FY 2014957 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 significan t 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 a dded 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 pati ents stays that do not meet those criteria that will be paid based on an adjusted or “s ite neutral” payment ra te. The provisions of section 1206(a) are effective for LTCH disc harges occurring during cost reporting periods beginning on or after October 1, 2015 (FY 2016). Specifically, the patient-level clinical cr iteria that must be met in order for a standard LTCH PPS payment to be made unde r 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 leas t 3 days in an intensive care unit (ICU); or the stay in the LTCH is immediately preceded by a discha rge 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 th at do not meet the clinical criteria will be made at the applicable “site neutral paymen t 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 comp arable” amount, which the statute specifies is calculated based on the methodology applie d under the short stay outlier (SSO) policy at 42 CFR 412.529(d)(4), is an amount comparab le to the hospital i npatient prospective payment system per diem capped at an amount comparable to the full MS-DRG payment rate, including any applicable outlier payments under § 412.5 25. We expect to propose calculating the “cost of the case,” as specifi ed in the regulation s 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 es timate the cost of the case under both the SSO and high-cost outlier policies. Section 1886(m)(6)(B) of the Act also re quires a phase-in of this payment policy change under the LTCH PPS over 2 years. Ther efore, for LTCH discharges occurring in959 cost reporting periods du ring FYs 2016 and 2017 that do not meet the patient level clinical criteria, the total payment amount fo r 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 a nd LTCH satellite facilities for discharges beginning with LTCHs’ and LTCH satellite f acilities’ FY 2018 cost reporting period. Therefore, for cost reporting periods begi nning during FY 2018, LTCHs will be paid the standard LTCH PPS payment amount only for LT CH 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 fa ils to meet the applicable LTCH discharge threshold. In anticipa tion 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 requ ired to provide notice to LTCHs with a960 “discharge payment percentage” that indicate s that the LTCH does not meet the “at least 50 percent” threshold. An LTC H that does not meet the required threshold for a cost reporting period in FY 2020 will be paid for serv ices as if the hospital were an acute care hospital until such time as that facility is reinstated under secti on 1886(m)(6)(C)(iii) of the Act. Specifically, secti on 1886(m)(6)(C)(ii) of the Act pr ovides that LTCHs that are determined to be treating a Medicare populati on 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 a pply under subsection (d) for all discharges as if the hospital were a subs ection (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 provide s that the Secretary is authorized to

establish a “reinstatement” process through which an LTCH that fails to meet the required discharge threshold percentage canbe “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, standa rd 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) hospi tals in Puerto Rico are deemed to be included in any reference in section 1886(m) of the Act to a subs ection (d) hospital. Section 1206(a)(3) of Pub. L. 113-67 re vised the existing policy for calculating whether an LTCH or LTCH satellite facility meets the greater than 25-day average length961 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 Me dicare paid the provider under the “site neutral” rate, as well as any paid under a Medicare Advant age 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 th is 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 th at will be necessary to implement the Pub. L. 113-67 provisions for co st reporting periods beginning on or after October 1, 2015, during the FY 2016 rulemaki ng cycle. Although we are not proposing the changes mandated by secti on 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 s ection 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 the962 Secretary considerable authority in deve loping the LTCH PPS, specifying that the Secretary shall “...examine and may provide fo r appropriate adjustments to the long-term hospital payment system, including adjustments to DRG weights, area wage adjustments, geographic reclassification, outli ers, updates, and a disproport ionate share adjustment....” Accordingly, as we evaluate the revi sions to the LTCH P PS required by section 1206(a)(1) of Pub. L. 113-67, we believe that the broad authority permitted by the original statutory mandates con tinues to grant us the authorit y 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 pa yment groups for LTCH discharges under the revised system: discharges meeting specified pa tient-level criteria that will be paid under the “standard LTCH PPS payment amount” and a ll 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 LTC H 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 ou tlier payments, we plan to evaluate whether it would be appropriate to modify our hi storical 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 appr opriate to include data for all LTCH PPS cases, including “site neutral” payment cas es, in our methodology for setting relative payment weights for MS-LTC-DRGs. We also intend to explore the need for changes to963 the LTCH PPS high-cost outlier payment policie s. 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 “targe t” for all LTCH PPS cas es (including “site neutral” payment cases) or whether it may be more appropriate to establish separate high-cost outlier “targets” for each of th e 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 th rough 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 inte rested in public feed back on the issues mentioned earlier (that is, policies relating to establishing the relative payment weights and high-cost outliers) so that we may ev aluate 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 paragr aphs (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 Co st 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 specifi c item. If the provider’s co st report does not include an appropriate claim for a specific item, paymen t 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 i ssued by a reviewing en tity (as defined in 42 CFR 405.1801(a) of the regulations) in an ad ministrative 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 th at 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 Reim bursement Review Board (Board), and by specifying the procedures for Board review of whether the provider’s cost report meets the proposed substantive reimbursement requireme nt 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 a nd the provider appeal regulati ons, in addition to proposing similar revisions to the Part 405, Subpart R re gulations for appeals before the contractor hearing officers. In addition, we are proposi ng 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 regu lations and the provide r appeals re gulations would apply to provider cost re porting 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 be fore 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 bene ficiaries. Reasonable cost is defined at section 1861(v)(1)(A) of the Ac t 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 fo r inpatient hospital services furnished by short-term acute care hospitals to a prospe ctive payment system (PPS). In accordance with section 1886(d) of the Act and impleme nting 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 t ypes of providers and services that are subject to a PPS. The various prospective pa yment systems for inpati ent hospital services are summarized in § 412.1 of the regulations . Other prospective payment systems for967 different types of providers and services are summarized in §§ 413.170, 413.300, 413.330, and 419.1 of the regulations. As explaine d in § 413.1(b) of the regulations, if a service is not subject to a PPS when it is furn ished, 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 pr oviders were ordinarily made through private organizations known as fiscal interm ediaries, under contracts with the Secretary. After a 6-year transition pe riod (§ 421.400(a)), the clai ms processing and payment

functions of the fiscal intermediaries ar e now performed by MACs, under contracts with the Secretary. For covered items and services paid on a reasonable cost ba sis, the contractor pays a provider during its cost reporting peri od interim payments that approximate the provider’s actual costs. U nder 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 informa tion, requested by the Secretary, needed to determine the amount of payments due the provider under the Medi care program. In general, providers submit this informati on through annual cost reports that cover a 12-month period of time. All providers participating in th e Medicare program are required under § 413.20(a) to “maintain sufficient financial records and statistical data for proper968 determination of costs.” Moreover, provide rs must use standardized definitions and follow accounting, statistical, and reporting prac tices that are widely accepted in the hospital and related fields. Under the pr ovisions of §§ 413.20(b) a nd 413.24(f), providers are required to submit cost reports annuall y, 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 a ddition, § 412.52 of the re gulations 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 Pr oviders and Judicial Review Upon receipt of a provider’s cost report, th e contractor reviews or audits the cost report, makes any necessary adjustments to the provider’s Medicare reimbursement for the cost reporting period, and finally determ ines 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 de termination, as defined in § 405.1801(a). Under §§ 405.1801(a)(1), (2) and 405.1803, the contra ctor must give the provider written

notice of the final contractor determination fo r the cost period in a notice of the total amount of program reimbursement (NPR). Th e NPR is an appealable determination, and

the contractor determination is final and binding unless it is re vised on appeal or reopening (§ 405.1807).969 Under section 1878(a) of the Act, a pr ovider that has submitted a timely cost report may appeal to the Provider Reimburse ment 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 re view certain Board decisions under section 1878(f)(1) of the Act and § 405.1875 of the regula tions. 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 re gulation, providers are given the right to appeal to the Board or to c ontractor hearing officers certa in other determinations. A CMS reviewing official may review some contractor hearing o fficer decisions under § 405.1834 of the regulations, but th ere is no judicial review of decisions by contractor hearing officers or a CM S reviewing official. Under sections 1878( a)(1)(A), (a)(2), a nd (a)(3) of the Act, and § 405.1835(a)(1), (a)(2), and (a)(3)(i) of the regulations, a pr ovider may obtain a Boar d hearing if: (1) the provider is “dissatisfied” with a final de termination of the contractor [formerly intermediary] or the Secretary; (2) the amount in controvers y is at least $10,000; and (3) the provider files a request fo r a hearing to the Board within 180 days of notice of the

final determination of the contractor or the Secretar y. 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 th e Act, a provider may obtain a Board hearing if: (1) the provide r does not receive a final dete rmination of the contractor on a timely basis, after the pr ovider filed a cost report that complied with the cost reporting regulations; (2) the amount in c ontroversy is at least $10,000; and (3) the provider files a request for a hearing to th e Board within 180 days after notice of the

contractor’s final determin ation would have been rece ived if such contractor determination had been issued on a timely basis. Moreover, § 405.1835(a)(3)(ii) of the regulations provides that a cont ractor determination is not timely if it is not issued, through no fault of the provider, within 12 m onths of the contractor’s receipt of the provider’s perfected cost report or amended co st report (as specified in § 413.24(f) of the regulations). The same jurisdictional require ments govern provider appeals to contractor hearing officers, based on an untimely contractor determination, under § 405.1811(a), except that the amount in controversy re quirement is at least $1,000 but less than $10,000. 3. Appropriate Claims in Provider Cost Reports Under longstanding Medicare policy as se t 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 repo rt 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 judici al review. For example, as set forth in971 § 413.24, providers receiving payment on the basi s 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 clai m for an item in its cost report, in order to meet the dissatisfaction requirement for Board jurisdiction. The Medica re cost report has always included particular “lines” for specifi c allowable costs such as interest expense and depreciation. If a provider ma kes a cost report claim for a cost that is allowable, and

reimbursement is claimed in accordance w ith 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 mo re 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 c ontractor hearing officers (if the amount in controversy is at least $1 ,000 but less than $10,000). Ho wever, 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 Boar d 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 ha s been that, in order for a provider to be972 dissatisfied with a specific as pect of the contractor dete rmination, the provider must include an appropriate cost re port 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 provide r to “self-disallow” a specific item, even

if the Medicare contractor had no discre tion 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 disallo wance of the item, and ther efore the provider would effectively self-disallow the item.) Ho wever, 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 la nguage of the dissatisfaction requirement in section 1878(a)(1)(A) of the Act supported Boar d 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 pr oviders to try to persuade the contractor

otherwise. The Court also st ated 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 fo r which the contractor did not have the discretion to award payment due to a regulati on 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) (sustaini ng 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 dissatisf action requirement in notice and comment rulemaking. In a 2008 final rule, we re vised § 405.1811(a)(1) and § 405.1835(a)(1) for contractor and Board hearings, re spectively (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 beli eves to be in accord ance 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 reimburse ment sought by the provider). In order to self-disallow an item, the provider must follow the applicab le 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 th e 2008 final rule, we believe the revised dissatisfaction policy set forth in § 405.1835(a)(1 ) is a reasonable in terpretation of the dissatisfaction requirement for Board jurisd iction in section 1878(a )(1)(A) of the Act (73 FR 30195 through 30200). The dissatisf action requirement in § 405.1835(a)(1) comports with the Supreme Court’s statem ent (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 co ntractor 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 interpreta tion of the statut ory dissatisfaction requirement for Board jurisdiction on the basi s 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-dis allow the cost, in its cost report is more appropria tely treated as a cost repor ting requirement under sections 1815(a) and 1833(e) of the Act, as the agen cy 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 th e 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 deta il in the next section, requiri ng a cost report claim for full reimbursement or an express self-disallowanc e 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 NP R. Accordingly, we are proposing to revise975 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 a ppropriately for the item in its cost report will foreclose payment for the item in the NPR issu ed by the contractor and in any decision, order, or other action by a reviewing en tity (as defined in § 405.1801(a) of the regulations) in an administrativ e appeal filed by the provider. However, we recognize that the pr oposed addition to the cost reporting regulations of the substantive reimbursement requirement of an appropriate cost report claim for a specific item would be potential ly 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 requiremen t that a provider must include an appropriate claim for an item in its cost re port in order to meet the dissatisfaction requirement for Board jurisdiction. Our longs tanding requirement of an appropriate cost report claim would be made a substantive reimbursement requirement in the cost reporting regulations and the existing Board ju risdiction requirement of an appropriate cost report claim would be eliminated. Th ese proposed revisions to the cost reporting regulations and the provider appeals regulations would appl y 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 Re quired in Provider Cost Reports, and for Provider Administrative Appeals 1. Proposed Addition to the Cost Repor ting Regulations of the Substantive Reimbursement Requirement of an Appropriate Cost Report Claim a. Specific Provisions of Pr oposed Paragraph (j) of § 413.24 We are proposing to add a new paragr aph (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 provi der must include in its cost report an appropriate claim for the specific item. In or der 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 th e contractor does not ha ve 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 cont ained in section 115 of the PRM, Part 2 and are included in proposed paragraph (j)(2) of § 413.24. Specificall y, the provider would have to include an estimated payment am ount 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 clai ming 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 speci fies the procedures for determining whether there is an appropriate cost report clai m for a specific item. The default rule is that the question of whether the provider’s co st report includes an appropriate claim for the specific item must be determined by re ference to the cost re port that the provider submits originally to, and is accepted by, the contractor, un less one of three exceptions applies. The first exception is that if the prov ider submits an amended cost report that is accepted by the contractor, the question of whet her 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 appl ies. 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 speci fic 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 de fined in § 405.1801(a)), unless the remaining exception applies. The third exception is that if the contractor reope ns 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 pu rsuant to § 405.1889) and adjusts the provider’s cost report with resp ect to the specific item, the question of whether there is an appropriate cost report clai m for the specific item must be determined by reference to the provider’s cost report, as su ch 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 co mply 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 orde r to ensure compliance with the substantive requirement of an appropriate cost report cl aim for a specific item, the provider should either claim full payment for, or properly self-d isallow, the item in th e 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. Unde r the first exception to the default rule under proposed paragraph (j)(3), the pr ovider could include an appr opriate 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), th e requirement of an appropriate cost report claim could be met thr ough the contractor’s adjustme nt of the provider’s cost report, either in the contractor’s initial de termination for the provider’s cost reporting period (as defined in § 405.1801(a)) or, if the in itial contractor determination is reopened,

in the contractor’s revised determination. Ho wever, in preparing th e initial contractor determination for a provider’s cost reporting period, the contractor has discretion whether to adjust the provider’s cost report with re spect to the specific item and, if so, how to adjust the cost report for such item. Similarl y, after the initial contractor determination is issued, the contractor has disc retion whether to reopen the initi al contractor determination979 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 paragr aph (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 ba sis of 2,000 Medicaid eligible patient days

in the numerator of the DSH Medicaid fracti on (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, a nd the number of Medicai d eligible patient days was not changed in an amended cost re port by the provider or through adjustments to the cost report by the cont ractor, 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 eligib le patient days, the provider would have made a valid cost report claim for 1,500 Medica id eligible patient days (instead of 2,000 such days). However, if the hospital asked the contractor, during th e contractor’s review and settlement of the provider’s cost report, to count 250 more Medi caid eligible patient days, and the contractor agreed to consider those days in the contractor’s initial intermediary determination, the provider woul d have made a valid cost report claim of 1,750 Medicaid eligible patient da ys (instead of 2,000 such days). Finally, if the provider next requested, or the contract or initiated on its own motion, the reopening of the initial contractor determination on the specific issu e of the number of Medi caid eligible patient days for the DSH Medicaid fraction’s numerator , and the contractor did reopen for that980 specific issue, the pr ovider 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 fi rst 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 provide r’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 provide r to ensure compliance with the substantive requirement of an appropriate cost report cl aim for a specific item, by including in the cost report that the provider submits origin ally to, and is accept ed by, the contractor, either a full claim for payment for a specifi c item or a proper self -disallowance of the item. In addition, this process gives a pr ovider additional opport unities to meet the requirement of an appropriate cost report claim through an amended cost report by the provider (if the amended cost report is accepte d 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 cont ractor 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 incl ude particular cost981 report claim adjustments in the initial cont ractor 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 co st report claim adjustments that may be

included in the revised contractor determina tion. 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 Medica re contractors has subs tantial experience in reviewing and auditing cost re ports and in properly determ ining payment amounts. The back and forth process between the provider a nd the contractor eliminates, or minimizes and sharpens, potential disa greements, which obviates the need to file some administrative appeals or narrows the issues in many cases. In addition, proposed para graph (j)(4) of § 413.24 provide s that, to the extent a provider fails to claim a specifi c 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 fo r 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 pr ovider’s cost report included an appropriate claim for the982 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. T hose regulations require the re viewing entity to follow the procedures (discussed above) that are set fort h in paragraph (j)(3) of this section for determining whether the provider’s cost repo rt included an appropriate claim for the specific item under appeal. Also, the revi ewing entity may permit payment for the specific item under appeal solely to the exte nt 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 fo r 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 appr opriate exercise of the Secretary’s broad authority under sections 1815(a) , 1833(e), and 1886(f)(1) of th e Act to require providers

to furnish the information needed to dete rmine the amount of payment due a provider under the Medicare program. As described above, we have relie d on these particular statutory provisions in adopti ng regulations that require pr oviders to submit annual cost reports; specify the requisite contents of cost reports; and impose various procedural983 requirements for cost reports (such as time pe riods for timely submission of cost reports and certification requirements fo r cost reports). Moreover, we have invoked the same statutory provisions in requi ring providers to report othe r 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 de bts” 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 wh at information to requ ire as a condition of payment to providers under the Medicare pr ogram”). Indeed, as explained above, the Secretary’s broad discre tion with respect to cost reporti ng requirements is also reflected in the Board appeals provisions of secti on 1878(a) of the Act, which makes provider compliance with cost reporting requirements a prerequisite of Board jurisdiction. In addition to the plainly sufficient st atutory 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 repo rt by either claiming payment for the item (where the provider believes such claim w ould 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 propos al has three main parts, each of which we address separately. First, we believe that if a cost is allo wable and the provider does not disagree with how Medicare determines payment for the co st, the provider’s cost report should include a claim for full payment of the cost in accord ance with the program’s payment policy. In984 such cases, a cost report claim for full paymen t 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. Requir ing 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 contract or’s discharge of so me of its principal responsibilities, which include using the contractor’s expert ise 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 fo r the item, there would be no need for the provider to later request reopeni ng or to file an administrativ e 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, wi ll give the contractor an oppor tunity 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 co st report claim for full payment of allowable cost also comports with the divisi on of responsibilities be tween the contractors and the Board and the other reviewing entitie s (as defined in § 405.1801(a)). At present, there are 12 contractors, each of which has a fairly large staff with substantial experience985 and expertise in reviewing and auditing cost reports and determining final payment in accordance with Medicare policy. By contra st, the Board has only five members and a relatively small staff. We believe it is a wa ste of scarce resources and very inefficient for a provider to first raise a clea rly allowable cost in an a ppeal to the Board when the

contractor could have review ed and finally determined payment for such an allowable cost in the NPR, if the provider had simp ly 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 administra tive appeals tribunal, not the Medicare program’s front line aud itors charged with making the initial determination of program reimburse ment for such allowable costs. Second, there are also sound policy reas ons for proposing, under a new paragraph (j) in § 413.24, that a provider must self-disa llow 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 proce dures for filing a cost report under protest (procedures that, as explained above, are now contained in sec tion 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 account ing for it appropriately in th e “protested amount” line of the cost report (instead of claiming paym ent for the item), the contractor has an opportunity to correct any misc onceptions that the provider may have had about the item. For example, the contractor could determin e, contrary to the provider’s apparent understanding in self-disallowing a specific item, that the item in question is actually an986

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 concom itant 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 it s 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 sh are 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 it s resources can be brought to bear in reviewing self-disa llowed 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 provi ders with consultative services, education, training, information and instructions, a nd 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 pr oviders. Accordingly, we believe our proposed addition of a self-disallowance requ irement 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 request987 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 re quirement of an appropriate cost report

claim for an item ensures that the contractor will have the “first s hot” 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. Fo r example, this proposal would facilitate provider compliance with the existing require ments in § 413.24(f) that each provider submit a complete, accurate, and timely cost re port, and that the provider’s administrator

or chief financial officer certi fy that the submitted cost report is complete and accurate. Our proposed self-disallowance requiremen t would also enhance CMS’ ability to accurately estimate the program’s potential lia bilities (for example, for purposes of the agency’s preparation of required financial st atements). Similarly, this proposal would improve the contractors’ ability to establis h audit and other workload priorities. The proposed addition of a self-disallowance requ irement (for items that providers believe may not comport with Medicare policy) to the cost report ing regulations would also enable us to better monitor Medicare polic y and potentially adjust our policies in response to a pattern of provider self-disa llowances 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; establ ishing hospital market basket weights; calculating Medicare and total facility margins; determining payment for graduate988 medical education (GME) and indirect medical education (IME); cr eating projections for the President’s annual budget a nd for the annual Medicare Tr ustees 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 it em 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 ac tion 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 conse quence of not making an appropriate cost report claim for an item is that th e Board would not have jurisdiction over the provider’s appeal of the item. (Simil arly, under §§ 405.1811(a)(1) and 405.1814(b)(3), the contractor hearing officers would lack ju risdiction for an item if the provider did not make an appropriate cost report claim for th e item.) As explained below, however, we are proposing to eliminate the jurisdictional requir ement of an appropriate cost report claim in existing §§ 405.1835(a)(1) and 405.1840(b)(3) for Board appeals (and the corresponding jurisdictiona l requirement in §§ 405.1811(a)(1) and 405.1814(b)(3) for contractor hearing officer appeals), becau se we believe it is a requirement more appropriately placed in the cost reporting regul ations. Given that our longstanding policy989 of requiring an appropriate co st 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 ab iding by this cost reporting requirement. In this regard, we note that the proposed additi on 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 pr oper determination of Medicare reimbursement. Similarly, if a provi der fails to include an appropriate claim for an item in its cost report, the NPR issu ed by the contractor will not include payment for the item and payment also will not be perm itted 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 Provide r Reimbursement Appeal Regulations a. Elimination of the Jurisdictional Require ment 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 regulati ons that a provider must include an appropriate claim for an item in its cost re port 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 eliminat e an appropriate cost report claim as a requirement for Board jurisdiction is well within the Secretary’s general rulemaking authority under sections 1102 a nd 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 provisi on is ambiguous and the interpretation in the990 existing appeal regulations, which requires pr oviders to make appropriate cost report claims in order to meet the dissatisfaction pr erequisite of Board jurisdiction with respect to a specific item, is a perm issible interpretation of the st atute. As described above, however, providers have challenged our interp retation of the statut ory 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 regu lations which were adopted in the FY 2008 IPPS final rule (73 FR 30195 th rough 30200; CMS’ response to public comments on the current Board appeals regulations that are based on our interpretation of the statutory dissatisfaction pr ovision). Providers have maintained throughout this litigation and in the referenced public comm ents that the statutory dissatisfaction provision does not support our policy of requiri ng an appropriate cost report claim as a prerequisite of Board jurisdicti on. We continue to disagree with this view of the statute, and still believe that the existing Board a ppeals regulations are based on a permissible interpretation of the statutory dissatisfac tion provision. As explained above, existing § 405.1835(a)(1) comports with the Supreme Court’s statement th at the statutory dissatisfaction requirement might not be met if a provider bypassed a clearly prescribed exhaustion requirement or failed to ask the cont ractor 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 Circui t has twice sustained our interpretation of the statutory dissatisfaction provision, on th e 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 jurisdictional991 requirement of an appropriate cost report claim certainly does not conflict with the “dissatisfied” provision in sect ion 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 pr ovider does not receive a final contractor determination on a timely basis. (Section 405.18 35(a)(3)(ii) of the re gulations specifies the time period and other conditions for Bo ard appeals where th e provider does not

receive a final contractor determination on a timely basis.) Secti on 1878(a)(1)(B) of the Act does not include an express dissatisfac tion provision. Thus, our proposal, to eliminate existing § 405.1835(a )(1)’s dissatisfacti on jurisdictional re quirement of an appropriate cost report claim, would result in Board appeals regulations that more closely track the express terms of sec tion 1878(a)(1)(B) of the Act. In addition to the sufficient statutory au thority for our proposed elimination of an appropriate cost report clai m as a requirement for Board jurisdiction, there are sound policy reasons for this proposal. As expl ained above, we believe that, by requiring appropriate cost report cl aims in proposed § 413.24(j), complete and accurate determinations of provider reimbursement will be facilitated as will the many other important aspects of program administrati on. Thus, because we would require an appropriate cost report clai m in proposed § 413.24(j), it is reasonable to eliminate the Board jurisdiction requirement in exis ting §§ 405.1835(a)(1) a nd 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 wi ll facilitate an orderl y 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 e ffective date of the final IPPS annual update rule. Until these proposed regulations take effect, however, the requirement of an appropriate cost report cl aim in §§ 405.1835(a)(1) and 405.1840( b)(3) of the regulations will continue to be a requirement for Bo ard 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 ot her applicable jurisdictional provisions of section 1 878 of the Act and §§ 405.1835 and 405.1840 of the regulations. We believe that, because it is essential to requ ire appropriate cost report

claims for the various reasons that we di scussed above, it is necessary and proper to continue to require an appropria te cost report claim as a prer equisite of Board jurisdiction under §§ 405.1835(a)(1) and 405.1840(b)(3) until th e proposed addition to the cost reporting regulations, of the substantive reim bursement requirement of an appropriate cost report claim, takes effect. b. Proposed Addition of § 405.1873 Regarding Bo ard 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 wh en any party to an appeal questions whether a provider made an appropriate co st report claim (as required by proposed § 413.24(j)) for a specific item under appeal. We believe this new regulation is necessary993 to forestall potential confusion about how th e substantive reimbursement requirement in proposed § 413.24(j) of an appropriate cost repo rt 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 evid ence and legal argument on, and then prepare written specific findings of fact and conclusions of law regarding, the que stion of whether the provider’s cost report complied with propos ed § 413.24(j). The Board will give these written specific factual findings and legal conclusions to ea ch 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 provide s 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 repo rt included an appropr iate cost claim for the specific item under appeal, the Board then must proceed to is sue one of four types of overall decisions with respect to such item. As discus sed below, paragraph (d) of proposed § 405.1873 provides that, if the Board issu es either of two types of ove rall Board decisions regarding the specific item under appeal (that is, a hear ing decision or an expe dited judicial review (EJR) decision where EJR is granted), the Bo ard’s written specific factual findings and legal conclusions (reached under proposed § 405.1873(b)) about whether there was an appropriate cost report clai m 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 types994 of overall Board decisions regarding the specific item under appeal (that is, a jurisdictional dismissal decisi on or an EJR decision where EJR is denied), the Board’s written specific factual findings and le gal conclusions (pursuant to proposed § 405.1873(b)) must not be included in the ove rall Board decision regarding the specific item. In any event, the Board’s factual findings and legal conclusions about whether there was an appropriate cost re port claim for the item must be included in the record of administrative proceedings for the app eal in accordance with § 405.1865 of the regulations. We believe that, in order to ensure fu ll 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 eliminat ion of the Board jurisdiction requirement of an appropriate cost report claim (i n 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 ju risdiction, a declination to exercise jurisdiction, the impositi on of a sanction, and various othe r 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 provide r’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 re quirement of an appropriate cost report

claim has been addressed in different but rela ted terms. For example, Board jurisdiction has been denied based on the absence, in th e final contractor dete rmination or Secretary determination under appeal, of an adjustment, revision, correc tion, or other change to the specific item under appeal. Another example: Board jurisdiction has also been denied due to the lack of a particul ar determination by the contract or or the Secretary regarding the specific item under appeal, in the fina l 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 appr opriate cost report claim, it is also necessary to address rela ted terms such as the absence of specific adjustments and the lack of particular dete rminations regarding the specific item under appeal. Accordingly, paragraph (c)(2) of proposed new § 405.1873 would prohibit a denial of jurisdiction, a declination to exer cise jurisdiction, the imposition of a sanction, and various other actions by the Board, if a ny 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 th e specific item under appeal, or the lack of a particular determination by the contractor or the Secret ary regarding the specific item in the final contractor determination or Secretary dete rmination 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 it em is based on the reopening of such item (pursuant to § 405.1885 of the regulations) wh ere the specific item is not revised,996 adjusted, corrected, or otherwis e changed in a revised final contractor determination or Secretary determination, the Board must de ny jurisdiction over the specific item under appeal (as prescribed in §§ 405.1887(d) a nd 405.1889(b) of the regulations). The reopening regulations are an ex ercise 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 longs tanding “issue speci fic” 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 Secret ary’s general rulemaking authority, and the issue specific interpretation of the reop ening 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 fi ndings of fact and conclusions of law by the Board (reached under paragraph (b) of pr oposed § 405.1873), on the question of whether the provider’s cost report included an a ppropriate 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 unde r 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 ite m, must be included in such a hearing decision along with the other matte rs prescribed in ex isting § 405.1871(a). A Board hearing decision addresses whether th e provider has established that it should997

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 wh ether 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 factua l findings and legal conclusions about whether there was an appropria te cost report claim should be included in any hearing decision that might be issued by the Board re garding the specific item. In addition, we

note that if the Board elects to issue a heari ng decision that also includes factual findings and legal conclusions about wh ether the other payment require ments 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 in clude an appropriate claim for the specific item under appeal, the Board has discretion whether or not to address in its hearing decisi on 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 ques tion that is relevant to the sp ecific 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 decisi on 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 specifi c item under appeal, along with the Board’s determinations that the two requi rements 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 sp ecific item under appeal), piecemeal proceedings would be minimized or eliminated because the Board EJR decision will encompass both the question of whether there wa s an appropriate cost report claim for the specific item999 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 se parately below), if the Administrator reviews and issues an EJR decision on the que stion of whether there is Board jurisdiction over the specific item under appeal, the Admi nistrator will also re view, 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 ite m. In turn, our proposal to require an EJR decision that grants EJR to in clude 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 releva nt legal question (for which the Board determined it has no decisional authority), the c ourt’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 appropria te 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 fi ndings 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 th e specific item under appeal, the court can potentially review in one proceeding the final specific findings of fact and conclusions of1000 law about whether there was an appropriate co st report claim for the specific item, along with the relevant legal question for whic h 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 decisi ons 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, paragr aph (e)(1) of proposed new § 405.1873 would provide that if the Board issues a jurisdic tional 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 d ecision on a specific it em under appeal, the Board’s denial of jurisdiction obviates any n eed to address the que stion of whether the substantive reimbursement requirements that are specific to the particular item (for example, the specific requirements for paym ent 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 substa ntive reimbursement requirement of an appropriate cost report cl aim 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 dete rmines 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 deci sion 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 a ppropriate 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 conclu sions about whether th e other reimbursement requirements for the specific item are satisfied, piecemeal proceedings before the Board and potentially before the Ad ministrator 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 jurisdicti onal dismissal decisions, the denial of Board jurisdiction in such an EJ R decision obviates the need to address the substantive reimbursement requirement of an a ppropriate cost report cl aim, just as there is no need to consider other payment require ments for the particular item under appeal.1002 Paragraph (f) of proposed new § 405.1873 a ddresses the various effects of the Board’s factual findings and legal conclusi ons (reached under paragraph (b) of proposed § 405.1873) regarding whether there was an a ppropriate cost report claim in the two types of Board decisions where such factua l 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 specifi c 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 spec ific item is a substantive prerequisite of any payment for the specific item (as prescrib ed in proposed § 413.24(j)), but all other payment requirements (for example, the par ticular requirements for payment for certain bad debts under § 413.89) also must be satisf ied. 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 fo r the specific item is made in accordance with Medicare policy, but only if the Board further determin es 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 deci sion, that the cost report lacked an appropriate claim for the specific item under appeal, payment for the specific item is not made, regardless of whet her the Board further determines in such hearing decision that the othe r 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 appli cable) 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 prescrib ed 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) regardi ng 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 Administra tor of CMS (as applicable) determines, in a final EJR decision where EJR is granted, that th e 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 findi ngs and legal conclusions by th e 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 fi nal 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 Fede ral 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 other1004

actions. We believe these revisions will faci litate 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 procedur es 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 decisi on, a Board dismissal decision , the Board’s jurisdictional determination in an EJR decision (but not th e 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 spec ific item, the Administrator’s review of such a hearing decision or such an EJR deci sion, 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 conc lusions of law in such hearing decision or EJR decision (as prescribed in propo sed § 405.1873(b) and (d)) on the question of whether the provider’s cost re port 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 sa feguard against piecemeal administrative1005 appeal proceedings and potentially before a Federal court. As explained above with respect to proposed § 405.1873(d)(1), if the Boar d elects to issue a hearing decision that also includes factual findings and legal c onclusions about whether the other payment requirements for the specific item were satis fied (in addition to th e 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 it em 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. More over, 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 conclu sions 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 Admi nistrator 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 O ffice 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 requi ring the Board to promptly send copies

of dismissal decisions to the Office of the Atto rney 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 requiremen t of an appropriate cost report claim (in existing1006 §§ 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 pro posal to require the Board to promptly send copies of dismissal decisions to the O ffice of the Attorney Advisor will enhance the Administrator’s ability to ensure full a nd 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 Contract or 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 contract or hearing officers. Specifically, we are proposing to eliminate an appropriate cost re port claim as a jurisdictional requirement for contractor hearing officer appeals (i n 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 co st report claim (as prescribed in proposed1007 § 413.24(j)). These proposed revisions to th e existing regulations for appeals to the contractor hearing officers comport with our usual practice of adopting similar regulations for both Board appeals and for cont ractor hearing officer appeals unless there

is a sufficient reason to do otherwise.

1. Technical Corrections and C onforming Changes to §§ 405.1801 and 405.1803 We are proposing to revise the defini tion 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 correc tion to “contractor determination”. We are proposing to revise § 405.1801(b) to more appropriately refer to § 413.24 generally (following the proposed addition of paragra ph (j) to § 413.24). We are proposing to revise § 405.1803 to refer to the final contract or (instead of interm ediary) determination as set forth in § 405.1801 and to appropriate ly cross-reference the proposed newly revised § 405.1835(a).

2. Technical Corrections and C onforming Changes to §§ 405.1811, 405.1813, and

405.1814 As we are proposing to eliminate the juri sdictional 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 co rresponding jurisdictional requirement in §§ 405.1811(a)(1) and 405.1814(b)(3) for contra ctor hearing officer appeals. Specifically, we are proposing to eliminate an appropriate cost report claim as a jurisdictional requirement for contractor hear ing 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 tec hnical 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 re view of compliance with th e substantive reimbursement requirement of an appropriate cost report cl aim (as prescribed in proposed § 413.24(j)) in appeals first filed with co ntractor hearing officers. 4. Proposed Revisions to § 405.1834 We are proposing to amend § 405.1834, whic h provides for review of contractor hearing officer decisions by the CMS revi ewing 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 deci sion, the specific factual findi ngs and legal conclusions of contractor hearing officers re garding 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 C onforming 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 consistenc y with the principal proposed regulation changes discussed above.

6. Technical Corrections to 42 CFR Pa rt 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 vari ous 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 mo re efficient health care for Medicare beneficiaries. This effort is supported by the adoption of widely agreed-upon quality

measures. We have worked with relevant st akeholders to define quality measures for most settings and to measure various aspects of care for most Medi care beneficiaries. These measures assess structural aspects of car e, clinical processes, patient experiences with care, and, increasingly, outcomes. We have implemented quality report ing 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 th e Hospital Outpatient Quality Reporting (OQR) Program (formerly referred to as th e Hospital Outpatient Quality Data Reporting Program (HOP QDRP));

● Care furnished by physicians and ot her eligible prof essionals under the Physician Quality Reporting System (PQRS, formerly referred to as the Physician Quality Reporting Program Initiative (PQRI));

● Inpatient rehabilitation facilities u nder the Inpatient Rehabilitation Facility Quality Reporting Program (IRF QRP);1011

● Long-term care hospitals under th e Long-Term Care Hospital Quality Reporting (LTCHQR) Program;

● PPS-exempt cancer hospitals under th e PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program;

● Ambulatory surgical centers under th e Ambulatory Surgical Center Quality Reporting (ASCQR) Program;

● Inpatient psychiatric facilities under th e 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 fo r Medicare beneficiaries. Our goal for the future is to align the clinical quality meas ure 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 pr oviders will be reduced. As appropriate, we will consider the adoption of clinical qual ity measures with electronic spec ifications so that the electronic1012 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 pa rt of hospitals and CMS, and adoption of standards for capturing, formatting, and transmit ting 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 s ection 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 se ction 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 pe rformance standards for a performance period for the fiscal year involved. The measur es under the Hospital VBP Program must be1013 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 Hospita l 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 VB P Program because many of the measures and the reporting infrastructu re for the programs overlap. We view the Hospital VBP Program as the next step in promoting highe r 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-ba sed purchasing is an important step to revamping how care and services are paid for, moving increasingly toward rewarding better value, outcomes, and innovati ons instead of merely volume. We also view the Hospital-Acquire d Condition (HAC) pa yment adjustment program authorized by section 1886(p) of th e 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 Progra m 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 pr oposed rule, we are proposing changes to the Medi care EHR Incentive Program. A. Hospital Inpatient Qual ity 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 de termination and subsequent years.1015 b. Maintenance of Technical Specifications for Quality Measures The technical specifications for the Ho spital IQR Program measures, or links to Web sites hosting technical specifications , are contained in the CMS/The Joint Commission (TJC) Specifications Manual fo r National Hospital Quality Measures (specifications manual). This Specificatio ns 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 update s detailed instructions and calculation algorithms for hospitals to use when collec ting and submitting data on required measures. These semiannual updates are accompanied by notif ications to users, providing sufficient time between the change and the effective date in order to allow users to incorporate changes and updates to the specificati ons into data collection systems. The technical specifications for the HCAHPS patient experi ence 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 specifi cations by updating the HCAHPS Quality Assurance

Guidelines manual annually, and include detailed in structions on survey implementation, data collection, data submission and other relevant topics. As necessary, HCAHPS Bulletins are issued to provide notice of ch anges and updates to technical specifications in HCAHPS data collection systems. Many of the quality measures used in different Medicare an d 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 measure1016

stewards to submit annual measure mainte nance updates and undergo maintenance of endorsement review every 3 years. In the measure maintenance process, the measure steward (owner/developer) is responsible fo r updating and maintain ing the currency and relevance of the measure and will confirm existing or minor specification changes with NQF on an annual basis. NQF solicits info rmation from measure stewards for annual reviews, and it reviews measures for continue d endorsement in a spec ific 3-year cycle. The NQF regularly maintains its endors ed 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 subregul atory 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 re main up-to-date. We also recognize that some changes the NQF might make to its e ndorsed measures are substantive in nature and might not be appropriate for adop tion using a subre gulatory process. Therefore, In the FY 2013 IPPS/LTC H 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 th e Hospital IQR Program. With respect to

what constitutes substantive versus nonsubsta ntive changes, we expect to make this determination on a case-by-case basis. Exampl es of nonsubstantive changes to measures might include updated diagnosis or procedure codes, medication update s 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 that1017 nonsubstantive changes may include update s to NQF-endorsed measures based upon changes to guidelines upon wh ich the measures are based. We will continue to use rulemaking to adopt substantive updates made to measures we have adopted for the Hospital IQ R 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 meas ure, 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 administra tion). 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 policie s regarding what is considered substantive versus nonsubstantive would apply to all m easures in the Hospita l IQR Program. We also note that the NQF process incorporat es an opportunity for public comment and engagement in the measure maintenance process. We believe this policy adequately balan ces 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 th at we originally adopted. c. Public Display of Quality Measures Section 1886(b)(3)(B )(viii)(VII) of the Act, as am ended by section 3001(a)(2) of the Affordable Care Act, requires that th e Secretary establish procedures for making information regarding measures submitted avai lable to the public after ensuring that a1018 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 hospita l quality of care to those who need to select a hospital. For more info rmation 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 additi onal quality measures and information

featured on Hospital Compare may be highly relevant to pa tients and other consumers of health care, and how we may bette r 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 genera lly retain measures from the previous year’s Hospital IQR Program measure set fo r 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 criter ia that we consider when determining1019 whether to remove Hospital IQR Program measures are the following: (1) Measure performance among hospitals is so high and unva rying 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 se ttings, 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 conseque nces other than patient harm. We also

take into account the views of the Measur e Applications Partnership (MAP) when determining when a measure should be rem oved, 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 measur e is “topped-out” when measure performance among hospitals is so high and unvarying that meaningful distincti ons and improvements in performance can no longer be made (‘‘ topped out’’ measures) (77 FR 53505 through 53506). We do not believe that measuri ng 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 be lieve such measures should be considered1020 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” stat us, we are proposing to apply the following two criteria, the first of which was prev iously adopted by the HVBP Program in the Hospital Inpatient VBP Program final ru le (76 FR 26496 through 26497), to Hospital IQR measures. The second criterion is a m odified version of what was previously adopted by the Hospital VBP Program in the ab ove mentioned final rule, with the change from the “less than” opera tor (<) to the “less than or equal to” operator ( ≤ ):

● Statistically indistinguis hable performance at the 75th and 90th percentiles; and

● Truncated coefficient of variation ≤ 0.10. The coefficient of variation (CV) is a co mmon statistic that expresses the standard deviation as a percentage of th e sample mean in a way that is independent of the units of observation. Applied to this analysis, a large CV would indicate a br oad 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 distincti ons among individual hospitals ’ measure performance. By adopting “less than or equa l to” in our “topped out” te st, we are clarifying the interpretation of the CV when a tie at 0.1 o ccurs 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 w ith highest scores were first truncated (set aside) before calculating the CV. This was done to avoid undue eff ects of the highest and lowest outlier hospitals, which if included, w ould tend to greatly wi den the dispersion of the distribution and make the measure app ear 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 Ho spital IQR Program measure set, we have considered removing additional measures using our previously-adopted removal criteria. We are proposing to remove five me asures from the Hospital IQR Program for the FY 2017 payment determination and subseque nt 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 Appropr iate Hair Removal; an d (5) Participation in a systematic database for cardiac surgery (NQF #0113). We are proposing to remove the first f our 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 Re port: 2014 Recommendations on Measures for1022 More than 20 Federal Programs, whic h is available at available at: http://www.qualityforum.org/P ublications/2014/01/MAP_PreRulemaking_Report__2014_Recommendati ons_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 measur e is “topped-out.” The purpose of reserve

status is to retain endorseme nt of reliable and valid quality performance measures that have overall high levels of pe rformance with little variabil ity so that performance could be monitored in the future if necessary to en sure that performance doe s not decline. This status would apply only to highl y credible, reliable, and vali d measures that have high levels of performance due to quality improveme nt actions (often facilitated or motivated through public reporting and othe r 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 ha s unacceptably declined, we would propose to

resume data collection in future rulemaki ng. 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 prev iously adopted criteria . The analysis was based on the most recent two quarters of clinic al process of care da ta available in the1023 CMS Clinical Data Warehouse for IPPS eligib le 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 be lieve that an additional 15 chart-abstracted measures are “topped out,” and we are proposi ng to remove them from the measure set for the FY 2017 payment determination and subsequent years. However, we are proposing to retain the electro nic 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 th is proposed rule. We belie ve that retaining “topped out”

measures under certain circumstances enables us to continue monitori ng the clinical topic covered by the measure to ensure that hospita ls continue to maintain high levels of performance. Further, we believe the additional reporting burden associated with retaining these measures is mitigated by reta ining 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 Arri val (previously suspended)

● AMI-3: ACEI or ARB fo r left ventricular systolic dysfunction- Acute Myocardial Infarction (AMI) Patients (previously suspended) (NQF #0137)

● AMI-5: Beta-Blocker Pres cribed 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 vent ricular systolic function (NQF #0135)

● PN-6: Initial antibiotic selection for community-acquired pneumonia (CAP) in immunocompetent patients* (NQF #0147)

● SCIP-Inf-1: Prophylactic antibiotic receiv ed within one hour prior to surgical incision* (NQF #0527)

● SCIP-Inf-2: Prophylactic antibiotic sele ction 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 disc ontinued within 24 hours after surgery end time (48 hours for cardiac surgery) (NQF #0529)

● SCIP-Inf-4: Cardiac surgery patients w ith controlled postoperative blood glucose (NQF #0300)

● SCIP-Inf-6: Surgery patients with appropr iate hair removal (previously suspended) (NQF #0301)

● SCIP-Inf-9: Urinary catheter remo ved 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 bl ocker therapy prior to arrival who received a beta blocker during the peri operative period (NQF #0284)

● SCIP-VTE-2: Surgery Patient s Who Received Appropriate Venous Thromboembolism (VTE) Prophylaxis Within 24 Hours Prior to Surgery to 24 Hours After Surgery (NQF #0218)

● STK-2: Discharged on antith rombotic 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 re habilitation* (NQF #0441)

● VTE-4: Patients receiv ing un-fractionated Heparin wi th 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 A dopted Hospital IQR Program Measures for Subsequent Payment Determinations

We refer readers to the FY 2013 I PPS/LTCH PPS final rule (77 FR 53512 through 53513), for our finalized measure retent ion policy. When we adopt measures for the Hospital IQR Program beginning with a particular payment determination, these measures are automatically adopted for all s ubsequent 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 I PPS/LTCH PPS final rule (77 FR 53510 through 53512) for a discussion of the cons iderations we use to expand and update quality measures under the Hospital IQR Progr am. 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 determinat ion and subsequent years, we would like to propose to use 3 years of data to calcul ate measures unless otherwise specified. In other words, this reporting period would appl y to all future calculations of conditionspecific 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-standard ized mortality rate (RSMR) following acute myocardial infarction (AMI) hospita lization for patients 18 and older 

### ( NQF #0230)

● Hospital 30-day, all-cause, risk-standa rdized mortality rate (RSMR) following heart failure (HF) hospitalization for patients 18 and older (NQF #0229)1026

● Hospital 30-day, all-cause, risk-standa rdized mortality rate (RSMR) following pneumonia hospitalization (NQF #0468)

● Stroke 30-day mortality rate

● Hospital 30-Day, All-Cause, Risk-S tandardized Mortality Rate (RSMR) following Chronic Obstructive Pulmonary Di sease (COPD) Hospitalization (NQF #1893)

● 30-day all-cause, Acute Myocardial In farction (AMI) 30-day risk standardized readmission rate (RSMR) following Acute M yocardial Infarction (AMI) hospitalization (NQF #0505)

● 30-day all-cause, risk standardized readmission ra te (RSMR) following Heart Failure (HF) hospitalization (NQF #0330)

● 30-day all-cause, risk standardi zed readmission rate (RSMR) following Pneumonia (PN) hospitalization (NQF #0506)

● 30-day risk standardized readmissi on rate (RSMR) following Total Hip/Total Knee Arthroplasty (NQF #1551)

● 30-day risk standardized read mission rate (RSMR) following Stroke hospitalization

● 30-day risk standardized read mission rate (RSMR) following COPD hospitalization (NQF #1891)

● Hip/Knee Complication: Hospital-leve l 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 Outpa tient Quality Reporting (HOQR) in the CY 2014 OPPS/ASC final rule (78 FR 75099). We received public comments regarding the burden of separately colle cting and reporting HCP influe nza vaccination statuses for both the inpatient and outpatient settings. In response to these concerns, we clarified that beginning with the 2014-2015 influenza s eason (CY 2014 reporting period and FY 2016 payment determination), facilities should coll ect 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 m easure 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 wi th 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 particul ar healthcare facility, which would still provide meaningful data and he lp 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 Infarc tion (AMI) Measures

● AMI-1: Aspirin at Arri val (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 Fibrinol ytic therapy received with in 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 ventri cular systolic function (NQF #0135) * Stroke (STK) Measure Set

● STK-1 Venous thromboembolism (VTE) prophylaxis (NQF #0434)

● STK-2 Discharged on antithro mbotic 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 st atin medication (NQF #0439)

● STK-8 Stroke education

● STK-10 Assessed for reha bilitation (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-fracti onated Heparin with doses/labs monitored by protocol

● VTE-5 VTE discharge instructions

● VTE-6 Incidence of potentially preventable VTE1029 Topic Hospital IQR Program Measures Previously Adopted for the FY 2016 Payment Determination and Subsequent Years Pneumonia (PN) Measure

● PN-6 Initial antibiotic selecti on for community-acquired pneumonia (CAP) in immunocompetent patients (NQF #0147) Surgical Care Improvement Project (SCIP) Measures

● SCIP INF-1 Prophylactic antibiotic r eceived within on e hour prior to surgical incision (NQF #0527) *

● SCIP INF-2 Prophylactic antibiotic selection for surgical patients (NQF #0528)

● SCIP INF-3 Prophylactic antibio tics discontinued within 24 hours after surgery end time (48 hours for cardiac surgery) (NQF #0529)

● SCIP INF-4 Cardiac surgery patie nts 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 bloc ker 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-s tandardized mortality rate (RSMR) following acute myocardial infarc tion (AMI) hospitalization for patients 18 and older 

### ( NQF #0230)

● Hospital 30-day, all-cause, risk-s tandardized mortality rate (RSMR) following heart failure (HF) hospita lization for patients 18 and older (NQF #0229)

● Hospital 30-day, all-cause, risk-s tandardized mortality rate (RSMR) following pneumonia hospitalization (NQF #0468)

● Stroke 30-day mortality rate

● Hospital 30-Day, All-Cause, Ri sk-Standardized Mortality Rate (RSMR) following Chronic Obstruct ive 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 ri sk-standardized readmission rate (RSRR) following acute myocardial infarction (AMI) hospitalization1030 Topic Hospital IQR Program Measures Previously Adopted for the FY 2016 Payment Determination and Subsequent Years (NQF #0505)

● Hospital 30-day, all-cause, ri sk-standardized readmission rate (RSRR) following heart failure hospitalization (NQF #0330)

● Hospital 30-day, all-cause, ri sk-standardized readmission rate (RSRR) following pneumonia hospitalization (NQF #0506)

● Hospital-level 30-day, all-cause risk-standardized readmission rate (RSRR) following elective primary to tal hip arthroplasty (THA) and/or total knee arthroplasty (TKA) (NQF #1551)

● Hospital-Wide All-Cause Unplanned Readmission (HWR) (NQF #1789)

● 30-day risk standardized read mission rate (RSMR) following Stroke hospitalization

● Hospital 30-Day, All-Cause, Ri sk-Standardized Readmission Rate (RSRR) following Chronic Obstruct ive Pulmonary Disease (COPD) Hospitalization (NQF #1891) AHRQ Patient Safety Indicator s (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 inpa tients with serious treatable complications (NQF #0351) Structural Measures

● Participation in a Systematic Database for Cardiac Surgery (NQF #0113)

● Participation in a Systematic Clin ical Database Registry for Nursing Sensitive Care

● Participation in a Systematic Clinical Database Registry for General Surgery

● Safe Surgery Checklist Use Healthcare-Associated Inf ections (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 Ne twork (NHSN) Catheter-associated Urinary Tract Infection (CAUTI) Outcome Measure (NQF #0138)

● National Healthcare Safety Network (NHSN) Facility-wide Inpatient Hospital-onset Methicillin -resistant Staphylococcus aureus1031 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-standard ized 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 Immuni zation (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 M easures in the Hospital IQR Program We are proposing to incorporate refine ments for several measures that were previously adopted in the Ho spital IQR Program. These refinements have either arisen out of the NQF endorsement maintenance pro cess, or during our internal efforts to harmonize measure approaches. The measure refinements include the following: (1) refining the planned readmissi on algorithm for all seven r eadmission measures included in the Hospital IQR Program; (2) modifyi ng the hip/knee readmission and complication1032

measure cohorts to exclude index admissions with a secondary fracture diagnosis; and (3) modifying the hip/knee complication measur e 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 Algorith m 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 AM I, HF, PN, THA/TKA, HWR, and COPD measures. This algorithm identifies readmissi ons that are planned and occur within 30 days of discharge from the hospital. A co mplete 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/Measur e-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 upda tes 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 Planne d 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 discusse d further below, we1033 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 ma de based on a validation study of the algorithm. Researchers reviewed 634 patie nts’ charts at 7 ho spitals, classified readmission as planned or unplanned based on th e 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 algor ithm to classify readmission as planned or unplanned. The algorithm uses the Agency for Healthcare Research and Quality’s (AHRQ’s) Clinical Classifica tion Software (CCS) to group thousands of procedure and diagnosis codes into fewer categories of rela ted procedures or diagnoses. The algorithm then uses four tables of pr ocedures and diagnoses catego ries and a flow diagram to classify tables as planned or unplanned. Additional inform ation on this software is

available at: http://www.hcup-us.ahrq.gov/to olssoftware/ccs/ccs.jsp . For all measures, the first table identifies procedures that, if present in a read mission, classify the readmission as planned. The second table id entifies primary discharge diagnoses that always classify readmissions as planned. Because almost all planned admissions are for procedures or surgeries, a third table identif ies procedures for which patients are typically admitted; if any of these procedures is code d in the readmission, we classify a readmission as planned as long as that readmission doe s not have an acute (unplanned) primary1034 discharge diagnosis. The four th table lists the acute (unplanned) primary discharge diagnoses that disqualify readmissions that in clude one or more of the potentially planned procedure in the third table as planned. Thes e tables are structured the same across all measures but the specific procedure and conditi ons they contain vary slightly for certain

measures based on clinical considerations fo r 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 tabl es by removing or adding procedures or conditions to improve the accuracy of the algor ithm. First, the validation study revealed that the algorithm could be improved by re moving two procedure CCS categories from the third table, the potentially planned pro cedure table: CCS 211 – Therapeutic Radiation and CCS 224 – Cancer Chemotherapy. Typica lly, patients do not require admission for scheduled Therapeutic Radiation treatm ents (CCS 211). The study found that readmissions that were classified as planne d 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 pr ocedure table. The second table of the algorithm classifies all readmissions with a principal diagnosis of Maintenance Chemotherapy as planned. Most patients w ho 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 for1035 patients who received Cancer Chemotherapy ( CCS 224) but who did not have a principal diagnosis of Maintenance Chemotherapy we re largely unplanned, therefore removing CCS 224 from the potentially planned pr ocedure table improved the algorithm’s accuracy. Therefore, Version 3.0 remove s 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 tabl e of acute principal discharge diagnoses to help identify unplanned readmissions. R eadmissions that have a principal diagnosis listed in the table are classified as unpla nned, regardless of whether they include a procedure in the potentia lly planned procedure table. Th e validation study identified one diagnosis CCS that should be added to the table of acute diagnoses to more accurately identify truly unplanned admissions as unpl anned: Hypertension with Complications (CCS 99). Hypertension with complications is a diagnosis that is ra rely associated with planned readmissions. In addition, the validation study identif ied a subset of ICD-9 diagnosis codes within two CCS diagnosis categor ies 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 IC D-9 codes within this CCS group that are for acute diagnoses to the list of acute condi tions improves the accuracy of the algorithm1036

for these acute conditions while still ensuring that readmissi ons 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 fo r 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 Ar throplasty 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) th e measure outcome and cohort for the Elective Primary THA/TKA All-Cause 30-Day Risk-S tandardized Complication Measure (NQF #1550); and 2) the measure cohort for th e Elective Primary THA/TKA All-Cause Unplanned 30-Day Risk-Standardized Readmission Measure (NQF #1551). As part of measure implementati on, CMS conducted a dry run for both the THA/TKA readmission and complication measur es 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-st ream&blobheadername1=ContentDisposition&blobheadervalue1=att achment%3Bfilename%3DDryRun_HWRHK_SummRept_122112.pdf&blobcol=url data&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 a nd have been monitoring POA data collection and testing its readiness for use in claims-bas ed measures. We also noted our intent to

evaluate the use of POA code s in Hospital IQR Program meas ures, 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 code s 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 conditi on 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 inte nded to only include patients who have an elective THA or TKA. Currently, this meas ure 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 elec tive procedure. Howe ver, after hospitals reviewed their hospital-specific THA/T KA Readmission Measure data during the national dry-run, CMS learned th at hospitals code hip fract ures that occur during the same admission as a THA as not only a prin cipal diagnosis, but al so alternatively, a1038 secondary diagnosis, instead of just a princi pal diagnosis as currently specified by the measure. According to feedback received fr om hospitals participa ting 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 determinat ion 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 to tal 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 discharg es 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 cha nges been applied for the FY 2014 payment determination as an example. We are shari ng 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 (e xcluding 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) ra te 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 fo r HWR; and 13.8 percent for stroke. The number of readmissions considered pl anned (and, therefore, not counted as a readmission) would decrease by 334 for AM I; 1,375 for HF; 981 for PN, 574 for COPD; 309 for hip/knee; 7,417 for HWR; and 242 for stroke.1040Comparison of Planned Readmission Algorithms V 2.1 and 3.0 for AMI/HF/PN/COPD/HK/HWR/Stroke ReadmissionMeasures (Based on 2009-2012 Discharges)AMI HF PN COPD Hip/Knee HWR StrokeV 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 V 3.0 V 2.1Number ofDischarges513,331 513,331 1,262,826 1,262,826 1,089,758 1,089,758 989,381 989,381 879,641 879,641 6,918,467 6,918,467 502,376 502,376Number ofUnplannedReadmissions94,453 93,940 292,976 290,450 192,887 191,797 208,759 207,770 47,236 47,236 1,112,885 1,105,378 69,323 69,081ReadmissionRate18.4% 18.3% 23.2% 23.0% 17.7% 17.6% 21.1% 21.0% 5.4% 5.4% 16.1% 16.0% 13.8% 13.8%Number ofPlannedReadmissions11,947 12,281 16,230 17,605 6,545 7,526 6,447 7,021 2,326 2,635 85,673 93,180 5,750 5,992PlannedReadmissionRate2.3% 2.4% 1.3% 1.4% 0.6% 0.7% 0.7% 0.7% 0.3% 0.3% 1.2% 1.3% 1.1% 1.2%% ofReadmissionsthat arePlanned11.2% 11.6% 5.3% 5.7% 3.3% 3.8% 3.0% 3.3% 4.7% 5.3% 7.1% 7.8% 7.7% 8.0%1041 7. Proposed Additional Hospital IQR Progr am Measures for the FY 2017 Payment Determination and Subsequent Years For purposes of the Hospital IQR Progr am, section 1886(b)(3)(B)(IX)(aa) of the Act requires that any measure specified by th e Secretary must have been endorsed by the entity with a contract unde r 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 appropr iate 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 gi ven to measures that have been endorsed or adopted by a consensus organiza tion 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 y ears. The first nine new measures are: (1) Hospital 30-day, all-cause, unplanned, ri sk-standardized read mission rate (RSRR) following coronary artery bypass graft (CAB G) surgery (claims-based); (2) Hospital 30-day, all-cause, risk-standardized mortalit y rate (RSMR) following coronary artery bypass graft (CABG) surgery (cla ims-based); (3) Hospital-leve l, risk-standardized 30-day episode-of-care payment measure for pneumoni a (claims-based); (4) Hospital-level, risk-standardized 30-day episode-of-care pa yment measure for heart failure (claimsbased); (5) Severe Sepsis and Septic S hock: Management Bundle (NQF #0500) (chartabstracted); (6) EHDI-1a H earing Screening Prior to Ho spital Discharge (NQF #1354) (electronic health record-based); (7) PC-05 Exclusive Breast Milk Feeding and the subset1042

measure PC-05a Exclusive Breast Milk Feed ing Considering Mother’s Choice (NQF #0480) (electronic health record-based); (8 ) CAC-3 Home Management Plan of Care (HMPC) Document Given to Patient/Caregive r (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 bot h programs, we are proposing to readopt two measures previously removed from the Hosp ital IQR Program as voluntary electronic clinical quality measures: (10) AMI-2 Aspi rin Prescribed at Discharge for AMI (NQF #0142) (electronic clinical quality measure) ; and (11) AMI-10 Statin Prescribed at Discharge (NQF #0639) (electroni c clinical quality measure) . These two measures are part of the Stage 2 Medicare EHR Incentive Pr ogram measure set for eligible hospitals

and CAHs. The four proposed claims-based meas ures (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/P ublications/2014/01/MAP_PreRulemaking_Report__2014_Recommendati ons_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 Cons ideration by HHS fina l report, available

at: https://www.qualityforum.org/WorkArea/li nkit.aspx?LinkIdentifier=id&ItemID=72738

. The proposed measures 6 - 9 above we re included on a publicly available

document entitled “List of Measures Unde r 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 fina l report, available at: https://www.qualityforum.org/WorkArea/li nkit.aspx?LinkIdentifier=id&ItemID=72738

. Measures 10 and 11 were included on a publicly available document entitled

“Measures Under Consideration for Calenda r Year 2012” in compliance with section 1890A(a)(2) of the Act, and they were re viewed by the MAP in its Pre-Rulemaking Report: Input on Measures Under Consider ation by HHS for 2012 Rulemaking available

at https://www.qualityforum.org/Publications/2012/02/MAP_PreRulemaking_Report__Input_on_Measure s_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 Ar tery Bypass Graft (CABG) Surgery (1) Background CABG is a priority area for outcome s measure development, because it is a common procedure associated with consider able morbidity, mortality, and health care spending. In 2007, there were 114,028 hospita lizations 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 surger y 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 ra te 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 we re 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 da ys also experienced a 2.8 percent in-hospital mortality rate during their readmission(s), thre e-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 Corp oration; Center for Outcomes Research and Evaluation.; 2009:1-7. 45 Suter L.G., Wang, C., Vellanky S., Potteiger J., Cur tis 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 Center s 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 signi ficant health care costs. In 2007, the Medicare Payment Advisory Committee (Med PAC) published a report to Congress in

which it identified the seven c onditions associated with th e most costly potentially preventable readmissions in the U.S. 48 Among these seven, CABG ranked as having the highest potentially preventa ble readmission rate within 15 days following discharge (13.5 percent) and the sec ond highest average Medicar e payment per readmission ($8,136). 49 The annual cost to Medicare for pot entially 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 a ll-cause readmission measure for patients who undergo CABG surgery will provide hospitals wi th an incentive to reduce readmissions through prevention and/or early recogn ition and treatment of postoperative complications, and improved coordination of pe ri-operative care and discharge planning. The specifics of the measure me thodology are included in the measure methodology report we have pos ted on our Web site at: http://cms.gov/Medicare/Quality -Initiatives-Patient-Assessment-

47 Ibid. 48 Medicare Payment Advisory Committ ee. Report to the Congress: Pr omoting 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 secti on IX.A.7. of the preamble of this proposed rule. Although the proposed measure is not currently NQF-e ndorsed, 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 e ndorsed or adopted by a consensus organization, and found no other feasible and practical measures on this topic. The measure has been reviewed by the MA P and was conditionally supported pending NQF endorsement as detailed in its Pr e-Rulemaking 2014 Map Recommendations Report

available at: https://www.qualityforum.org/Setting_Priorit ies/Partnership/MAP_Final_Reports.aspx

. This measure was submitted to NQF on Febr uary 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 r eadmission following admission for a CABG procedure. In general, the measure uses the same approach to risk adjustment and hierarchical logistic modeling (HLM) met hodology that is specified for CMS's other readmission measures previously adopted fo r this program. Information on how the measure employs HLM can be found in the 2012 CABG Readmission Measure1047 Methodology Report (available at: http://www.cms.gov/Medicar e/Quality-InitiativesPatient-Assessment-Instruments/Hospita lQualityInits/Measure-Methodology.html

. (3) Data Sources The proposed measure is claims-based. It uses Medicare administrative data from hospitalizations for Medicare FFS beneficiar ies hospitalized for a CABG procedure. (4) Outcome

The outcome for this measure is 30-da y, all-cause readmission, defined as an unplanned subsequent inpatient admission to a ny 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 othe r NQF-endorsed publicly reported readmission measures (AMI, HF, PN, COPD, HWR and, THA/TKA). The measure assesses all-cause unpl anned readmissions (excluding planned readmissions) rather than readmissions for CA BG 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 readmissi ons are preventable. Second, limiting the measure to CABG-related readmissions may lim it the effort focus too narrowly rather than encouraging broader initiatives aimed at improving the overall care within the hospital and transitions from the hospital setti ng. 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 CABG1048 surgery. Finally, while the measure does not presume that each readmission is preventable, interventions generally ha ve 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 dete cts planned readmissions that may occur within 30 days of discharge from the hospital. Version 2.1 of the algorithm was fina lized 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 algori thm can be found in section IX.A .6.a. of the preamble of this proposed rule. The proposed CABG readmi ssion 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 pl anned readmissions following CABG are less common and less varied than among patients discharged from the hospital following a

medical admission. More detailed informa tion on how the CABG m easure 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 Di scharge 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 (CAB G) Readmission zip file. Open the file labeled, “Version10_Readmission_CABG_M easure_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 timefram e from the index admission would not be

counted as readmissions for the index admi ssion if they were preceded by a planned

readmission. (5) Cohort The cohort includes patients aged 65 y ears and older who received a qualifying CABG procedure at an acute care facility. Pati ents are eligible for in clusion if they had a qualifying CABG procedure and continuous enro llment 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 clin ically-coherent set of patient s in the measure, we sought input from clinical experts regarding the in clusion of other concomitant cardiac and noncardiac procedures, such as valve replacemen t and carotid endarterectomy. Adverse clinical outcomes following su ch 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 pub lished reports of CABG outcomes 9 ; therefore, the measure cohort considers only patients undergoing isolated CABG as eligible for inclusion in the measure. We defined isolated CABG pa tients as those undergoi ng 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 cardi ac, vascular or thorac ic 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 th e cohort definition, we refer readers to the 2012 CABG Readmission Measure Methodolog y 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 fo r 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 c ohort: (1) Admissions for patients who are discharged against medical advice (excl uded 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 su rgery, 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-discharge1051 enrollment in Medicare FFS (excluded b ecause 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 condi tions and comorbidities to adjust patient risk for readmission across hospitals, but does not ad just for potential complications of care. The model does not adjust for socioeconomic status or race because risk adjusting for these characteristics would hold hospitals w ith 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 hierar chical logistic modeling (HLM). This approach appropriately accounts for the types of patients a hospital tr eats (that is, hospital case mix), the number of patients it treats, a nd 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 hosp itals (and therefore the patients’ outcomes are not statistically independent) and the number of eligible pa tients for the measure varies from hospital to hospital. As noted a bove, the measure methodology defines hospital case mix based on the clinical diagnoses provide d in the hospital claims for their patients’ inpatient and outpatient visits for the 12 m onths prior to the CA BG hospitalization, as1052 well as those present in th e 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 grea ter 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-adj usted 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 di splaying 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 leve l of uncertainty around the point estimate. We use the point estimate and interval estim ate 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/QualityInitiativesPa tientAssessmentInstruments/HospitalQuality Inits/Measure-Methodology.html

. We invite public comment on this proposal.1053 b. Proposed Hospital 30-day, All-cause, Ri sk-standardized Mort ality Rate (RSMR) Following Coronary Artery Bypass Graft (CABG) Surgery 53 (1) Background CABG is a priority area for outcome s measure development because it is a common procedure associated with consider able morbidity, mortality, and health care spending. In 2007, there were 114,028 hospita lizations 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 th e 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 va lve and $47,669 for CABG plus valve surgeries. 56 Mortality rates following CABG surger y 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 Re port 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 Corona ry 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 Coun cil. 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 mort ality rate was 1.81 percent a nd 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 s uggests that there is room fo r improvement. An all-cause mortality measure for patients who undergo CABG surgery will provide hospitals with an incentive to reduce mortality through impr oved coordination of perioperative care and discharge planning. This is further supported by the success of regi stry-based mortality measures in reducing CABG mortality rates. For example, Californi a reports that CABG mortality in that state has steadily declined from 2.9 per cent in 2003, the first year of mandatory reporting of their state regi stry measure, to 2.2 percent in 2008. 59 The specifics of the measure me thodology are included in the measure methodology report we have pos ted on our Web site at: http://cms.gov/Medi care/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 secti on IX.A.7. of the preamble of this proposed rule. Although

57 Ibid. 58 New York State Department of Health. Adult Card iac 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-e ndorsed, we considered available measures that have been endorsed or adopted by th e 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 th at 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 MA P and was conditionally supported pending NQF endorsement as detailed in its Pr e-Rulemaking 2014 Map Recommendations Report

available at: https://www.qualityforum.org/P ublications/2014/01/MAP_PreRulemaking_Report__2014_Recommendati ons_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 assess es hospitals' 30-day, all-cause riskstandardized rate of mortality following admi ssion 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 Measur e 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 beneficiar ies hospitalized for a CABG procedure. (4) Outcome The outcome for this measure is 30-day, all-cause mortality, de fined as death for any cause within 30 days of the date of th e index procedure date. We use a standard period of assessment so that the outcome fo r each patient is measured consistently. Without a standard period, variation in lengt h 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 im proving 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 rath er 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 underestim ate 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, lim iting the measure to CABG-rela ted mortalities may limit the1057 focus of efforts to improve car e to a narrow set of approach es as opposed to encouraging broader initiatives aimed at improving the ove rall 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 cau se is the outcome that matters. (5) Cohort The cohort includes patients aged 65 y ears and older who received a qualifying CABG procedure at an acute care facility. Pati ents are eligible for in clusion if they had a qualifying CABG procedure and continuous enro llment in Medicare FFS one year prior to the first day of the index hospital stay and through 30 da ys post-procedure.

In order to include a clin ically-coherent set of patient s in the measure, we sought input from clinical experts regarding the in clusion of other concomitant cardiac and noncardiac procedures, such as valve replacemen t and carotid endarterectomy. Adverse clinical outcomes following su ch 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 pub lished 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 pa tients as those undergoi ng CABG procedures without concomitant valve or other major cardi ac, vascular or thorac ic 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 th e cohort definition, we refer readers to the 2012 CABG Mortality Measure Methodol ogy 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 fo r 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 becau se 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 represen ts a complication of the original CABG procedure and is a clinic ally more complex and higher risk surgery,

therefore we select the first CABG admissi on for inclusion in the measure and exclude subsequent CABG admissi ons 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 doe s not adjust for socioeconomic status or race because risk adjusting for these charac teristics would hold hos pitals with a large proportion of minority or low socioeconomic stat us patients to a different standard of care than other hospitals. One goal of this m easure is to illuminate quality differences that such risk adjustment would obscure. (8) Calculating the Risk-Standardized Mortality Ratio (RSMR) The measure is calculated using hierar chical logistic modeling (HLM). This approach appropriately accounts for the types of patients a hospital tr eats (that is, hospital case mix), the number of patients it treats, a nd 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 hosp itals (and therefore the patients’ outcomes are not statistically independent) and the number of eligible pa tients for the measure varies from hospital to hospital. As noted a bove, the measure methodology defines hospital case mix based on the clinical diagnoses provide d in the hospital claims for their patients’ inpatient and outpatient visits for the 12 m onths prior to the CA BG hospitalization, as well as those present in th e 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 w ith similar cases and less than one if the1060 hospital has fewer deaths than would be expected for an average hospital with similar cases. This approach is analogous to a ra tio of “observed” or “crude” rate to an “expected” or risk-adjusted ra te used in other similar t ypes 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 di splaying 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 leve l of uncertainty around the point estimate. We use the point estimate and interval estim ate 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-standardiz ed 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 promot es high-quality care at high value it is critical to examine measures of payment a nd patient outcomes concurrently. There is evidence of variation in payments at hos pitals for pneumonia patients; mean 30-day risk-standardized payment among Medicare FFS patients aged 65 or older hospitalized1061 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 ma y 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 qualit y. 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 propos ed rule. Although the proposed measure is not currently NQF-endorsed, we considered ava ilable 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 epis ode-of- care pneumonia measures that have been endorsed or adopted by a consensus or ganization, and found no other feasible and practical measures on this topic. The MAP s upports this measure but reiterated the need for this measure to be submitted for NQF-endorsement: https://www.qualityforum.org/Setting_Priorit ies/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 hospitaliza tion for Americans 65 and over, and pneumonia patients1062 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 c ondition 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 a nd cost of care for pneumonia. The measure reflects differences in the management of care for patients with pneumonia both during hospitalization and imme diately post-discharge. By focusing on one specific condition, value assessments may provide actionable fee dback 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 assesse s hospital risk-standardized payment associated with a 30-day episode-of-care fo r 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 admi ssion. 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 severa l reasons. First, hospitalizations represent a brief period of illness that requires ongoi ng management post-discharge and decisions made at the admitting hospital affect paymen ts 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 pne umonia mortality and readmission measures and capture payments for Medicare patients ac ross care settings, services, and supplies, except for Medicare Part D (t hat is, inpatient, outpatient , skilled nursing facility, home health, hospice, physician/clin ical laboratory/ambulance servic es, supplier Part B items, and durable medical equipment, pros thetics/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 admini strative 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 specifi c hospital’s pneumonia payment to other hospitals with the same case-mix. The anal ytic time frame for the pneumonia paymentmeasure begins with the index admission for pneumonia and ends 30 days postadmission. In order to isolate payment variation th at reflects practice patterns rather than CMS payment adjustments, the pneumoni a payment measure excludes policy and geography payment adjustments unrelated to clin ical care decisions. We achieve this by “stripping” or “standardizing” payments fo r each care setting. Stripping refers to removing geographic differences and policy adju stments 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 st andardizing the payment amounts allows for a fair comparison across hospitals based sole ly on payments for decisions related to clinical care of pneumonia. (5) Cohort We created the pneumonia payment m easure cohort to be aligned with the publicly reported pneumonia mortality measure cohort. Consistent with these measures,1065 the pneumonia payment measure includes hos pitalizations 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 im plemented on October 1, 2015. A full list of

ICD–9–CM codes included in the final c ohort can be found in Appendix B of the technical report on our Web site at: http://www.cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/Hospita lQualityInits/Measure-Methodology.html . The measure includes only those hospitalizations from short-stay acute care hospitals in the index cohort and restricts the cohort to patie nts enrolled in FFS Medicare Parts A and B (with no Medicare Adva ntage 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 fo r whom there was a complete 12 months of FFS enrollment to allow for adequate risk adjustment. An index admission/hospitalization is the initial pne umonia admission that triggers the 30-day episode-of-care for this payment calcula tion. The measure excludes the following admissions from the measure cohort: (1) Ad missions 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 samp le 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 exclude d, because the hospital1066 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 da y 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 pa tients 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, becau se 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 de liver full care and prepare the patient for discharge; (6) admissions for patients transf erred to or from federal or Veterans Administration hospitals are excluded, because we do not have claims data for these hospitals; thus, includ ing these patients woul d systematically underestimate payments; and (7) admissions without a DRG or DRG weight for the index hospitalization are excluded, because we cannot calculate a pa yment for these patients’ index admission using the IPPS; this would underestimate paymen ts for the entire episode-of-care. There are two portions of the DRG system that de termine 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 ca red for by other hospitals . Consistent with NQF guidelines, the model does not adjust for socioeconomic status or race, because risk-adjusting for these charac teristics 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 hierarch ical generalized linear model with a log

link and a Poisson error distribution. This is a widely accepted st atistical method that

enables fair evaluation of rela tive hospital performance by taki ng 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 (patient s clustered within hospi tals) 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 sa mple sizes vary across hospitals. Clustered1068 patients are within the same hospital, and the quality of care of the hospital effects all patients, so the outcomes for each hospital’s pa tients 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’ inpa tient and outpatient visits for the 12 months prior to the pneumonia hospitaliz ation, as well as those presen t in the claims for care at admission. This methodology specifically does not, however, account for diagnoses present in the index admission that may indi cate complications rather than patient

comorbidities. The RSP is calculated as the ratio of pr edicted 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 hos pitals that have higher payments than would be expected for an average hospital with sim ilar 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 “obser ved” or “crude” rate to an “expected” or “risk-adjusted” rate used in other si milar 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 simila r 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 hospita l performance (for example, higher than expected, as expected, or lower than expected ). The interval estim ate indicates that the1069 true value of the payment ratio lies betw een 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/Qu ality-Initiatives-PatientAssessment-Instruments/HospitalQua lityInits/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-standard ized 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 va lue of hospital care is more clearly assessed when pairing hospital payments with hospital quality. Ther efore, we are proposing to include this non-NQF-endorsed m easure: hospital risk-standa rdized payment associated with a 30-day episode-of-care for heart failu re in the Hospital IQR Program under the exception authority in section 1886(b)(3)(B)(IX)( bb) of the Act as previously discussed1070 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 a ssociated 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 adopt ed by a consensus organization, and found no other feasible and practical m easures 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_Priorit ies/Partnership/MAP_Final_Reports.aspx

. The HF measure was submitted to NQF and is cu rrently 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 hospitaliza tion 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 reporte d, heart failure serves as a model condition for assessing relative value for an episode of care that begins with an acute hospitalization. Incl uding this measure in the Ho spital 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 fa ilure. 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, Khav jou OA, Butler J, Dracup K, Eze kowitz MD, et al. Forecasting the future of cardiovascular disease in the United St ates: a policy statement fr om 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 he art 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 calculat es payments for these patients over a 30-day episode-of-care beginning with the index admi ssion. 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-In itiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html

. When examining variation in payments , consideration of the episode-of-care triggered by admission is meaningful for severa l reasons. First, hospitalizations represent brief periods of illness that require ongoing management post-discharge; and decisions made at the admitting hospital affect paymen ts 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 every1072 admission will be tracked 30 days post admission in order to apply a standardized measurement window. In order to compare paym ents across providers it is important that the comparison window is identical for each admi ssion at each hospital. Lastly, the heart failure payment measure is intended to be pa ired 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 Me dicare Part D (that is, inpatient, outpatient, skilled nursing facility, home health, hospi ce, physician/clinical laboratory/ambulance services, supplier Part B items, and durable me dical 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 admini strative data that contain hospitalizations and payments for Medicare FFS beneficiaries hospitalized with

heart failure. (4) Outcome The primary outcome of the heart failur e payment measure is the hospital-level risk-standardized payment for a heart failu re episode-of-care. The measure captures payments for Medicare patients across all care settings, services , and supplies, except1073 Part D. By risk-standardizing the payment measure, we are able to adjust for case-mix at any given hospital and compare a specific hos pital’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 admissi on 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 th at reflects practice patterns rather than CMS payment adjustments, the heart failure payment measure excludes policy and geography payment adjustments unrelated to clin ical care decisions. We achieve this by “stripping” or “standardizing” payments for each care setting. These concepts were also discussed previously in the proposed hospita l-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 t echnical 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/hospi talization is the initial heart failure admission that triggers the 30-day episode-o f-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 patie nts enrolled in FFS Medicare Parts A and B (with no Medicare Advantage c overage). These hospitaliz ations are the admissions

which were included in the measure after a pplying all inclusion/exclusion criteria. (6) Inclusion and Exclusion Criteria The heart failure payment measure include s hospitalizations for patients 65 years

or older at the time of index admission and fo r 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 Me dicare because this is necessary in order to identify the outcome (payments) in the sa mple 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 exclude d, because the hospital where the patient was initially admitted made the critical acute care decisions (including

the decision to transfer and wh ere to transfer); (3) admissions for heart failure patients who were discharged on the same or next da y 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 Hospice1075 program any time in the 12 months prior to the index hospitalization, including the first date of the index admission are excluded, becau se 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 de liver full care and prepare the patient for discharge; (6) admissions for patients transf erred to or from federal or Veterans Administration hospitals are excluded, because we do not have claims data for these hospitals; thus, includ ing these patients woul d 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 h eart transplant or LVAD during the index admissions or episode of care because these patie nts 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 ca red 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. One1076 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 hierarch ical generalized linear statistical models with a log link and a Gamma error distributi on. 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 provi des. The hierarchical gene ralized linear model is an appropriate statistical approach to measuring quality based on patient outcomes when the patients are clustered within hospitals (a nd 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’ inpa tient and outpatient visits for the 12 months prior to the heart failure hosp italization, as well as those pres ent in the claims for care at admission. This methodology specifically does not, however, account for diagnoses present in the index admission that may indi cate complications rather than patient

comorbidities. The RSP is calculated as the ratio of pr edicted 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 hos pitals that have higher payments than would be expected for an average hospital with sim ilar cases and less than one if the hospital has lower payments than would be expected for an average hospital with similar cases. This1077 approach is analogous to a ratio of “obser ved” or “crude” rate to an “expected” or “risk-adjusted” rate used in other si milar 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 simila r 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 hospita l performance (for example, higher than expected, as expected, or lower than expect ed). For more detailed information on the calculation methodology, we refer r eaders to our Web site at: http://cms.gov/Medicare/Quality-In itiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html

. This measure is meant to be paired with our 30-day heart fail ure 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 Sept ic 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 for1078 this measure comes from the NQF Measure In formation-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 fo r 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 c onditions. Severe sepsis a nd septic shock are frequent causes of re-hospitalizations , especially during the firs t year after the initial hospitalization. Based on national discharge data reported by the Agency for Healthcare Research and Quality (AHRQ), sepsis was the si xth 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 seconda ry diagnosis of sepsis for a total of 1,665,400 inpatient stays and 258,000 deaths. Fr om 1993 to 2009, sepsis-related hospital stays increased by 153 percent, with an averag e annual increase of 6 percent. Medicare was the predominant payer for sepsis-relate d hospital stays, cove ring 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 seps is-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 pe rcent and 30 percent, respectively, when aggressive care is provided within 6 hours of hospital arrival. Furthermore, a recent study of the 2008 Health care Cost and Utilizat ion Project (HCUP) Nationwide Inpatient Sample 68 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/li nkit.aspx?LinkIdentifier=id&ItemID=72738

. The MAP noted the measure addresses an NQS priority not adequately addressed in the program measure set, but c onditionally supported this measure stating, “Not ready for implementation; measure concept is promis ing but requires modi fication 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 becau se 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). Healthcar e 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 c onditionally supported it for the Meaningful Use Program. Public comment from Edward s Lifesciences supports MAP’s conclusion.” (2) Overview of Measure The purpose of the proposed severe seps is and septic shock: management bundle measure is to support the efficient, effectiv e, 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 th e leading causes of mortality. By providing timely, patient-centered care, and making seps is care more affordable through early intervention, reduced resource use and complicat ion rates can result. The severe sepsis and septic shock early management bundle pr ovides a standard ope rating procedure for the early risk stratification and management of a patient with severe infection. Through applying this standard operat ing procedure, a clinically and statistically significant decrease in organ failure, mortality, and the ut ilization of health ca re 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 pres enting with septic

shock who received treatment detailed in the Calculations section below.1081 (4) Outcome

The outcome criteria for this measure c onsists of: measure la ctate; blood cultures; timely antibiotics; fluid resuscitation; lact ate clearance; vasopressors, central venous pressure (CVP), central venous oxygen sa turation (ScvO2); and overall bundle compliance. These are discussed in more detail below

● Measure Lactate Measurement of lactate levels is specif ically 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 card iac arrest in the United States per year is secondary to sepsis (pneumonia). These pati ents are often misdiagnosed and sent to the medical floors only to suffer acute hemodynamic deterioration. These outcomes could be potentially avoided with lactate measurem ent upon admission providing risk stratification triggering alternative dispositions. Levy et al. (2010) conducted an inte rnational, multisite “Surviving Sepsis Campaign” (SSC) initiative (Levy et al. SSC ini tiative) 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 w ith guidelines. In addition, prior studies have shown that care pr ompted by measurement of lactate levels in sepsis patients reduced resour ce utilization and cost. This leads to lower likelihood of hospital-acquired conditions. This performa nce measure has been previously used as a core component of multicenter and national quality improvement initiatives. Formalizing1082 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 antibio tic administration. Collecting blood cultures prior to antibiotic administration is specifi cally associated with improved outcomes in sepsis, and pathogens identified by blood cultu res allow for customized therapy. As a result, blood cultures conti nue as a recommendation of the current Surviving Sepsis

Guidelines. By obtaining blood cultures, antibiotic re gimens can be customized to treat the specific infecting organism. This will result in less unnecessary exposure to antibiotics, reducing complications associated with antib iotic use, including dr ug reactions, allergies and adverse events, the development of drug -resistant organisms, and the occurrence of Clostridium difficile colitis. The performance measur e for collecting blood cultures for suspected sepsis has been previously used a nd continues as a core component of the SSC guidelines.

● Timely Antibiotics

Kumar et al. 69 found the median time to appropr iate 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. Du ration 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 Ca mpaign. The Surviving Sepsis Campaign: results of an international guideline based performance improvemen t 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 de monstrated 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 se ptic shock includes the administration of broad-spectrum antibio tic 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 hypoperfus ion, such as elevated serum lactate levels, is intravascular volume depletion. The degr ee of the intravascular volume deficit in sepsis varies, yet nearly all patients require initial volume resuscita tion and many patients require continuing fluid resusc itation over the first 24 hours. Early fluid resuscitation is associated with improved outcomes for patients with acute lung injury due to septic shock. International guide lines recommend that patients with suspected hypovolemia be initially treated w ith at least 30 mL/kg of crystalloid (for example, Ringer’s solution) to determine clinic al response. In the first quarter of the Levy et al. 71 SSC initiative, only 59.8 percent of pa tients received fluid resuscitation consistent with guidelines. Timely fluid re suscitation avoids an error of omission in

71 Ibid.1084 which indicated therapy is delayed or omitted. By improving outcomes, length of stay is

reduced. This leads to lo wer 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. Forma lizing it as a national performance measure will provide direct targets for intervention th at are closely linked with improvements in mortality and cost.

● Lactate Clearance Elevated lactate levels prompt the consid eration of specific care practices toward hemodynamic optimization guided by either cen tral venous oxygen saturation or lactate clearance. International guide lines recommend that patients with sepsis and continued

elevated lactate values have additional ther apies until lactate levels are normalized. However, normal lactate levels can be seen in septic shock, especially in children.

● Vasopressors, Central Venous Pressu re (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 vasopr essors, 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 Ve nous Oxygen Saturation (ScvO2) in some community emergency departments. These num bers increase (50-75 percent) in larger hospital settings. CVP has been shown to ha ve a significant associ ation with mortality 72

72 Varpula M, Tallgren M, Saukkonen K, Voipio-Pulkk i 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 ha ve 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 co mpliance 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 percen t. Thus, there is a direct association between bundle compliance and improved mort ality. Additionally, a continuous quality improvement (CQI) initiative, can improve compliance rates. CQI is a quality management process that encourages con tinually assessing perf ormance 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. Resuscita tion 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 presen t (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 lact ate >= 4 mmol/L (36 mg/dl), measure central venous pressure and centra l venous oxygen saturation Step 7: Re-measure lactate if in itial lactate is elevated

Denominator: The denominator is the number of patients presenting with severe sepsis or septic shock. The following patient s presenting with severe sepsis or septic

shock will be excluded from the denominator:

● Patients with advanced di rectives for comfort care;

● Patients with clinical conditions th at 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 transferre d to an acute care facility from another acute care facility. (7) Calculations In calculating this measure, the denomi nator is the number of patients presenting with severe sepsis or septic shock. The numer ator in this measure is patients from the

denominator who had their lactate levels meas ured, had blood cultures obtained prior to receiving antibiotics, and who received broa d 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 (36m g/dl) measure central venous pressure and central venous oxygen saturation, and the patien t’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 Hea lth Record-Based Voluntary Measures We are proposing four new voluntary elec tronic 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 Mi lk Feeding Considering Mother’s Choice (collectively referred to as NQF #0480); (3) Home Management Plan of Care (HMPC) Document Given to Patient/Caregiver (measur e de-endorsed therefore not appropriate to associate with an NQF #); (4) and Hea lthy Term Newborn (NQF #0716). The four proposed electronic health record-based meas ures were included on a publicly available

document entitled “List of Measures Unde r 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 fina l MAP report is available at: https://www.qualityforum.org/WorkArea/li nkit.aspx?LinkIdentifier=id&ItemID=72746

. We considered the input and recommenda tions provided by the MAP in selecting measures to propose for the Hospital IQR Program. The specifications for the electronic c linical quality measures for eligible hospitals are found at: http://cms.gov/Regulations-andGuidance/Legislation/EHRIncentivePrograms/eCQM_Library.html

.1089 (2) Proposed Voluntary Electronically Specifi ed Measure: Hearing Screening Prior to Hospital Discharge (NQF #1354) The Hearing Screening Prior to Ho spital Discharge (NQF #1354) measure assesses the proportion of all liv e 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 inte rvention 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 wa s supported by the MAP in their Pre Rulemaking Report: 2013 Recommendations on Measures Under Consideration by HHS,

available at: https://www.qualityforum.org/WorkArea/li nkit.aspx?LinkIdentifier=id&ItemID=72738

. The MAP noted that the measure addresse s a high-impact condition not adequately addressed in the pr ogram measure set. The numerator is all live births during the measurement period born at a facility and screened for hearing loss prior to discharg e, or screened but st ill not discharged, or

not screened due to medical r easons or a medical exclusion.

The denominator includes all live births during the measurement period born at a facility and discharged wit hout 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 Excl usive Breast Milk Feed ing and the subset

measure PC-05a Exclusive Breast Milk Feeding Considering Mother’s Choice (collectively referre d 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 Organizatio n (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 C onsidering 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/li nkit.aspx?LinkIdentifier=id&ItemID=72738

. The MAP noted that the measure addresses a high-impact condition not adequately addressed in the pr ogram measure set.

This measure assesses the number of new borns exclusively fed breast milk during the newborn’s entire hospitalization; a nd 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. Ho wever, 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. The1091 denominator for the subset measure, PC-05a , is defined as single term newborns discharged alive from the hospital excludi ng 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 fo r single liveborn newborns are found in Appendix A, Table 11.20.1: Singl e Live Newborn in the Spec ifications Manual for Joint Commission National Quality Measures available at: http://manual.jointcommission.org/r eleases/TJC2013A/AppendixATJC.html

. Excluded populations:

● Admitted to the Neonatal Intensive Ca re Unit (NICU) at this hospital during the hospitalization.

● ICD-9-CM Other Diagnosis Codes for ga lactosemia as defined in Appendix A, Table 11.21 in the Specificat ions Manual for Joint Commission National Quality

Measures found at: http://manual.jointcommission.org/r eleases/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/rel eases/TJC2013A/Appe ndixATJC.html...

● Experienced death.

● Length of Stay >120 days.

● Enrolled in clinical trials.

● Patients transferred to another hospital.1092

● ICD-9-CM Other Diagnosis Codes fo r premature newborns as defined in Appendix A, Table 11.23 in the Specificat ions Manual for Joint Commission National Quality Measures found at: http://manual.jointcommission.org/r eleases/TJC2013A/AppendixATJC.html

.

● Documented Reason for Not Exclusively Feeding Breast Milk.

The maternal reasons for not exclus ively 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, antire troviral 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: Ho me Management Plan of Care (HMPC)

Document Given to Patient/Caregiver

Asthma is the most common chronic di sease 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 hosp itals. There were approximately 157,000

admissions for childhood asthma in the United States in 2009. Unde r-treatment and/or inappropriate treatment of asthma are rec ognized as major cont ributors to asthma morbidity and mortality. Guidelines deve loped by the National Asthma Education and Prevention Program (NAEPP) of the National Heart, Lung a nd Blood Institute (NHLBI), as well as by the American Academy of Pediatrics (AAP) for the diagnosis and management of asthma in children, recomm end establishing a plan for maintaining

control of asthma and for establishi ng plans for managing exacerbations. The CAC-3: Home Management Plan of Care (HMPC) Document Given to Patient/Caregiver measure is no longer e ndorsed by the NQF and was not supported by the MAP in its Pre-Rulemaking Repor t: 2013 Recommendations on Measures Under Consideration by HHS available at: https://www.qualityforum.org/WorkArea/li nkit.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 potential ly life-threatening1094 disease, we believe that it is important to a llow 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 hosp ital stay with a HMPC document in place. The numerator is the number of pediatric asth ma inpatients with documentation that they or their caregivers were given a written HMPC document that addresses: (1) arrangements for follow-up care, (2) environmen tal control and contro l of other triggers, (3) method and timing of rescue actions, (4) us e of controllers, and (5) use of relievers. The denominator is the number of pe diatric asthma inpa tients (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 st ay greater than 120 da ys; and (3) patients

enrolled in clinical trials. We invite public co mments 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 ne wborn. 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 Recomme ndations on Measures under Consideration by HHS available at: https://www.qualityforum.org/WorkArea/li nkit.aspx?LinkIdentifier=id&ItemID=72738 ,1095 because the measure required modification or further development. However, the MAP strongly supported the measure c oncept for inclusion once techni cal 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 origin ating in the fetal peri od) that do not have significant complications during birth or the nursery care. 75

The numerator of this measure is th e absence of conditions or procedures reflecting morbidity that happened during birt h and nursery care to an otherwise normal

infant. The denominator is composed of singlet on, term (>=37 weeks), inborn, live births

in their birth admission. The denominator furt her has eliminated fetal conditions likely to be present before labor. Ma ternal and obstetrical conditi ons (for example, hypertension, prior cesarean, malpresentation) are not exclud ed 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 Vo luntarily 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 pr oposing to re-adopt two measures previously removed from the Hospital IQR Program; (a) AM I-2 Aspirin Prescribed at Discharge for AMI (acute myocardial infarc tion) (NQF #0142) (electronic clinical quality measure); and (b) AMI-10 Statin Prescribed at Discha rge (NQF #0639) (electro nic clinical quality measure). We are proposing to add these m easures to the list of voluntarily reported electronic clinical quality measures as desc ribed 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 elec tronic clinical quality measur es, 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 electroni c health record reporting systems. We welcome public comments on this proposal. (1) Proposed Readoption of AMI-2 Aspiri n Prescribed at Di scharge (NQF #0142) The AMI-2 Aspirin Prescribed at Discharge (NQF #0142) assesses the percentage of acute myocardial infarction (AMI) patien ts 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 should1097 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/li nkit.aspx?LinkIdentifier=id&ItemID=72738

. However, as stated above, we intend to c ontinue aligning the Hospital IQR Program and EHR Incentive Program, and we believe coll ecting this measure on a voluntary basis enables us to continue collecting quality da ta 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 electroni c health record reporting systems. The numerator includes AMI patients in the denominator who are prescribed aspirin at hospital discharge. The denomi nator 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 discharg ed to another hospital;

● Patients who expired;

● Patients who left the hosp ital against medical advice ;

● Patients who were discharged to home for hospice care;1098

● Patients who were discharged to a h ealth 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 co mments on this proposal. (2) Proposed Readoption of AMI-10 AMI-Sta tin 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/li nkit.aspx?LinkIdentifier=id&ItemID=72738 because the performance on this measure is lik ely topped out. However, as stated above, we intend to continue aligning the Hospita l 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 wh ile working to minimize reporting burden on participating hospitals. Further, allowing hospitals the option to electronically report topped-out measures will provide hospitals w ith an opportunity to test the accuracy of

their electronic health re cord 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 diag nosis 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 discharg ed to another hospital;

● Patients who left the hospita l against medical advice;

● Patients who expired;

● Patients who were discharged to their home for hospice care;

● P atients who were discharged to a h ealth 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 hos pital arrival and not discharged on a statin; and

● Patients with a reason for not prescrib ing statin medication at discharge. We invite public co mments on this proposal. In summary, for FY 2017 payment determ ination and subsequent years, we are proposing to: (1) adopt 11 tota l 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 gi ve a total of 62 measures1100 (46 required and 16 voluntary electronic clin ical quality measures) in the Hospital IQR Program measure set. Set out below is a table showing both th e previously adopted and the proposed quality measures for the FY 2017 payment determination and subsequent years. Please note that this table does not include suspe nded measures or measures proposed for

removal.

Topic Previously Adopted Hospital IQR Program Measures and Measures Proposed in this Propos ed Rule for the FY 2017 Payment Determination and Subsequent Years Acute Myocardial Infa rction (AMI) Measures

● AMI-2 Aspirin Prescribed at Discharge for AMI*/ / † (NQF #0142)

● AMI-7a Fibrinol ytic therapy received with in 30 minutes of hospital arrival (NQF #0164)

● AMI-8a Primary PCI received wi thin 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-fracti onated Heparin with doses/labs monitored by protocol / †1101 Topic Previously Adopted Hospital IQR Program Measures and Measures Proposed in this Propos ed 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 s hock: 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 r eceived within on e 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-s tandardized mortality rate (RSMR) following acute myocardial infarc tion (AMI) hospitalization for patients 18 and older (NQF #0230)

● Hospital 30-day, all-cause, risk-s tandardized mortality rate (RSMR) following heart failure (HF) hospita lization for patients 18 and older (NQF #0229)

● Hospital 30-day, all-cause, risk-s tandardized mortality rate (RSMR) following pneumonia hospitalization (NQF #0468)

● Stroke 30-day mortality rate

● Hospital 30-Day, All-Cause, Ri sk-Standardized Mortality Rate (RSMR) following Chronic Obstruct ive Pulmonary Disease (COPD) Hospitalization (NQF #1893)

● Hospital 30-day, all-cause, risk-s tandardized 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 ri sk-standardized readmission rate (RSRR) following acute myocardial infarction (AMI) hospitalization (NQF #0505)

● Hospital 30-day, all-cause, ri sk-standardized readmission rate (RSRR) following heart failure hospitalization (NQF #0330)1102 Topic Previously Adopted Hospital IQR Program Measures and Measures Proposed in this Propos ed Rule for the FY 2017 Payment Determination and Subsequent Years

● Hospital 30-day, all-cause, ri sk-standardized readmission rate (RSRR) following pneumonia hospitalization (NQF #0506)

● Hospital-level 30-day, all-cause risk-standardized readmission rate (RSRR) following elective primary to tal 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, Ri sk-Standardized Readmission Rate (RSRR) following Chronic Obstruct ive Pulmonary Disease (COPD) Hospitalization (NQF #1891)

● Hospital 30-day, all-cause, unpl anned, risk-standard ized readmission rate (RSRR) following coronary ar tery bypass graft (C ABG) surgery* AHRQ Patient Safety Indicator s (PSIs) Composite Measure

● PSI-90 Patient safety for se lected indicators (composite) (NQF #0531) AHRQ PSI and Nursing Sensitive Care

● PSI-4 Death among surgical inpa tients with serious treatable complications (NQF #0351) Structural Measures

● Participation in a Systematic Clin ical 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 Inf ections (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 Ne twork (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 Propos ed 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-standard ized 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 Imm unization (IMM) Measure

● Influenza Imm unization (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 F eeding and the subset measure PC05a Exclusive Breast Milk Feedi ng Considering Mother ́s Choice ( NQF #0480) */ / † ● Children’s Asthma Care-3 Ho me 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 Qua lity Measures for the FY 2017 Payment Determination and Associated NQF Domains Short name Measure Name NQF # Domain as assigned in Stage 2 Final Rule 76

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 Qua lity Measures for the FY 2017 Payment Determination and Associated NQF Domains Short name Measure Name NQF # Domain as assigned in Stage 2 Final Rule 76 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 Th erapy 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 Program1106 h. Electronic Clinical Quality Measures (1) Data Submission Requirements for Qual ity Measures That May be Voluntarily Electronically Reported for the FY 2017 Payment Determination We believe that collection and reporti ng of data through health information technology will greatly simplify and str eamline reporting for many CMS quality reporting programs. Through electronic repor ting, hospitals will be able to leverage EHRs to capture, calculate, and electronica lly 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/LTC H PPS final rule (76 FR 51614), we recognize the need to align and harmonize measures across CMS qua lity 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 fi nalized 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 begi nning in FY 2014. We anticipate that, as health information technology evolves and in frastructure is expanded, we will have the capacity to accept electronic re porting of many of the chart-ab stracted 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 le ast one quarter of CY 2014 (Q1, Q2, or Q3) quality measure

data for each measure in one or more of thos e four measure sets; or (2) continue reporting1107 all measures in those four measure sets using chart-abstracted data fo r 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 volunt arily 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 sp an 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 arri val to ED departure for discharged ED patients (NQF #0496) is an outpatient setting m easure. 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 electroni c clinical quality measures to require a full year’s data

collection and submission instead of a minimu m 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 cal endar year quarter. We have listed the proposed submission deadlines in the table be low. We also refer readers to section IX.D.2. of the preamble of this proposed rule for a description of th e electronic clinical quality measures data reporting peri ods and proposed submission deadlines.1108

As an incentive for hospitals to voluntar ily submit electronically-specified clinical quality measures, we are proposing that for the FY 2017 payment determination, hospitals successfully submitting electronic c linical quality measures according to our procedures will not have to validate thos e 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 addi tion, 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 satis fy both the Hospital IQR and Medicare EHR Incentive Programs’ requirements. (2) Public Reporting of Electroni c 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 pub licly report electroni c clinical quality measure data under the Hospital IQR Program if we determined that the data are accurate enough to be reported. However, we noted th at the majority of public commenters had CY 2015/FY 2017 Electronic Clin ical 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 281109 opposed our proposal to withhol d the electronically reporte d data from publication on Hospital Compare , and instead urged us to publicly di splay it (78 FR 50815). Therefore, for electronic clinical quality measure data submitted for the FY 2016 payment determination, we will publically report the da ta as previously finalized. However, for the FY 2017 payment determination, we now propose to provide hospitals that voluntarily report one year of el ectronic clinical quality m easure data (as proposed above) an option to have th eir data reported on Hospital Compare with a preview period prior to public reporting . We also propose to add a footnote ne xt to that publically reported data indicating that it is a result of electronically-specified measures. We welcome public comme nts on these proposals. 8. Possible New Quality Measures a nd Measure Topics for Future Years a. Mandatory Electronic Clinical Qua lity Measure Reporting for FY 2018 Payment

Determination We anticipate that, as EHR technolog y changes and improves, hospitals will electronically report all clini cal process-of-care and HAI me asures, 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 ad ministrative burden on hospitals under the Hospital IQR Program. We will continue to wo rk with measure stewards and developers to develop new measure concepts, and conduct pi lot, 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 submissi on 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 propos ing to require hospita ls to electronically report some Hospital IQR Program quality measures in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27695). After consider ing 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 co ordination (for example, the readmission measures), patient safety (for example, th e HAI measures), person and caregiver-centered experience (for example, the HCAHPS meas ure), community/population health (for example, the global immunization measure), and efficiency and cost reduction (for example, the Medicare Spending per Benefici ary measure). This approach will enhance1111 better patient care while aligning the Hospita l IQR Program with our other established quality reporting and pay-for-performance progr ams, such as the Hospital VBP Program. Based on the above approach, we inte nd to propose to adopt the following electronic clinical quality measures with data collection beginni ng with October 1, 2016 discharges (or, as described further a bove, 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 Fac ility Discharge NQF #0475 The Hepatitis B Vaccine Coverage Am ong 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 th e MAP in its 2014 Recommendations on

Measures for More Than 20 Federal Pr ograms final report available at: http://www.qualityforum.org/P ublications/2014/01/MAP_PreRulemaking_Report__2014_Recommendati ons_on_Measures_for_More_than_20_Feder al_Programs.aspx . However, the MAP recommends a review of the electronic specifications of this measure thr ough the NQF endorsement process. This measure requires each hospital/birthi ng 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 are1112 required to assess infants whose parents re fused 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/P ublications/2014/01/MAP_PreRulemaking_Report__2014_Recommendati ons_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 th at 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 deliv ered by cesarean section.

● Adverse Drug Events – Hyperglycemia Adverse Drug Events – Hyperglycemia is conditionally suppor ted by the MAP in

its 2014 Recommendations on Measures for More Than 20 Federal Programs final report

available at: http://www.qualityforum.org/P ublications/2014/01/MAP_PreRulemaking_Report__2014_Recommendati ons_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 electroni c data and stated that the NQF endorsement process should resolve this issue.1113

This measure assesses th e average percentage of hyperglycemic hospital days for individuals with a diagnosis of diabetes me llitus, anti-diabetic drugs (except metformin) administered, or at least one elevated glucose level dur ing the hospital stay. The measure’s numerator is the sum of the percen tage of hospital days in hyperglycemia for

all admissions in the denominator. The m easure’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 en tire hospital stay. Exclusions include: (1) admissions with a diagnosis of diab etic ketoacidosis (DKA) or hyperglycemic hyperosmolar syndro me (HHS); (2) admissions without any hospital days included in the analysis; (3) ad missions 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_Recommendati ons_on_Measures_for_More_than_20_Feder al_Programs.aspx . Use of this measure would addr ess a common condition that is very dangerous to patients. The MAP expressed co ncerns over the feasib ility of using this measure in the Hospital IQR Program as it has b een 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-diabe tic agent. The measure’s numer ator is the total number of hypoglycemic events (<40 mg/dL) that were pr eceded by administrati on of a short/rapidacting insulin within 12 hours or an anti-dia betic 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 leas t 20 hours apart. The measure’s denominator is total number of hospital days with at le ast one anti-diabetic agent administered.

Exclusions include admissions with le ngth of stay greater than 120 days. We request comments on thes e 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 subs equent 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 rega rd to sections 1886(b)(3)(B)(ix), (xi), or (xii) of the Act)) for any subs ection (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 m easures selected under this clause with respect to such a fiscal year. We note that , in accordance with th is 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, hosp itals must meet specific procedural requirements. Hospitals choosing to participate in th e Hospital IQR Program must also meet specific data collection, subm ission, and validation requireme nts. For each Hospital IQR Program year, we require that hospitals s ubmit data on each measure in accordance with the measure’s specifications for a particul ar period of time. The data submission requirements, Specifications Manual, a nd submission deadlines are posted on the QualityNet Web site at: http://www.QualityNet.org/ . Hospitals submit quality data through the secure porti on of the QualityNet Web site. This Web site meets or exceeds1116 all current Health Insurance Portability and Accountability Act requirements for security of protected health information. In order to participate in the Hospital IQR Program, hos pitals must meet specific procedural requirements. Hospitals choosing to participate in the Hospital IQR Program must also meet specific data collecti on, submission, and validation requirements. b. Procedural Requirements for the FY 2017 Payment Determination and Subsequent

Years The Hospital IQR Program procedural requ irements are codified in regulation at

42 CFR 412.140. We refer readers to the c odified 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 I PPS/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 (7 8 FR 50811) for details on the Hospital IQR Program data submission requireme nts 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 Hospit al IQR Program Reporting and Submission

Timelines The Hospital IQR Program and the EH R 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 addi tion, the Hospital IQR Program generally requires quarterly re porting and submission of data for chartabstracted measures while the EHR Incen tive 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 repo rting 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 c onfusion and reduce provider burden, beginning with the CY 2015 reporting period /FY 2017 payment determination, we are proposing to incrementally align the data reporting a nd 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 m ove us closer to meeting our commitment to align quality measurement and reporting am ong our programs, as we described in the

Electronic Health Record In centive Program –Stage 2 final rule (77 FR 54049 through1118 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 prev ent the delay of Medicare EHR Incentive Program payments, we are proposing to incr ementally shift the Medicare EHR Incentive Program reporting and submission periods for clin ical quality measures to align with that of the Hospital IQR Program. We refer reader s to section IX.E.2. of the preamble of this proposed rule for a detailed discussion of th is proposal in the EHR Incentive Program. Specifically, for the CYs 2015 and 2016, we ar e proposing in the EH R Incentive Program to require CY reporting, but only for the fi rst three calendar quart ers (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 propo sed 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 secti on IX.D.2. of the preamble of this proposed rule where this proposal is made. In summar y, 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 al so clarifies case th reshold 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 comme nts 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 th rough 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 vendor s should, however, regularly check the

official HCAHPS Web site at http://www.hcahpsonline.org for new information and program updates regarding the HCAHPS Surve y, its administration, oversight and data adjustments.1121 g. Data Submission Requirements for Stru ctural Measures for the FY 2017 Payment Determination and Subsequent Years

We refer readers to the FY 2012 I PPS/LTCH PPS final rule (76 FR 51643 through 51644), and the FY 2013 IPPS/LTC H PPS final rule (77 FR 53538 through 53539) for details on the data submission re quirements for structural measures. We are not proposing any changes to data submission requirements for structural

measures at this time. h. Data Submission and Reporting Requireme nts for Healthcare-Associated Infection (HAI) Measures Reported via NHSN

We refer readers to the FY 2012 I PPS/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 a nd reporting requirements for healthcareassociated infection (HAI) measures reporte d via the CDC’s National Healthcare Support Network (NHSN) Web site. The data submi ssion deadlines are posted on the QualityNet

Web site at: http://www.QualityNet.org/

. We are not proposing any changes to da ta 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 Hospita l IPPS/LTCH PPS final rule (78 FR 50805 through 50807), the Hospital IQR Program requi res hospitals to re port 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 co lon surgery; (4) SSI following abdominal hysterectomy; (5) laborat ory-identified MRSA bacteremi a 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 da ta submission and reporting standard procedures that have been set forth by CD C for NHSN participation in general and for submission of specific HAI measures to NHSN. For the FY 2016 payment determination a nd subsequent years, for the Hospital IQR program, we are clarifying our data reporting and submission requirements for the above stated HAI measures. By adopting th e data reporting and submission procedures set forth by the CDC, we intended that hos pitals report, through the existing NHSN process, any and all data elements at the pati ent-level that are desi gnated as “required” on NHSN forms (such as, the “primary bloodstream infection” or “annua l facility survey” forms). Some examples of these “required” patient-level data elements include: patient identifier, date of birth, a nd gender; detailed event data , such as specific symptoms

identified to meet case definitions and laborat ory 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 NH SN required data collected by the CDC will be shared with CMS for Hospital IQR Program and Hospital VBP Program administration, monitoring and evaluation activi ties, including valida tion, 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 eval uation 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, monitori ng and evaluation ac tivities, including validation, appeals review, program impact evaluation, and development of quality measure specifications. More specificall y, for Hospital IQR Program validation, we propose to use these data to ensure accura te matching between patient charts submitted

for HAI validation that cannot be matche d to NHSN using Medicare beneficiary identification numbers. We also propose to use these data as a ppropriate for program

evaluation. We invite public comment on this proposal. 11. Proposed Modifications to the Existing Pr ocesses 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 valid ation of chart-abstracted measures in the Hospital IQR Program for the FY 2015 payment de termination and subsequent years; this rule also contained a comprehensive summary of all procedures finalized in previous years and still in effect. Several modificati ons to these processes were finalized for the FY 2016 and FY 2017 payment determinations in the FY 2014 IPPS/LTCH PPS final1124 rule (78 FR 50822 through 50835). For th e FY 2017 payment determination and subsequent years, we are proposing additional modificati ons to these processes. Proposed changes fall into the following categorie s: (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) pl ans to validate electronic clinical quality measure data. a. Eligibility Criteria for Ho spitals 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 y ears, we finalized our process to draw a random sample of 400 hospitals and an additi onal 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 pr oposing 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 a nd subsequent years, we are proposing to change the definition of valid ation-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 cont aining the most recently available data. The quarter containing the most recently available data will be defined based on when the random1125 sample is drawn. For example, for the FY 2017 payment determination, we intend to draw this sample in November or Decembe r of 2014. The second quarter (Q2) of 2014 ends in June 2014, but hospitals participa ting in the Hospital IQ R Program may submit quality data from this quarter until November 15, 2014 (see www.qualitynet.org for submission deadlines). If CMS draws its samp le 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 r ecently available data” will be first quarter (Q1) of 2014. On the other hand, if CMS dr aws its sample late November or early December 2014 after the second quarter 2014 hos pital data are processed, the second quarter of 2014 will contain the mo st 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 dr aw the validation sample several months sooner than we have historically drawn it. Hi storically, 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 pr oposing to: (1) change the number of charts hospitals must submit for validation; (2) ch ange the measure-specific sample sizes for HAI validation; and (3) change the topic areas and sample de sign for clinical process-ofcare measures. We are proposing these ch anges because Section 1886(o) of the Act requires the Hospital VBP Program to use a s ubset of Hospital IQR Program measures and there is a declining numb er of measures and chart-ab stracted 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 ar e included in validation. A more detailed rationale accompanies each proposal.

As described in the FY 2013 IPPS/LTC H PPS final rule (77 FR 53539 through 53553), the Hospital IQR Program validates ch art-abstracted data submitted to two different systems: clinical process-of-care data submitted to the Hospital IQR Program

Clinical Data Warehouse and HAI data subm itted 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 firs t introduced in th e FY 2012 IPPS/LTCH PPS final rule (76 FR 51646 through 51648) and ha s 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 topi c area, has not substantively changed since1127 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 pa ssed validation and to assess hospital performance across both types of measures (HAIs a nd clinical process-of-care) co mbined. As finalized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53551), hospitals may fall into three validation categories: (1) hospitals pass va lidation with a lower bound of the confidence interval greater than or equal to 75 percen t; (2) hospitals fail va lidation with an upper bound for a hospital’s confidence in terval lower than 75 percen t; 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 w ill be sufficient to estimate a reliability of 75 percent +/- 10 percent with 90 percent confidence, assuming a design effect no1128 greater than 1.4. Historical data suggests that most hospitals in the Hospital IQR Program pass validation and validated data ha ve a high level of accuracy. For example, for the FY 2013 payment determination, approxi mately 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 id entify most hospitals that pass validation. Of the remaining hosp itals, we will use the same conservative approach to identify hospitals failing valida tion 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 hos pitals 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 c linical 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 ch arts proposed to be submitted per quarter (above), 10 charts would be submitted to vali date 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 a nd 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) Re duction Programs. Considering only the relative importance of HAIs and clinical pr ocess-of-care charts to the Hospital VBP1129 Program, which is about 4 times as great, CM S 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 clin ical 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 im portance 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 a nd 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 fo r completing validation, and the specific sample sizes for each. To validate HAI data, hospita ls must use Validation Templates to provide supplemental data to CMS. These supplem ental data provide CMS with a set of

candidate infections for each HAI. As fi nalized previously, hospitals sampled for validation will be randomly assigned to provide two Validation Templates, either: (1) CLABSI and CAUTI, or 2) MRSA and CD I. 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 because1130 of the smaller number of candidate SSIs exp ected per hospital per quarter. We are not proposing to change the process fo r 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 ha ve greater relative scoring we ights 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 Pr ogram for the FY 2017 payment determination and subsequent years. Specifically, the to tal 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* 61131

*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 MR SA, 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 Meas ures: 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 disc ussed in greater detail below. As shown in the table below, two other Hospital IQR Program clinical process-ofcare topic areas overlap with measures pr oposed for inclusion in the FY 2017 Hospital VBP Program. Regardless, we are not propos ing 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 we1132 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 on ly performed in small rural hospitals. Of the approximately 3,300 hospitals participati ng 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, targe ting hospitals that re port the AMI-7a measure would unduly single out small rural hospitals that disproportionate ly report relatively high AMI-7a measure denominator counts for validation, and would be inequitable.1133

Number of Chart-Abstracted Clinical Pr ocess- 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 determina tion 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 a nd subsequent years, we are proposing that the remaining 5 of the 8 clinical proces s-of-care charts be drawn from a systematic random sample of charts acro ss all topic areas co ntaining required measures other aside from those in the immunization and perinata l care topic areas. Across all hospitals included in validation, we believe this approa ch will ensure adequate numbers of patient charts are sampled for each topi c area. Under this proposal, the pool of clinical process-1134 of-care topic areas sampled for validation wi ll include: STK, VTE, ED, and sepsis, as well as all other IQR required topic areas su ch 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 determinatio n. With this proposal, STK, VTE, ED, and sepsis measures would be included in th e pool of clinical pr ocess-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 w ould not be limited to only one topic area by random occurrence. In addition, across all hosp itals included in va lidation, we believe this approach will ensure adequate numbers of patient charts are sampled for each topic

area. 77 This proposal simultaneously simplifies th e 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 re design and propose a new sampling strategy. Using a random sample ensures that new topi c 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 require d 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 automa tically be excluded from validation. We invite public comment on these proposals.

77 We used data submitted to the Clinical Data Wa rehouse 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 topi c area only includes the Immunization for Influenza (NQF #1659) meas ure, which overlaps with the Hospital VBP Program. We want to ensure that ever y hospital included in validation is validated for this topic area because of the overlap. c. Combining Scores for HAI and C linical Process of Care Topic Areas

We refer readers to the FY 2010 IPPS/LTC H 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 proc ess of scoring HAI measures, and FY 2014 IPPS/LTCH PPS final rule (78 FR 50833) for th e 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 determ ination and subsequent years, we are proposing to modify our approach to weigh ting 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 thr ough 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 in cluded in validation. For example, in section IX.A.11.b.4. of the preamble of this pr oposed rule, our propos al to validate all clinical process of care m easures required by the Hospita l IQR Program for the FY 20171136 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 sc ore would contribute 14/19 and the HAI score would contribute only 5/19 to the combined scor e. This weighting does not reflect either the relative importance of HAIs to clinical pr ocess 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, respec tively), we are proposing to weight the patient safety domain (of which the HAI meas ures are part) more heavily in the Hospital VBP Program (20 percent for the patient safety domain versus 5 per cent 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 subseq uent years, we are proposing to weight the HAI score 66.7 percent (or 2/3) of the to tal score and the clin ical process-of-care measures to weight 33.3 percent (or 1/3) of the total score. Furt her 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 Progr am. 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 unequal1137 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 c onsideration for the re lative 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 th e formulas as previously applied to weight the IMM topic area more heavily beca use of the overlap with the Hospital VBP Program. For the FY 2017 payment determin ation 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 th e clinical process-of-care score. The weights reflect our policy preference to pl ace greater relative weight on Hospital VBP Program included measures to better ensure accurate scores and payment. Emphasizing chart-abstracted clinical pro cess of care measures validated in the Hospital IQR Program to align with the Hospital VBP Program w ill address the need to validate Hospital IQR Program data not currently included in Ho spital VBP Program for public reporting and validation feedback to hospitals.

The table below shows the effect of th e two proposals combined (the first to weight the HAI score more heavily than the clinical process-of-car e 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 car e 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 thr ough 53606). The proposed relative weights for the HAI (66 percent) and IMM (22 percen t) 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 inte rval on the QualityNet Web site at least one year prior to final computation ( https://www.qualitynet.org/dcs/ContentSer ver?c=Page&pagename=QnetPublic%2FPage %2FQnetTier2&cid=1138115987129 ). These formulas will continue to account appropriately for the manner in which patie nt 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 that1139 allows hospitals to submit patient charts fo r validation via: (1) paper patient medical records; or (2) secure transmission of elec tronic versions of patient information. The process previously finalized restricts elec tronic 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 s ecure file transfer pr otocol. The system provides a mechanism for securely ex changing documents containing sensitive

information such as Protected Health In formation (PHI) or Personally Identifiable Information (PII). Detailed instructions on how to use this system are available in the

Secure File Transfer 1.0 User Ma nual available on QualityNet at: http://www.qualitynet.org/dcs/ContentSer ver?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 requ ested 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 reco rds 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 al lowing hospitals to partiall y 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 di d 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 e nvironmental scan, includ ing 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 customizati ons of that EHR product to support the hospital’s specific workflows and processes, (2) hospital and provider documentation practice, and (3) EHR and electronic c linical 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 remote1141 real-time validation strategy for electronic c linical 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 va lidation activities in FY 2015. Th e pilot test will engage up to 100 volunteer hospitals in a highl y interactive test abstraction of their EHR systems using a secure remote access, real-time abstrac tion 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 da ta (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 Informa tion 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, Implem entation Specifications, and Certification

Criteria for Electronic Hea lth Record Technology, 2014 Ed ition; Revisions to the Permanent Certification Program for Hea lth 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 deta iled instructions aboutthe process and a demonstration explaining how to install need ed 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 view1142

isolated records in real- time under hospital supervision, comparing all abstracted data with QRDA Category 1 file data and summarizi ng the results after the real-time session. We implemented Bomgar software, a co mmercial 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 re cord staff to easily set up remote support sessions for reviewing Hospital IQR Pr ogram-related EHR records under hospital supervision. The software was tested and pa ssed our strict security standards. The electronic sessions do not requ ire 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 wi ll log and record ev ery session and all session data will be safe-guarded by fe deral government approved encryption. While CDAC has limited, remote viewing access, hospitals will be asked to:

● Generate separate lists of patients eligible for meas ures in each of the four topic areas (STK, VTE, ED, and PC);

● Generate QRDA Category 1 files extrac ted automatically from an EHR for all applicable measures for up to 3 records within each of the 4 topic ar eas (for a total of 12 records) as selected by CDAC; and

● Show selected records, such as labor atory records, and pa tient medical history, navigating through the EHR syst em as directed by CDAC. During this remote real-time session, CDAC will:

● Follow the specifications for the el ectronic measure to abstract relevant

information related to each data element fr om up to 10 different sources, for example,1143 medication administration records, laborator y reports, and patient history, (including structured and unstructured fields) within each patient medical record. After concluding the real-time sessi on with a hospital, CDAC will:

● Compare all abstracted data with QRDA Category 1 file data; and

● Summarize results identif ying patterns of concern. Based on these results, CMS and our contractors will:

● Work with measure stewards to re fine measure specifications based on conflicting findings;

● Share conflicting findings with indi vidual 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 th is test, we intend to reimburse hospitals for the burden associated with their partic ipation. Details about reimbursement are included in section XIII.B.6. of the preambl e of this proposed rule. We will post on QualityNet a detailed draft of the operational pr ocedures 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 validit y, as further explained in the table below.1144 Electronic Clinical Quality Mea sure Validation Strategy Summary for the Hospital IQR Program Desired Attributes of Validation Strategy

● Assesses accuracy including reliabili ty and population representativeness ● Employs a standardized process conducted by an objective third party ● Minimizes burden to hospitals ● Minimizes costs to CMS by bein g 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 el ectronic clinical quality measure data ● Assess Hospital IQR Program readiness for electronic clinical quality measure reporting requirements ● Identify the needs for and implemen t updates to measure specifications and standards ● Plan future validation requirements, incl uding detailed operational instructions and sample size Planned Process Overview Hospitals will: ● Allow CMS’ Clinical Data Abstracti on Contractor (CDAC) to remotely view records in real-time ● Generate separate list s 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 th rough 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 fiel ds) within each medical record ● Compare all abstracted data w ith QRDA Category 1 file data ● Assess and refine operational processes CMS and its contractors will: ● Determine reliability (agreement) betw een extracted and abstracted measures ● Work with measure stewards to refine measure specifications based on conflicting findings ● Share conflicting findings with indi vidual 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 asso ciated with participation in test

We invite public comment on this vo luntary pilot test for validation.1145

We also considered other validation a pproaches including one that supplements the current procedures and compares quality data manually abstracted by the hospitals with QRDA Category 1 extracts from thei r EHRs. Although we are making no specific proposals related to these altern atives at this time, we i nvite comments on whether we should develop or identify existi ng computerized applications to assist hospitals in selfvalidation and on the specific f unctionalities that may be usef ul for self-validation. For example, as part of the validation process, should CMS develop or identify an existing application that would use na tural 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 fiel ds for contraindications to VTE prophylaxis, even if such contraindicatio ns were not noted in a structured field

within an EHR. We also invite comments a ny other types of applic ations that would be

useful for self-validation. 12. Data Accuracy and Completeness Ac knowledgement 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 fi nal 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 othe r 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 I PPS/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 app eal 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 Ci rcumstances Extensions or Exemptions

We refer readers to the FY 2012 I PPS/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 Exem ptions process. We are currently in the process of revising the Extraordinary Circ umstances/Disaster Extension or Waiver Request form, previously approve d 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 “exten sion or exemption” in 42 CFR 412.140(c)(2). Section 412.140(c)(2) cu rrently 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 cont rol 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 ex emption of one or more data submission

deadlines in the event of extr aordinary circumstances beyond th e 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 1 866(k) establishes a quality re porting program for hospitals described in section 1886(d)(1)(B )(v) of the Act (ref erred 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 Secretar y in accordance with section 1866(k)(2) of the Act with respect to such a fiscal ye ar. Section 1866(k)(2) of the Act provides that, for FY 2014 and each subseque nt 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 en tity 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 organiza tion with a diverse representation of consumer, purchaser, provider, academic, c linical, 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 dete rmined appropriate by the Secretary for which a feasible and pract ical measure has not been endorsed by the entity with a contract unde r 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 consen sus 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 Ac t 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 pr ocedures must ensure that a PCH has the opportunity to review the data th at are to be made public with respect to the PCH prior to such data being made public. The Secretar y must report quality measures of process, structure, outcome, patients’ pe rspective on care, efficiency, a nd 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 particul ar cancer hospitals from payment under the IPPS. This proposed ru le covers only those PPS-excluded cancer hospitals meeting eligibility criter ia 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 ch emotherapy is consider ed or administered within 4 months (120 days) of surgery to pa tients under the age of 80 with the American Joint Committee on Cancer (AJCC) III (l ymph node positive) colon cancer; (2) Combination chemotherapy is considered or administered within 4 months (120 days) of diagnosis for women under 70 with AJCC T1 c, or Stage II or III hormone receptor negative breast cancer; and (3 ) Adjuvant hormonal therapy. We also discussed the collection requirements and submission timef rames 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 pr ogram 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 meas ures, five new clini cal process/oncology care measures and the HCAHPS Survey fo r reporting beginni ng 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 subsequent1151 years. We also discussed the collection requirements and submission timeframes for

these measures in the FY 2014 IPPS/LTCH PP S final rule (78 FR 50850 through 50853). We are not proposing to remove or re place any of the previously finalized measures from the PCHQR Program for the FY 2017 program and subsequent years. 4. Proposed Update to the Clinical Proce ss/Oncology Care Measur es 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, al l-patient data increases transparency in the health care system, aligns with State and federal initiatives 78 , and improves research efforts. Our proposal to require PCHs to collect all-patient da ta provides us with the data to inform the public with the most robust a nd 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 propos al for the clinical process/oncology care measures for the FY 2016 program and subsequent years.

78 All-Payer Claims Database (A PCD) 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 thr ough 50838), we indicated that we have taken a number of principles into considera tion when developing and selecting measures for the PCHQR Program, and that many of thes e principles are modeled on those we use for measure development and selec tion under the Hospital IQR Program:

● Public reporting should rely on a mix of standards, outcomes, process of care measures, and patient experience of care measur es, 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 th at reflects the level of care and the most important areas of service furnished by thos e 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 fr om a PCH Technical Expert Panel (TEP), convened by a CMS measure development cont ractor, which rated potential PCH quality measures for importance, scientific soundne ss, usability, and feasibility. The TEP membership includes health care providers sp ecializing in the treatm ent of cancer, cancer researchers, consumer and patie nt advocates, disparities expert s, 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 cons ideration 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 clinic al effectiveness measure was included on a publicly available document entitled “List of Measures under Consideration for December 1, 2013,” a list of quality and efficien cy 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 Cons ideration by HHS,” which is available

at: https://www.qualityforum.org/Publications/2014/01/MAP_PreRulemaking_Report__2014_Recommendations_on_M easures_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 specifica lly, we note that the proposed measure addresses the MAP priority of palliative care for cancer patients. In addition, the proposed measure addresses the NQS do main of effective clinical care.1154 We believe that this NQF-endorsed meas ure developed by the American Society for Radiation Oncology (ASTRO) meets the requirement under sec tion 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 w ho receive EBRT with an acceptable dosing

schedule. The measure numerator includes a ll patients with painfu l bone metastases, and no previous radiation to the same site, w ho 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: patient s 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 stabiliz ation 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 manifest ation 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 f eatures, pathophysiology an d 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 radi otherapy guidelines. Based on a review of the literature, the Ta sk Force recommended the following EBRT dosing schedules for patients with previous ly 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 schedul es, 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 th at 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 treat ment variation, ensure appropriate use of EBRT, and prevent the overuse of radiation th erapy. We believe th at this measure is necessary to support patient pref erences for shorter EBRT schedules as well as to ensure

80 Lutz S, Berk L, Chang E, et al. Palliative radiot herapy for bone metastases: An ASTRO evidence-based guideline. Int J Radiat Oncol Biol Phys. 2011;79(4):965-976. 81 Available at: http://www.qualityforum.org/Wo rkArea/linkit.aspx?LinkIde ntifier=id&ItemID=70374

. 82 Lutz S, Berk L, Chang E, et al. Palliative radiot herapy 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 associat ed with radiation th erapy. 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/link it.aspx?LinkIdentifier=id&ItemID=70374

. In summary, in addition to the 18 measur es that we previously finalized for the PCHQR Program, we are proposing one new m easure for reporting beginning with the FY 2017 program. The proposed policies regard ing 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 subseque nt 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-Assoc iated Urinary Tract Infections (CAUTI) Outcome Measure *

● (NQF #0753) Harmonized Pro cedure 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 Chem otherapy is Considered or Administered Within 4 Months (120 days) of Surgery to Patients Under1157 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 Chem otherapy 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 Su rgery 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 Antib iotic Selection for Surgical Patients *

● (NQF #0529) Prophylactic Antibio tic 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: Pa in Intensity Quantified *

● (NQF #0390) Prostate Cance r-Adjuvant Hormonal Therapy for High-Risk Patients *

● (NQF #0389) Prostate Cance r-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 Ra diotherapy 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, in1158 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 meas ures of appropriate disease management. Additional measure topics to be considered include patient cent ered care planning and care coordination, shared decision making, meas ures 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 beneficiarie s 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, patien t and caregiver e xperience of care, population/community health, a nd efficiency. These domains align with those of the NQS, and we believe that selecting measures to address these do mains 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 re move or replace measures from the PCHQR Program measure set. In developing removal crit eria, we will consider those criteria used1159 by other CMS quality reporting programs in order to align the PCHQR Program with those programs. We welcome public comments on the crit eria 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 repor t electronically specified clinical quality measures for the PCHQR Program. We believe that the collection and reporting of data through health information technology woul d greatly simplify a nd 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 adopti on, we will consider the need to align and harmonize measures across various quality re porting programs to mi nimize the reporting burden imposed on PCHs. We welcome public comments on the develo pment 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&pagena me=QnetPublic%2FPage %2FQnetTier2&c=Page

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In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53504 through 53505), we finalized a policy under which we use a subr egulatory process to make nonsubstantive updates to measures used for the Hospital IQ R Program. We also adopted this process for all measures adopted for the PCHQR Pr ogram. With respect to what constitutes substantive versus non-substantive changes, we expect to make this determination on a case-by-case basis. Examples of nonsubsta ntive changes to measures might include updated diagnosis or procedure codes, medi cation updates for categor ies 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. Ex amples of changes that we might consider

to be substantive would be those in which th e changes are so significant that the measure is no longer the same measure, or when a st andard of performance assessed by a measure becomes more stringent (for example: ch anges in acceptable timing of medication, procedure/process, or test administration). Another example of a substantive change would be where the NQF has extended its e ndorsement of a previously endorsed measure to a new setting, such as extending a measure from the inpatient se tting to hospice. We

also note that to the extent a PCHQR measure is endorsed by the NQF, the NQF measure maintenance process incorporates an opport unity for public comment and engagement. We believe the endorsement processes, as well as our treatment of substantive versus nonsubstantive measure changes, adequa tely balances our need to incorporate1161 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 th at we originally adopted. 8. Public Display Requirements Beginning with the FY 2014 Program Section 1866(k)(4) of the Ac t requires the Secretary to establish procedures for making the data submitted under the PCHQR Pr ogram available to the public. Such procedures must ensure that a PCH has the oppo rtunity to review the data that is to be made public with respect to the PCH pr ior to such data being made public. Section 1866(k)(4) of the Act also provide s 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 disp lay publicly in 2014 and subseque nt 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); and1162

● 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 Hormona l Therapy measure (NQF #0220). We are also proposing to publicly disp lay 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 Bl oodstream Infection (CLABSI) Outcome Measure (NQF #0139). At present, all PCHs are reporting CL ABSI 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. Th erefore, we estimate that the first public posting of the CLABSI and CAUTI PCHQR Pr ogram 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 Subm ission Beginning with the FY 2017 Program a. Background Section 1866(k)(2) of th e 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 a nd 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 Me tastases (NQF #1822) Beginni ng with the FY 2017 Program We are proposing that PCHs report the proposed External Beam Radiotherapy for Bone Metastases (NQF #1822) measure begi nning 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 m easures (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 redu ce PCH cost and burden. We believe that these proposed dates will provide enough adva nce 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 us ing 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 ope n from July 1 through August 15, 2016. For the FY 2017 program and subsequent years, we refer readers to th e reporting periods and

data submission window outlined in the table below in this section. For data collection, we are proposing th at 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 propos ed 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 Radiothera py for Bone Metastases (NQF #1822) Measure-Reporting Periods and Submi ssion 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 year1166 c. Proposed Reporting Options for the Clin ical Process/Cancer Specific Treatment Measures Beginning with the FY 2015 Pr ogram 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 measures 84 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 a dopted in the FY 2014 IPPS/LTCH final rule (78 FR 50846). Under those requirements, PCHs submit aggregate-level clinical process/cancer specific treatment measure da ta to a CMS contract or, aggregate-level clinical process/oncology care measure da ta through the CMS Web-based Measures Tool, and patient-level SCIP measure data thro ugh the QualityNet infrastructure. We are now proposing to allow PCHs to report the cl inical process/cancer specific treatment, SCIP, and clinical process/onc ology 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 in to 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 Qu alityNet file exchange process. We are proposing these options in order to de crease 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 subm ission 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 pa tient level data for th e SCIP measures. We are proposing this update to th e 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 thes e 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 a nnual 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 in formation while reducing PCH burden through providing two data collection options. We w ill provide detailed technical file format specifications on the public QualityNet Web site ( www.qualitynet.org ) following publication of this year’s final rule. Th e newly proposed submission deadlines for the

SCIP measures are outline d in the table below. These proposed requirements would repl ace, for the purposes of the PCHQR Program, the update to the SCIP timeline and IT infrastructure that we finalized for the1168 PCHQR Program in the FY 2014 IPPS/LTC H 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 sp ecific treatment measures, five clinical process/oncology care treatment meas ures, 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) requi rements. We refer readers to the1169 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 a dopted sampling methodology with a sampling methodology similar to the one we have allowe d 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 propo sed rule is more applicable to PCHs because it was developed fo r 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 vari es among PCHs from 20 to >250 beds. 85 The proposed sampling methodology for the clinic al process/oncology care measures is shown below, and we believe it will decr ease the reporting burden on PCHs while producing reliable measure rates.

Avera g e Quarterl y Initial Po p ulation Minimum Re q uired Sam p le Size "N"

85 American Hospital Directory: http://www.ahd.com/freesearch.php

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Size "N" >125 25 51-125 20 p ercent of the initial p atient p o p ulatio n 10-50 10 <10 No sampling; 100 percent of the initial patient p o p ulatio n

We are also proposing that PCHs re port population and sample size counts (by measure) for Medicare and non-Medicare disc harges by quarter for the five clinical process/oncology care measures for the FY 2016 program and subsequent years. We are proposing these requirements in or der to support our effort to align with existing reporting requirements used in ot her CMS quality reporting programs, such as the Hospital IQR Program, which requires pa rticipating 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 v ital for PCHs to accurately determine their aggregate population and appropriate sample si ze data in order for CMS to assess PCHs’ data reporting accuracy and completeness fo r their total population of cases, including

both Medicare and non- Medicare patients. We welcome public comments on th ese 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 b een 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 fina l rule (78 FR 50848), we finalized our1171 policy that, for the FY 2014 program and subs equent 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 Circ umstances/Disaster Extension or Waiver Request form (CMS-10432), approved under OMB control number 0938-1171. We are not proposing any substantive ch anges to this PCHQR exception process.1172 C. Long-Term Care Hospital Qu ality Reporting ( LTCHQR) Program 1. Background In accordance with section 1886(m)(5) of th e Act, as added by section 3004(a) of the Affordable Care Act, the Secretary esta blished 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 se ction 1886(m)(5)(C) of th e 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 fo r discharges for the hospital dur ing 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/LTC H 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 endorse d by an entity that holds a contract with the Secretary u nder 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 m easure review processes is available at: http://www.qualityforum.org/Measuring_P erformance/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 th e 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 th e Secretary under secti on 1890(a) of the Act. In such a case, section 1886(m)(5)(D)(ii) of the Ac t authorizes the Secretary to specify a measure that is not so endorsed, as long as due considerati on is given to measures that have been endorsed or adopted by a consensus or ganization identified by the Secretary. The LTCHQR Program was implemente d 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 a nd 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 selec tion of only the highest

caliber of measures is a priority for CMS. We seek to adopt measures for the LTCH QR Program that promote better, safer,

and more efficient care. Our measure de velopment and selection activities for the LTCHQR Program take into account national pr iorities, such as those established by the National Priorities Partnership ( http://www.qualityforum.org/Setting_Priorities/ NPP/National_Priorities_Partnership.aspx ), the1174 HHS Strategic Plan ( http://www.hhs.gov/secretary/about /priorities/priorities.html ), the National Quality Strategy (NQS) ( http://www.ahrq.gov/workingfor quality/nqs/nqs 2011annlrpt.htm ), and the CMS Quality Strategy ( http://www.cms.gov/Medicare/Quality-I nitiatives-Patient-AssessmentInstruments/QualityInitiativesGenInfo/CMS-Quality-Strategy.html ). We also must consider input from th e 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 st akeholders' 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 appear s in the MAP's January 2014 Pre-Rulemaking Report available for download at: http://www.qualityforum.org/P ublications/2014/01/MAP_PreRulemaking_Report__2014_Recommendati ons_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 propos ing in this rule for the

86 Available at: http://www.qualityforum.org/Wo rkArea/linkit.aspx?LinkIde ntifier=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 St atus 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: Ch ange in Mobility among Long-Term Care Hospital Patients Requiring Ventilat or Support; and IX.C.7.b., Proposed Quality Measure: National Healthcare Safety Netw ork (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 absen ce 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 po licy that once a quality meas ure is adopted, it will be1176 retained for use in subsequent years, unl ess 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 m easure will be automatic ally adopted for all subsequent years or until we propose to rem ove, 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 subregul atory process to incor porate those updates to the measure specifications that apply to th e LTCHQR Program. With respect to what

constitutes a substantive vers us 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 update s for categories of medications, broadening of age ranges, and ch anges 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 might1177

consider to be substantive would be those in which the changes are so significant that the measure is no longer the same measure, or wh en a standard of performance assessed by a measure becomes more stringent, such as changes in acceptable timing of medication, procedure/process, test administration, or e xpansion of the measur e 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 Resi dents with Pressure Ul cers 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-A ssociated Urinary Tract Infection (CAUTI) Outcome Measure (NQF #0138) and NHSN Ce ntral 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 dete rmination 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 S easonal Influenza Vaccine (Short-Stay)1178 (NQF #0680); and (2) Influenza Vaccinat ion 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 Pressu re Ulcer measure, Percent of Residents

or Patients with Pressure Ulcers That Ar e New or Worsened (Short-Stay) (NQF #0678), for the LTCHQR Program for the FY 2015 paymen t determination and subsequent years. Set out below are the quality measur es, both previously adopted measures retained in the LTCHQR Program and m easures 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 Netw ork (NHSN) Central LineAssociated Blood Stream In fection (CLABSI) Outcome Measure* FY 2015 and Subsequent FYs NQF #0678 Percent of Residents or Patie nts 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 a nd 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). Th ese measures are set out in the table

below.

LTCHQR Program Quality Measures Prev iously Adopted for the FY 2017 and FY 2018 Payment Determinatio ns and Subsequent Years NQF Measure ID Measure Title Payment Determination NQF #1716 National Healthcare Safe ty Network (NHSN) FacilityWide Inpatient Hospital-Ons et Methicilli n-Resistant Staphylococcus aureus (MRSA) Bacteremia Outcome Measure FY 2017 and Subsequent Years1180 LTCHQR Program Quality Measures Prev iously Adopted for the FY 2017 and FY 2018 Payment Determinatio ns and Subsequent Years NQF Measure ID Measure Title Payment Determination NQF #1717 National Healthcare Safe ty 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 Collecti on 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 s ubmission deadlines for a measure that we previously adopted for the LTCHQR Program: Percent of Residents or Patients Who Were Assessed and Appropriately Given th e Seasonal Influenza Vaccine (Short-Stay) (NQF #0680). We are also reproposing, fo r the FY 2018 payment determination only,

revised data collection timelines and submissi on deadlines for the A pplication of Percent of Residents Experiencing One or More Falls with Major Injury (Long-Stay) (Application of NQF #0674) measure. Fo r 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 Collecti on Timelines and Submission Deadlines for

Percent of Residents or Patients Who We re 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 Patie nts Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine (S hort Stay) (NQF #0680) measure for the FY 2016 payment determination and subsequent y ears. Specifically, we finalized that for the FY 2016 payment determination, LTCHs must collect data for any patient admitted or discharged during the influenza vaccina tion season, from October 1, 2014, through April 30, 2015, and submit data for these patients by May 15, 2015. We are seeking to bette r align the data collecti on timelines and submission

deadlines of the Percent of Residents or Pa tients Who Were Asse ssed and Appropriately Given the Seasonal Influenza Vaccine (Short Stay) (NQF #0680) measure with the data

collection timelines and submissi on deadlines of the Pe rcent 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 d eadlines for the Percen t of Residents or Patients Who Were Assessed and Appropriate ly 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 the1182 applicable FY (for example, Octobe r 2014 through December 2014 for the FY 2016 payment determination), with data submi ssion 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 w ould also apply to subs equent years. By taking into account the influenza vaccinati on season, these proposed changes would align

data collection and submission for this meas ure (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 W ere Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF #0680) Data Collection Timelines Subm ission 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 Assesse d 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 Resi dents Experiencing One or Mo re 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 da ta on this measure using the LTCH CARE Data Set starting January 1, 2016. To ensure the successful implementati on 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 sche dule 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 releas ing future iterations of the LTCH CARE Data Set. This change will e ffectively 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 cha nges 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 Ap ril 1, 2016. For all subsequent years, data collection for this measure would begin on Ja nuary 1 and continue through December 31. The proposed changes are illustrated be low 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 Exp eriencing One or More Falls with Major Injury (Long-Stay) (NQF #0674) Data Collection Timelines Subm ission 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 woul d 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 specific ally proposed for such measures. We invite public co mments 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-associ ated events (VAE). One of the proposed functional status quality measures is Percent of Long-Term Care Hospital Patients with an Admission and Discharge Functional Asse ssment and a Care Plan That Addresses Function. The second proposed functional stat us 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 Functi onal Status Quality Measures for the FY 2018 Payment Determination and Subsequent Years Patients in LTCHs present with clinica lly complex conditions. In addition to having complex medical care needs for an exte nded 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 requ irements (for example, ventilator use). These patients are therefore at high risk fo r functional decline duri ng 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 stat us is becoming increasingly essential for fostering healthy people and a healt hy population. Achieving optimal health and well-being for Americans requires an understand ing 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 include d 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 setti ngs, 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, evalua te patient progress an d 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 ha ve acceptable reliability and va lidity. A description of the testing methodology and results are available in several reports, in cluding 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 Te sting 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-Initiati ves-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 Meas ure: Percent of Long-Term Care Hospital Patients with an Admission and Discharge Func tional 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 m easure entitled Percent of Long-Term Care Hospital Patients w ith 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 disc harge 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-le vel 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 reco rded 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 ha s supported the safety and feasibility of early mobilization and rehabilitation of cr itically ill but stable patients, with minimal1189 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-car e, mobility, cognition, communication, and bladder continence; (2) incorporating the f unctional 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) conducti ng 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 criti cal care medicine and survival rates. 97 Short-term and long-term adverse consequences among criti cally 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

91 J. 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 ear ly mobilization of critically ill patients," Crit Care Med 37, no. 10 Suppl (2009). 93 W. D. Schweickert and J. P. Kress, "Implementi ng 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 outco mes 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 th e 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, attent ion/concentration, a nd 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 illne ss 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, tradi tional practices of bed rest and immobility have been challenged in recent years, and early mobility and rehabi litation have been increasingly recognized as important to improve patients' long-term functional

101 Centre for Clinical Practice at NICE (UK), "Reh abilitation 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 mob ilization 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 th e intensive care unit: a systematic review." 110 Skinner et al., "Development of a physical function outcome measur e (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 pa tients: 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 therap y 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 pa tients: risk factors, pr edictors, 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 ear ly 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 pr ogram as early as possible, and performing clinical reassessment before discharge. The importance of standardized functiona l assessment in LTCH settings is also supported by the high prevalence of therapy se rvices provided in this setting, as well as the need for care coordination for patients re turning home and receiving follow-up care in the community and patients receiving additiona l institutional healthcare services after discharge from an LTCH. A study 124 of 1,419 ventilator-dependent patients from 23 LTCHs reported that physical, occupationa l, 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, "Rehabilitati on 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 comprehens ive list of 34 procedures, services, and treatments provided during the LTCH st ay. The high frequency of physical (84.8 percent), occupational (81.5 percent), a nd speech (79.7 percent) therapy reflects use

of the rehabilitative mode l of care adopted by many post-ICU ventilator weaning programs, which is important in restoration of function. This high ut ilization of therapy services supports the need for standardi zed functional assessme nt at admission to document functional status, identify the need for therapy, set functi onal status goals and assist with discharge pla nning 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 f acilitate discharge planning and home discha rge, when possible. Reported benefits of early mobility and rehabilitation include: (1) improved strength 126

, 127

, 128 and functional status; 129

, 130

, 131 (2) earlier achievem ent of mobilization milestones, such as out-of-bed mobilization; 132

, 133 (3) improvement in mobility and

125 Ibid. 126 Schweickert and Kress, "Implementing ear ly mobilization interventions in mechan ically ventilated patients in the ICU." 127 Dang, "ABCDEs of ICU: Early mobility." 128 Li et al., "Active mobilization for mechanica lly ventilated patients: a systematic review." 129 Adler and Malone, "Early m obilization 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 mechanica lly ventilated patients: a systematic review." 132 Adler and Malone, "Early m obilization 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 fr om 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-reporte d physical function scores at hospital discharge compared with pers ons 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 rehabi litation 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 mechanica lly 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 m obilization 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 mechanica lly ventilated patients: a systematic review." 141 Adler and Malone, "Early m obilization 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 recomme ndation 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 th e intensive care unit: a systematic review." 148 Schweickert et al., "Early physical and occupationa l therapy in mechanically ventilated, critically ill patients: a randomised controlled trial." 149 Adler and Malone, "Early mobilization in th e intensive care unit: a systematic review." 150 Dang, "ABCDEs of ICU: Early mobility." 151 Li et al., "Active mobilization for mechanica lly 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 impair ment are very frequent complications of critical illness, and negatively infl uence survivors' ab ilities to function independently. 156

, 157

, 158 Delirium during hospitalization is highly prevalent in critically ill patients and has been associated with longe r lengths of stay, in creased duration of mechanical ventilation, a nd 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 impor tance 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 occupationa l therapy in mechanically ventilated, critically ill patients: a randomised controlled trial." 153 Engel et al., "ICU early mob ilization: from recommendation to implementation at three medical centers." 154 Adler and Malone, "Early mobilization in th e intensive care unit: a systematic review." 155 Li et al., "Active mobilization for mechanica lly ventilated patients: a systematic review." 156 Wilcox et al., "Cognitive dysfunction in ICU pa tients: risk factors, pr edictors, 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 pa tients: risk factors, pr edictors, 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 wh o survive prolonged lengths of stay in the intensive care unit," J Trauma 48, no. 2 (2000).1195 positive influence of exercise on cognitive functi on in the critically ill population is being examined by researchers. A technical expert pane l 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 spec ifications of this quality measure on the CMS Quality Measures Public Comment Page ( http://www.cms.gov/Medicare/QualityInitiatives-Patient-Assessment-Instru ments/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/Q uality-Initiatives-PatientAssessment-Instruments/LTCH-Quality-Reporting/

. Based on the evidence discussed abov e, we are proposing to adopt for the LTCHQR Program for the FY 2018 payment de termination and subsequent years the quality measure entitled Percent of Long-Term Care Hospital Patients with an Admission and Discharge Functional Assessment and a Ca re 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 conditiona lly supported this proposed measure and stated that the measure concept is prom ising, but requires modification or further development, and that functional status is a cr itical area of measurem ent. Since the time1196 of the MAP meeting, we have continued furt her development of the measure with input from technical experts, including empirical da ta analysis. Subsequently, we released draft specifications for the function quali ty 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/inde x.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 au thority 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 ha s 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 gi ven to measures that have been endorsed or adopted by a consensus organization identifie d by the Secretary." We reviewed the NQF's consensus endorsed measures and we re unable to identify any NQF-endorsed quality measures focused on assessment of f unction 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 or ganization for the LTCH setting. Therefore, we are proposing to adopt this functional assessment measure for use in the LTCHQR1197 Program for the FY 2018 payment determination and subsequent years under the Secretary's authority to sele ct 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 pr oposed quality measure be collected through the LTCH CARE Data Set, with the subm ission through the Quality Improvement and Evaluation System (QIES) Assessment Subm ission and Processing (ASAP) system. For more information on LTCHQR Program repor ting using the QIES ASAP system, we

refer readers to our Web site at: http://www.cms.gov/Medicar e/Quality-InitiativesPatient-Assessment-Instruments/LTCH-QualityReporting/LTCHTechnicalInformation.html . We intend to revise the LTCH CARE Data

Set to include new items that assess functi onal status, should this proposed measure be adopted. These items, which assess specific functional activities (that is, self-care, mobility, cognition, communication, and bla dder 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 Pa tients 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 payment1198 determination and subsequent years. We refer readers to section IX.C.9.c. of the preamble of this proposed rule for more in formation on the proposed data collection and submission timeline for this proposed quality measure. (2) Proposed Functional Status Quality Meas ure: Functional Outcome Measure: Change in Mobility among Long-Term Care Hospita l 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 la ter than October 1, 2015, "a functional status quality measure for change in mobility am ong inpatients requiring ventilator support." Accordingly, the second functional status qua lity measure that we are proposing is an outcome quality measure entitled the Functi onal Outcome Measure: Change in Mobility among Long-Term Care Hospital Patients Requ iring 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 re quiring ventilator suppor t at the time of admission. As noted above, LTCH patients ofte n 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 pul monary 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 functi onal improvement among patients in the long-term care hospitals and setting. In a sample of 101 patients in LTCHs (three-quarters were ventilat or-dependent), median functi onal status scores using the Functional Status Score (FSS)-ICU (rolling, su pine-to-sit transfers, unsupported sitting, sit-to-stand transfers, and ambulation) improved significantly from admission to discharge, with significant cha nge in all five functional items. 165 A separate study of 103 patients with respiratory failure examin ed functional improvement and found that by the end of the respiratory ICU stay, 69.4 per cent of survivors ambul ated more than 100 feet, 8.2 percent ambulated less than 100 f eet, 15.3 percent could sit in a chair, 4.7 percent could sit on the e dge of the bed, and 2.4 percen t did not accomplish any of

these activities. 166 The importance of monitoring improveme nt 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 LTC Hs 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 acu te care hospital: a prospective cohort study," Phys Ther 92, no. 12 (2012). 166 P. Bailey et al., "Early activity is feasib le and safe in respiratory failure patients," Crit Care Med 35, no. 1 (2007). 167 Scheinhorn et al., "Post-ICU mechanical ventila tion at 23 long-term care hospitals: a multicenter outcomes study."1200 (81.5 percent), and speech (79.7 percent) ther apy reflects use of th e 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 discha rge. Nearly 30 per cent of all patients discharged alive return ed directly home or to assisted living. 168 A technical expert pane l convened by our measure development contractor provided input on the technical sp ecifications of this quality m easure. 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 receiv ed 22 responses from stakeholder with comments and suggestions. Additional information regard the qual ity measure may be found on our Web site

at: http://www.cms.gov/Medicare/Qualit y-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/

. We are proposing that data for the pr oposed quality measure be collected through the LTCH CARE Data Set, with the submi ssion through the QIES ASAP system. For more information on LTCHQR Program repor ting using the QIES ASAP system, we

refer readers to our Web site at: http://www.cms.gov/Medicar e/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 functi onal 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 th e CARE Item Set. The items have been carefully developed and tested for reliability and validity.

Based on the evidence discussed abov e, we are proposing to adopt for the LTCHQR Program for the FY 2018 payment de termination and subsequent years the quality measure entitled Functional Outcom e Measure: Change in Mobility among LongTerm Care Hospital Patients Requiring Vent ilator 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 conditiona lly supported this proposed measure and stated that the measure concept is prom ising, but requires modification or further development, and that functional status is a cr itical area of measurem ent. Since the time of the MAP meeting, we have continued furt her 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 revi ew at the LTCHQR Program Web site at: http://www.cms.gov/Medicare/Quality -Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/inde x.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 au thority 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 ha s 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 gi ven to measures that have been endorsed or adopted by a consensus organization identifie d by the Secretary." We reviewed the NQF's consensus endorsed measures and we re 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 proposin g 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 aut hority to select non-NQF-endorsed measures. We invite public comments on our proposal to adopt the quality measure entitled Functional Outcome Measure: Change in M obility among Patients Requiring Ventilator Support for the LTCHQR Program, with data collection starting on April 1, 2016, for the1203 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 Heal thcare Safety Network (NHSN) VentilatorAssociated Event (VAE) Outcome Measure The third quality measure that we ar e proposing is the CDC-developed National Healthcare Safety Network (NHSN) Ve ntilator-Associated Event (VAE) outcome

measure. The term "Ventilator-Associated Events" incorporates a range of ventilatorassociated events, includi ng ventilator-associated pneumoni a (VAP), pulmonary edema, acute respiratory distress syndr ome, sepsis, and atelectasis. 169 The NHSN VAE Outcome Measure provides increased measure sens itivity, 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 specif ications 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 inju ry 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 ventila tion in this setting. A MedPAC analysis of MedPAR data found that 16 percent of LTCH patients used at l east one ventilator-related service in 2012. 178 In FY 2012, MS-LTC-DRG 207, a diagnosis-relat ed group that refers to respiratory diagnosis with ventilator support for 96 or mo re 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 gr oup that refers to tracheostomy with ventilator support for 96 or more hours or primary diagnosis except face, mouth, and neck without major OR procedure, repres ented an additional 1.3 percent of all LTCH discharges. Together, the two diagnosis-re lated 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 Ven tilation." PLoS ON E 6(3): e18062. 175 Rubenfeld, G. D., E. Caldwell, et al. (2005). "Incid ence 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 Paymen t 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 dia gnosis with ventilator support for 96 or more hours increa sed 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 mechan ically 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 Outcom e Measure in LTCHs was underscored by the MAP, which stated in its January 2014 Pre-Rulemaking Report that the measure addresses a National Quality Stra tegy 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 clini cal impact and preventability of ventilator-associated conditions in critically ill patients who are mech anically ventilated." Chest 144(5): 1453-1460. 182 Ibid.

183 National Quality Forum. Measure Applications Pa rtnership 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 Secr etary may specify a measure that is not so endorsed as long as due consideration is given to measures th at have been endorsed or adopted by a consensus organi zation identified by the Secretary." We reviewed the NQF's consensus endorsed m easures and were unable to identify any NQF-endorsed measures for VAEs in the LTCH se tting (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 sele ct non-NQF-endorsed measures. We are proposing to use the CD C's NHSN reporting and submission infrastructure for reporting of the propos ed NHSN VAE Outcome Measure. Details related to the procedures fo r 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 CL ABSI (NQF #0139) measures for the LTCHQR Program. Further, CDC's NHSN is the data collection and submission framework adopted for data collection a nd reporting for the Influenza Vaccination Coverage among Healthcare Personne l measure (NQF #0431) starting on1207 October 1, 2014, and for the NHSN Facility-W ide 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 Ja nuary 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 s ubmission 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 co llection and submission timeline for this proposed quality measure. We invite public comments on our pr oposal to adopt the NHSN VAE Outcome Measure for the LTCHQR Program, with da ta collection beginning on January 1, 2016, for the FY 2018 payment determination and subs equent years. We also invite public comments on our proposal to use the CDC's NHS N 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 be low 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 importa nce of these measures and measure topics in LTCH setting, feasibility of data collection and implemen tation, current use of these1208 measures and measure topics in the LTCH setting, and the usability of data for these measures and measure topics to inform fu ture 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 in juries secondary to polypharmacy ● Application of Hospital-Based Inpatient Psychiatric Services (HBIPS)-2 Hours of Physical Restraint Use (NQF #0640) ● Application of Percent of Resident s 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 A ssessment of Healthcare Providers and Systems (HCAHPS) (NQF #0166) ● Measures addressing patie nts' experience of care ● Measures addressing pain c ontrol – patients' preference National Quality Strategy Priority: Co mmunication and Coordination of Care ● Application of Medication Reconciliation (NQF #0097) ● Application of Medication Reconc iliation 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 Elem ents 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 A ny Other Site of Care) (NQF #0648) ● Measures addressing care transitions1209 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 re quires that, for the FY 2014 payment determination and subsequent years, each LTC H 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 fo r discharges for the hos pital during the rate year must be reduced by two percentage points.

b. Finalized Timeline for Data Submissi on 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. Speci fically, we refer readers to the table at 78 FR 50878 of the

FY 2014 IPPS/LTCH PPS final rule for the da ta collection timelines and submission deadlines for the FY 2016 payment determina tion and the tables at 78 FR 50881 of that

final rule for the data collection timelin es 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 Resi dents or Patients Who Were Assessed and Appropriately Given the Seasonal Influen za 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 Patie nts Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine (S hort 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 co llection 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 pr eamble of this proposed rule, we are proposing to change to the data collection timeframes and submission deadlines for the FY 2016 payment determina tion and subsequent years. Specifically, as discussed in section IX.C.6.a. of the pream ble 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 dead line 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 pream ble of this proposed rule for further information regarding this proposed revision.12111212 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 fo r 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 Patien ts 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 LTCHQ R Program Quality Measures and for Proposed Revisions to Previous ly Adopted Quality Measures For the two proposed functiona l 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 u pdate LTCHQR Program Manual for the LTCH CARE Data Set (Version 3.00) to include items related to th e functional status measures and the application of the Percent of Resi dents 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 mechanis m 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 ar e proposing that LTCHs would be required to use the CDC's NHSN reporting and submissi on 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 appr oved 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/Le gislation/PaperworkReductionActof1995/PRAListing-Items/CMS1252160.html. CMS will revise the LTCH CARE Da ta Set (Version 3.00) and submit for OMB review for PRA approval to support data coll ection 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 an alyses, 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 co mments 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 determinatio n and subsequent year s, to revise the

data collection timelines and submission d eadlines for the Percen t of Residents or Patients Who Were Assessed and Appropriate ly 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 E xperiencing 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 th e FY 2018 payment determination as listed in the following tables.

Timeframes for Data Collection of LTC HQR 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, 20161215

Timeframes for Data Collection of LTC HQR 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 Pr ogram 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 Wh o Were Assessed and Appropriately Given the Seasonal Influenza Vacci ne (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 am ong Healthcare Personnel (NQF #0431) Data collection timeline Final s ubmission 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 pr oposing to adopt for the FY 2018 payment determination and subsequent years, we ar e proposing the following data collection

timelines and submission deadlines.1216 Proposed Data Collection Timelines fo r 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 LTC HQR Program Quality Data for the FY 2018 Payment Determination: National Healthcare Safety Network (NHSN) Ventilator-Associated Even t (VAE) Outcome Measure Data Collection Timeline Final s ubmission 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 LTC HQR 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 a nd Discharge Functional Assessment and a Care Plan That Addresses Function Data Collection Timeline Final s ubmission 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, 20171217 We invite public comments on these da ta 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 fo r the Application of Percent of Residents Experiencing One or More Falls with Majo r 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 Majo r 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 star t date of January 1, 2016. Data collection

and submission of this measure woul d 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 da ta collection and submission for the LTCHQR Program for the FY 2018 paym ent determination. For all subsequent years, data collection for this measure w ould 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 Resi dents Experiencing One or Mo re Falls with Major Injury (Long Stay) (NQF #0674) measure, and not a pplicable to any other LTCHQR Program measures, proposed or adopted, unless expl icitly stated. We refer readers to1218 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 Paym ent 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 St ay) (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 proposi ng in section IX.C.7. of the preamble of this proposed ru le, if finalized, we are pr oposing 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, 20171220 Proposed Data Collection Timelines and Submission Deadlines of LTCHQR Program Quality Data for the FY 2019 Payment Determinatio n 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 W ere Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF #0680) Data collection timeline Final s ubmission 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 am ong Healthcare Personnel (NQF #0431) Data collection timeline Final s ubmission 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 re quires that, for the FY 2014 payment determination and subsequent years, each LTC H 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 upda te to the standard Federal rate for discharges for the hospital during the rate fiscal year must be reduced by two pe rcentage points. To date,

we have not established a standard for co mpliance other than that LTCHs submit all applicable required data for all finalized m easures, by the previously finalized quarterly deadlines. In response to input from our stakeholders seeking additional specificity related to the LTCHQR Program comp liance affecting FY payment update determinations and, due to the importance of ensuring the integrity of quality data submitted to CMS, we are proposing to se t 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: meas ures collected using the LTCH CARE Data Set (LCDS) are submitted through the CMS Quality Improvement Evaluation System1222 (QIES); and measures stewarded by the CD C (such as Healthcare Acquired Infection (HAI) and vaccination measures), are submitted using the CDC’s National Healthcare Safety Network (NHSN). We have also pr eviously 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 ca lculated using claims data submitted to CMS for payment purposes. Thus, with claims-bas ed measures, there is no submitted quality data to which we could appl y 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 prop osing 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 acc ountable for different data completion

thresholds for each of the two data su bmission mechanisms; an 80 percent data completion threshold for data collected us ing 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 to1223 report infection data using the CDC’s NHSN sy stem for surveillance purposes, prior to the start of the LTCHQR Program on Octobe r 1, 2012, and, therefore, we believe LTCHs are more familiar with the NHSN collection and submission process. In contrast, LTCHs had never submitted qua lity data using a standardized data collection instrument before October 1, 2012, such as the LCDS submitted through the QIES mechanism. In addition, we requi re 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 emerge ntly or against medical advice, in effect making it more difficult to meet a higher leve l of compliance initia lly. Lastly, through the FY 2014 IPPS/LTCH PPS final rule, we fina lized 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 addi tional challenge that LTCHs may

face. We invite comment on other obstacle s LTCHs may face in meeting a higher level of compliance with regard to submi ssion of quality data using the LCDS. b. Proposed LTCHQR Program Data Comp letion Threshold for the Required LTCH CARE Data Set (LCDS) Data Items The LCDS is composed of data coll ection items designed to inform quality measure calculations, including risk-adjustm ent calculations, as well as internal consistency checks for logical inaccuracies . We are proposing that beginning with quality data affecting the FY 2016 payment de termination and subsequent years, LTCHs1224 must meet or exceed a proposed LCDS data co mpletion threshold of 80 percent. We are proposing to assess the completeness of subm itted data by verifying that for all LCDS assessments submitted by any given LTCH, at least 80 percent of those LCDS Assessments must have 100 pe rcent of the required quality data items completed, where, for the purposes of this proposed rule, “comple ted” is defined as having provided actual patient data, as opposed to a non-informative res ponse, 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 understa nd the validity and reliab ility of quality data items, including risk-adjustment models. Fi nally, 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 rela ted 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 initia lly, 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, a nd that their experien ce and understanding, with respect to reporting quality data using a standardized da ta collection instrument, and thus their compliance, will increase over ti me. However, we invite public comment on1225 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 Manua l 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 LTC H that does not meet the proposed requirement that 80 percent of all LCDS asse ssments 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 major ity of LTCHs will be able to meet the proposed 80 percent data completion threshold. It is our intent to rais e 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 th is data (nati onal trainings, CMS Special Open Door Forums, LTCHQR Pr ogram Manual, and technical trainings available on our Web site), we feel LTCH pe rformance with respect to data completion will improve over time. We are proposing th at this threshold will have to be met by LTCHs, in addition to the CDC NHSN thres hold 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 Thre shold 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 pr eviously 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 th e “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 re quired 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 wh ich 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 w ith 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 reduc tion to the applicable FY annual payment update. That is, we are proposing that LTCHs must meet a threshold of 100 percent for1227 measures submitted via the NHSN, achi eved by submitting relevant infection, vaccination, or other required quality measur e data for each month of any given CY, in addition to meeting the above-proposed da ta item completion threshold for required quality data items on the LCDS. As th e LTCHQR Program expands, and LTCHs begin reporting measures that were previously finalized, but not yet implemented, or newly proposed and finalized measures, we are pr oposing 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 mu st 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 threshol d of 80 percent for t hose 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 da ta 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 th eir applicable FY annual payment update. While we are proposing that LTCHs must m eet both the proposed data completion and data validation thresholds, LTCHs cannot ha ve 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 a nd 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 occu r 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 l ogical 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 Technica l 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 validati on will apply only to the LCDS items that

inform the measures Percent of Patients or Re sidents with Pressure Ulcers That are New or Worsened (Short-Stay) (NQF #0678). We in tend to expand this validation process for1229 quality measures affecting the FY 2017 paym ent determination and subsequent years through future notice-an d-comment rulemaking. We are proposing to validate the data elements submitted to CMS for Percent of

Residents or Patients with Pressure Ulcers Th at are New or Have Worsened (Short-Stay) (NQF #0678) under the LTCHQR Program by requesting the minimum chart data necessary to confirm a sta tistically valid random sample of 260 LTCHs. From the random sample of 260 LTCHs, 5 LCDS asse ssments 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 ra ndomly selected assessments, which would need to be copied and

submitted via traceable mail to a CMS contract or for validation. We are proposing that the specific portions of the 5 be neficiary charts would be iden tified in the written request, but may include: admission and discharge as sessments, relevant nursing notes following the admission, relevant nursing notes pr eceding the discharge, physician admission summary and discharge summary, and any A ssessment of Pressure Ulcer Form the facility may utilize. We ar e proposing that the CMS contract or would utilize the portions of the patient charts to compare that inform ation with the quality data submitted to CMS.

Differences that would affect measure outcome s or measure rates would be identified and reported to CMS. These differences coul d 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 re quest copies of the randomly selected medical charts from each LTCH via certified mail (or other traceable methods that require an LTCH representativ e 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 th e contractor. If the LTCH does not comply within 30 days, the contractor would send a s econd certified letter to them, reminding the LTCH that it must return copies of the reque sted medical records within 45 calendar days following the date of the initial contractor me dical 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 a ssessments 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 inco nsistencies. As LTCHs begin to report additional finalized measures, we intend to expand this validati on process to quality measures affecting the FY 2017 payment dete rmination and subseque nt years, through future notice-and-comment rulemaking. Th e contractor would then calculate the percentage of matching data elements whic h 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 pa yment update, we are proposing that LTCHs in the random sample must attain at least a 75 percent va lidation score, based upon our validation process, whic h would use charts requestedfrom 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 woul d 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 paym ent 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 poi nt reduction to their ap plicable 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 us ing 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 data1232 completion thresholds, LTCHs cannot have their applicable a nnual 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 accu racy), it will only r eceive one reduction of 2 percentage points to its applic able FY annual payment update. We invite public comment on these pr oposals 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 th at such procedures shall ensure that an LTCH has the opportu nity 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 measur es 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 comment s regarding the public reporting of quality data under the LTCHQR Program. Currently, we are developing plans re garding the implementation of these provisions. We appreciate the need for tran sparency into the pro cesses 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 repo rting of data, but we intend to include related propos als in future rulemaking.1233 We welcome public comment on what we should consider when developing future proposals related to public repor ting of quality measures for the LTCHQR Program. 13. Proposed LTCHQR Program Submission Ex ception 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 extensi on" requirements for purposes of clarity. For the FY 2017 payment determination and su bsequent years, we are proposing to continue using the LTCHQR Program's requi rements that we adopted in the FY 2014 IPPS/LTCH PPS final rule for the FY 2015 paymen t determination and subsequent years, although the term “waiver” is repl aced 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 resp ect to the quality data reporting requirements of the LTCHQR Program for one or more qua rters, beginning with the FY 2015 payment determination, when there are certain extrao rdinary 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 extraordinar y 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 to1234 CMS through any other channel will not be cons idered as a valid request for an exception or extension from the LTCHQR Program' s reporting requirements for any payment determination. The written request must cont ain 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-R econsideration-andDisaster-Waiver-Requests.html

. When an exception or extension is granted, an LTCH will not incur payment reduction penalties for failure to comply w ith 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 fo r a given period of time. If we grant an extension to an LTCH, the LTCH will still re main responsible for submitting quality data collected during the timeframe in question, a lthough we will specify a revised deadline by which the LTCH must submit this quality data. In addition, in the FY 2014 IPPS/LTCH PPS fi nal 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 circumstan ces affects an entire region or locale. We

stated that if this determination was ma de, 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 and1235 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 a nd 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 system s 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 wa iver or extension on this proposed basis frequently. We are proposing that if we make the determin ation to grant an exception or extension, we would communicate this decisi on through routine communication channels to LTCHs and vendors, including, but not lim ited to, issuing memos, e-mails, and notices

on our Web site at: http://www.cms.gov/Medicare/Qu ality-Initiatives-PatientAssessment-Instruments/LTCH-Quality-Reporting/index.html

. We invite public comment on these proposals. 14. Proposed LTCHQR Program Reconsiderat ion and Appeals Procedures for the FY 2016 Payment Determination and Subsequent Years a. Previously Finalized LTCHQR Program R econsideration 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 opportun ity 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 discussi on of this process.1236 b. Proposed LTCHQR Program Reconsidera tion and Appeals Procedures for the FY 2016 Payment Determination and Subsequent Years For the FY 2016 payment determination a nd subsequent years, we are proposing to adopt an updated process, as described be low, 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 subj ect 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 fi scal year and that the LTCH is therefore subject to a 2-percentage point reduction in the applic able 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 th e date of the ini tial notification of noncompliance to review its payment determination and submit to us a request for reconsideration. This proposed time frame w ould allow us to balance our desire to ensure that LTCHs have the opportunity to request reconsiderati on with our need to complete the process and provide LTCHs with our reconsideration decision in a timely manner. Notifications of noncompliance a nd any subsequent notifications from CMS would be sent via a traceable delivery method, such as certified U.S. mail or registered1237 U.S. mail. We are proposing that an LTC H may withdraw its re quest at any time and may file an updated request within the propos ed 30-day deadline. We also are proposing that, in very limited circumstances, we ma y grant a request by an LTCH to extend the proposed deadline for reconsider ation requests. It would be the responsibility of an LTCH to request an extension and demonstr ate that extenuating circumstances existed that prevented the filing of the reconsid eration request by th e 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 documenta tion 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 th e requirements during the reporting period. We would not review any rec onsideration 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 othe r 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-R econsideration-andDisaster-Waiver-Requests.html

.1238 We are proposing that an LTCH wishing to request a reconsider ation of our initial noncompliance determination would be require d 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/Qu ality-Initiatives-PatientAssessment-Instruments/LTCH-Quality -Reporting/LTCH-Quality-ReportingReconsideration-and-Disa ster-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 rega rding the reconsider ation request, an email to the LTCH CEO or CEO-designated repr esentative, 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 reduc tion to its annual payment update to submit a timely request for reconsidera tion and receive a decision on that request before the LTCH can file an appeal with the PRRB. If the LTC H is dissatisfied with the decision rendered at the reconsideration level, the LTCH c ould appeal the decisi on with the PRRB under 42 CFR 405.1835. We believe this proposed proce ss 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 process1239 including requirements for submitting a reconsideration request is posted on our Web site

at: http://www.cms.gov/Medicare/Qualit y-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/LTCH- Quality-Reporting-R econsideration-andDisaster-Waiver-Requests.html

. We invite public comment on the propos ed procedures for reconsideration and appeals. 15. Electronic Health Records (EHR) a nd 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 f eedback 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 or ders/medication reconciliation)?

● Does the EHR system used in your LTCH setting support interoperable document exchange with other healthcare provi ders (for example, acute care hospitals, physician practices, skilled nursing facilities, etc.)? In addition to seeking public feedback a nd input on the feasibili ty and desirability of EHR adoption and use of HIE in LTCHs, we are also interested in public comment on1240 the need to develop electronic clinical quality measures, an d the benefits and limitations of implementing these measures for LTCHs.1241 D. Electronic Health Record (EHR) Incen tive 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 hospita ls (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 demonstr ate meaningful use of CEHRT, which includes reporting on clinical quality measures (CQ Ms) using CEHRT. Sections 1886(b)(3)(B) and 1814(l) of the Act also establish dow nward payment adjustments under Medicare, beginning with fiscal year 2015, for eligible hos pitals and CAHs that are not meaningful

users of CEHRT for certain asso ciated 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 thr ough 54087). We continue to believe there are important synergies with respect to th e Medicare EHR Incentive Program and the Hospital IQR Program. We believe the fi nancial incentives u nder the Medicare EHR Incentive Program for the adoption and m eaningful use of CEHRT by EHs and CAHs1242 will encourage the adoption and use of CEHR T 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 Incentiv e Program will provide a foundation for establishing the capacity of hospitals to se nd, and for CMS to receive, CQMs via CEHRT for certain Hospital IQR Program measures. 2. Alignment of the Medicare EHR Incen tive Program Reporting and Submission Timelines for Clinical Quality Measures with Hospital IQR Program Reporting and

Submission Timelines We believe it is important to conti nue our goal of aligning the EHR Incentive Program with the Hospital IQR Program becau se alignment of these programs will serve to reduce hospital repo rting burden and encourage the a doption and meaningful use of CEHRT by eligible hospitals and CAHs. Sec tion 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 othe rwise required, including reporting under section 1886(b)(3)(B)(v iii) of the Act (the Hospital IQR Program). The reporting and

submission timelines for the EHR Incentive Pr ogram for eligible hospitals and CAHs currently operate on a Federal fiscal year basis, while the reporting and submission timelines for the Hospital IQR Program current ly operate on a calendar year basis. This difference may create confusion and additional burden fo r hospitals attempting to report data to both programs. To alleviate this possible confusion, redu ce provider burden, and strengthen our commitment to aligning program s, we are proposing to align the reporting1243 and submission periods for clinical qualit y measures for the Medicare EHR Incentive Program with that of the Hospital IQR Pr ogram on a calendar year basis in 2015 and

2016. We realize that aligning the Medicar e 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 Fe bruary of the subsequent calendar year rather than ending in November as it is currently done, and ther efore would delay the incentive eligibility assessment, and subse quently 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 preven t the delay of Medicare EHR incentive payments, we are proposing to incr ementally shift the Medicare EHR Incentive Program reporting periods for CQMs. Speci fically, 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 re quire that the data be reported only for the first three calendar quarters (that is, Ja nuary through March, April through June and July through September) allowing the reporti ng period, incentive eligibility assessment, and incentive payments to rema in 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 pe riod in FY 2015 or 2016, or report CQMs electronically for a 3-month calendar year quart er, by July 1 of the given year to avoid1244 the Medicare penalty in the subsequent year as finalized in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50903 through 50905). Medi caid-only providers w ould continue to report according to State requirements. Th e 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 attestati on via the Registration and Attestation System. This proposal would allo w us to align the CQM reporting periods for the Medicare EHR Incentive Program with th at 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 tw o programs, we are proposing to require quarterly reporting of electronically repor ted CQMs for the Medicare EHR Incentive Program to align with the currently esta blished quarterly electronic CQM reporting periods for the Hospital IQR Program. A dditionally, the Hospital IQR Program is proposing to change its submission period for electronic CQMs from annual to quarterly

submission in this rule. We refer reader s to the Hospital IQR Program discussion in section IX.A.7.h. of the preamble of this propos ed 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 Progr am submission period with that being proposed for the Hospital IQR Program. The table below illustrates the current reporting periods, and the following table fu rther 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 ORReport 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, 20141246 Proposed Timelines to Alig n 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 Architectur e Category III (QRDA-III) Option in 2015 In the EHR Incentive Program Stage 2 fi nal rule (77 FR 54088), we finalized two options for eligible hospitals and CAHs to electronically submit CQMs beginning in1247 FY 2014 under the Medicare EHR Incentive Prog ram. Option 1 was to electronically submit aggregate-level CQM data using QR DA-III. Option 2 was to electronically submit data using a method similar to the 2012 and 2013 EHR Incentive Program electronic reporting pilot for EH s and CAHs, which used QRDA -I (patient-level data). We also stated in that final rule that, consis tent with section 1886(n )(3)(B)(ii) of the Act, in the event the Secretary does not have the ca pacity to receive CQM data electronically, eligible hospitals and CAHs that are beyond their first year of meaningful use may continue to report aggregate CQ M 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 elec tronic 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. Theref ore, for the 2014 reporting period under the Medicare EHR Incentive Program, eligible hospi tals and CAHs would have the option to continue to report aggregate CQM results thr ough attestation. We st ated 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. Theref ore, for the 2015 reporting period under the Medicare EHR Incentive Program, eligible hospi tals and CAHs would have the option to continue to report aggregate CQM results th rough attestation. We note that submissions of aggregate CQM data via attestation woul d not satisfy the repor ting requirements for the Hospital IQR Program, and consistent wi th our proposal above regarding alignment1248 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 attest ation for a continuous 90-day period in FY 2015, or report CQMs electronically fo r 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 th e 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 hos pitals that are eligib le to participate in both programs electronically submit up to 16 elec tronic clinical quality measures of the 28 inpatient measures identified by the Hospita l IQR Program. We be lieve that keeping the two programs aligned will ultimately redu ce 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 Qu ality 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 th e EHR Incentive Program starting in 20141249 (77 FR 54083 through 54077 Table 10). These CQMs are updated rou tinely to account for changes, including but not limited to changes in billing and diagnosis codes and changes in medical practices. The requireme nts 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 da ta that is electronical ly reported according to the specifications of the older versions of the CQMs, including ve rsions that may be allowed for reporting under the EHR Incentive Program. We stated in the EHR Incentive Program Stage 2 final rule that, consistent wi th section 1886(n)(3)(B)(i i) of the Act, in the event that the Secretary does not ha ve the capacity to receive CQM data electronically, eligible hospitals and CAHs may continue to report aggregate CQM results through attest ation (77 FR 54088). We are proposi ng that eligible hospitals and CAHs that seek to report CQMs electr onically under the Medicare EHR Incentive Program must use the most recent version of the electronic speci fications 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 th e electronic specifica tions (for example, if their CEHRT has not been certified for that particular vers ion) 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 Pr ogram 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 C AH’s patient mix. We understand, however, that there are situations in which an eligible hos pital or CAH does not ha ve 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 ha s 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 repor ting, but not all of th e 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 hos pitals and CAHs should meet their reporting requirements in this situation; therefore, we are clarifying our polic y as set forth below regarding the reporting of a zero denomina tor 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 m eet 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 fo r a CQM counts as a successful submission for that CQM for both the EHR Incentive Pr ogram and the Hospital IQR Program. For example, if the eligible hospital or CAH with in the previously mentioned health system does not provide maternity services, but one of the 16 CQMs the hea lth system’s EHR is certified to is a maternity measure, that eligible hospital’s or CAH’s EHR may render a1251 zero in the denominator for that CQM. Th e eligible hospital or CAH would therefore report a zero denominator for th at maternity care CQM, and this would count toward the 16 required CQMs for the EHR Incentive Pr ogram 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; Clar ification 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, fo r 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 Cr iteria; and Medicare and Medi caid Programs; Revisions to the Electronic Health Record Incentive Progr am interim final rule, we revised the case threshold exemption policy to make it applicab le 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 a nd submitting CQMs by attestation (77 FR 729881252 through 72989). Eligible hospitals and CAHs with 5 or fewer discharges during the relevant EHR reporting period (i f attesting to a 90-day EH R reporting period), or 20 or fewer discharges during the year (if attest ing to a full year EH R reporting period) as defined by the CQM’s denominator population w ould 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 c overing 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 exem ption for 13 or more CQMs, the eligible hospital or CAH would be able to report at least 16 CQMs. Li kewise, 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 thresh old of discharges for 13 clinical quality measures, and thus could report 16 clinical qua lity 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 polic y requires that an eligible hospital or CAH that claims a case threshold exempti on for one CQM must choose another CQM on which to submit data, or continue to invoke the case threshold exemption until it exceeds1253 13 case threshold exemptions and may therefor e report fewer than the 16 required CQMs. This policy assumes that the eligible hospita l or CAH has an EHR that is certified to more than the minimum of 16 CQMs, and th e 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 minimu m 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 re port on measures for which th eir 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 eligib le 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 repor ting period (if attesting to a 90-day EHR reporting period), or 20 or fewe r discharges during the year (if attesting to a full year EHR reporting period) as defined by the CQ M’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 C AHs to adopt EHR technology that includes CQMs relevant to the eligible hospital’s or CAH’s case mix, though we understand that1254 in some cases, the eligible hospital or CAH ma y not meet the case threshold of discharges for a particular CQM. We believe this pr oposed policy better refl ects our intent for eligible hospitals and CAHs to report on onl y those measures for which their EHRs are certified while meeting the reporting requi rements for the EHR Incentive Program and Hospital IQR Program. We invite public comment on this proposal.1255 X. Proposed Revision of Regulation s Governing Use and Release of Medicare Advantage Risk Adjustment Data A. Background

Section 1853 of the Act re quires the Secretary to make payments to Medicare Advantage (MA) organizations offering loca l and regional MA plan s with respect to coverage of individuals enro lled under Medicare Part C. Section 1853(a)(1)(C) of the Act requires the Secretary to adjust such paymen ts 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 requir es submission of data by MA organizations regarding the services provided to enrollees and other in formation the Secretary deems necessary but does not limit the Secretary’s us e of such data or informati on. 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 practitione r. 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 to1256 as encounter data) or data in abbreviated fo rmats. Section 422.310(f) currently specifies CMS’ uses of the risk adjustment data. In this proposed rule, we are proposin g to revise the existing regulation at § 422.310(f) to broaden the specified uses of ri sk adjustment data in order to strengthen program management and increase transparen cy in the MA program and to specify the conditions for release of risk adjustme nt 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 th at the data used or released under proposed paragr aph (f)(1) would not include th e medical records and other data collected separately under paragraph (e ) for the purpose of risk adjustment data validation (RADV) audits. We do not inte nd for the proposed § 422.310(f) to authorize any additional use or release of the data described in paragra ph (e). The data described in paragraphs (a) through (d) would include those el ements that constitute an encounter data record, including contract, plan, and provider identifie rs, with the exception of disaggregated payment data as discussed be low. In addition, we note that paragraph (d)(1) also authorizes the co llection 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 or1257 other agents that perform ac tivities or analyses on CMS’ behalf in connection with authorized use of the data. The existing specif ied purposes are: (1) to determine the risk adjustment factors used to adjust paym ents, as required under §§ 422.304(a) and (c); (2) to update risk adjustment models; (3) to calculate Medica re DSH percentages; (4) to conduct quality review and improvement activ ities; and (5) for Medicare coverage purposes. Under our proposal, paragraph (f ) would be restructur ed to identify the purposes for which CMS may use and release ri sk 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 suppor t the Medicare program (includi ng demonstrations) and to support public health initiatives and other health care-related research; (2) fo r 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 a nd efficient operational management of the Medicare program. Risk adjustment data al so 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 data1258 can support CMS’ program integrity activities in the Medicare program and other Federal health care and related program s; we intend this general term to encompass audits, investigations, efforts to combat waste, fra ud, and abuse, and any other actions designed to ensure that the program operates within its authority. This includ es audits, evaluations, and investigations by the Office of the Insp ector General (OIG) as well as CMS’ own efforts. In addition, risk adjustment da ta 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. Fina lly, we are proposing to acknowledge that other laws may permit other uses of risk adju stment data and that this regulation is not intended to supersede such other laws. Regarding the use of risk adjustment da ta outside of CMS, we are proposing at § 422.310(f )(2) that other HHS agencies, othe r 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 purpos es 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 bran ch agencies may request this data for the same purposes CMS proposes to use the data a nd believe such use is appropriate. Under our proposal, other agencies th at evaluate and analyze the Medicare program, perform health care-related research, support public heal th initiatives, perform activities in the administration of the Medicare program, or conduct activities to support program integrity in the Medicare program and othe r Federal health care and related programs would be able to access and use risk adjustme nt data for these purpos es. States, such as1259 while conducting program integrity activiti es for Medicaid programs or in the

administration of Medicare-Medicaid demonstra tions (for example, refer to the Web site

at: http://www.cms.gov/Medicare-Medicaid -Coordination/Medicare-and-MedicaidCoordination/Medicare-Medicaid-CoordinationOffice/FinancialAlignmentInitiative/Financia lModelstoSupportStatesEffortsinCareCoordi

nation.html ), may access and use risk adjustment data under this proposal. We anticipate that nongovernmental external entities woul d generally only gain access to risk adjustment data under this proposal in connectio n with public health initiatives and health care-related research, as such ex ternal entities appear to have limited, if any, roles in the other purposes identified in our proposal. CMS is seeking to balance protection of conf idential beneficiary information and the proprietary interests of MA organizations with the need to effectively administer Federal health care programs and to encour age research into better ways to provide

health care. CMS is seeki ng public comments on the proposed uses and release of data and how else to achieve the necessary balan ce. 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 eval uating 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 Data1260 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 a bove 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 re cords and other data collected separately under paragraph (e) for the purpose of risk ad justment data validation (RADV) audits. We do not intend for the proposed revision to § 422.310(f) to authoriz e any additional use or release of the data described in paragraph (e). Second, we are proposing that CMS woul d release only the minimum data that CMS determines is necessary to fulfill the an alytical or operational goal for a particular project. In other words, CMS may determin e that the appropriate data release for an approved research project is a subset of en counter 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 rel ease data under this authority to Federal executive branch agencies, States, and extern al entities, only for purposes identified in paragraph (f)(1) (discu ssed above) and subject to a num ber of additional limitations: (i) applicable Federal laws; (ii) CMS data sharing procedures; (iii) protection of beneficiary identifier elements and bene ficiary confidentialit y, including: (A) a prohibition against public disclosu re of beneficiary identifying information; (B) release of beneficiary identifying information to othe r HHS agencies, other Federal executive1261 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 § 4 22.310(f)(2)(iv), we would not release payment data at the encounter level. We belie ve that release of payment data at the level of the encounter record might reveal propr ietary negotiated payment rates between MA plans and providers. Given the commercially sensitive nature of this information, we are not proposing to release payment da ta at the level of the encount er record. In the interest of providing as much transparency as po ssible, while at the same time protecting proprietary information, we are proposing to authorize release of aggregate payment information. For example, we could aggreg ate the payment data by service category, by plan, by contract, or across c ontracts. We are seeking publ ic 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 re leasing payment rates at the level of the encounter data record would reveal proprieta ry negotiated payment rates. Specifically,1262 we are requesting public comment on what strategies might be used under which payment data could be released while pr otecting commercially sensitive information. To the extent that a requestor has sepa rate statutory author ity for requiring CMS disclosure of data, these proposed provisions do not limit or supersede such authority. For example, some Congressi onal support agencies may co mpel 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, mon itoring, 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) author izing the OIG to access data as necessary to perform its responsibilities. This re gulation 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 In spector General (OIG) published a report entitled “Medicare-Approved Heart Transpla nt 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 perfor mance 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 tr ansplant 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 tr ansplant centers and a pplied 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 or gan donation and transpla ntation services and our goals to: (1) protect patients who ar e awaiting organs fo r transplantation; (2) establish key quality and procedural sta ndards; and (3) improve outcomes for patients1264 (such as patient survival) a nd reduce Medicare expenses by decreasing the likelihood that a transplant would fail. In the March 30, 2007 final rule, we codifi ed 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-approva l of organ transplant centers at 42 CFR 488.61. The CoPs set forth explicit expectations for outcomes, patie nt safety, informed c hoice, and quality of transplantation services. In particular, §§ 482.80 and 482.82 sp ecify that a transplant center’s outcomes are not acceptable if, am ong other factors, the number of observed patient deaths or graft failures 1 year af ter receipt of a tran splant 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-appr oval, respectively, for a tran splant center that has not met the data submission, clinical experience, or outcome requi rements, or other CoPs, if the center submits a formal, written request fo r such a review. The existing regulations do not limit the factors that CMS may consid er, but enumerates, at a minimum, the following factors to be considered: (1) the ex tent to which outcome measures are met or exceeded; (2) the availability of Medicare-appr oved 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 or1265 re-approval based on mitigating factors permits a transplant center to operate as a Medicare-approved transplant center under certain circum stances 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 propos ing to strengthen, clarify, and provide additional transparency for th e survey, certification, and enforcement procedures under § 488.61 for transplant centers th at are requesting initial approval or re-approval for participation in the Medicare program when th e 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 enforcem ent 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 enfo rcement regulations, we have expanded our knowledge regarding: (a) the factors and processes that promote improvement in transplant center outcomes; and (b) other mitig ating factors that merit explicit recognition under CMS regulations. The preponderance of requests for initi al approval or re-a pproval based on mitigating factors that we have approved are for the transplant centers that have been able1266 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 performan ce improvements occurred after the program was cited for substandard performance by CM S and was at risk of losing Medicare participation, usually while the program was operating during the mitigating factors review process or under a bi nding Systems Improvement Agreement (SIA) with CMS. Under an SIA, CMS agrees to extend the e ffective date of a prospectively scheduled termination from Medicare participation (tha t is, denial of re-a pproval) 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 revi ew the transplant center’s performance and make a final decision as to whether: (a) th e 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 tran splant center based on mitigating factors. Of those determinations, 48 of the reque sts (37.8 percent) we re approved based on information provided by the transplant center on its mitigating factors alone (that is, without entering into an SIA) because the tr ansplant 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 c onsideration the lag time1267 in data inherent in the SRTR reports ) demonstrated compliance with outcome requirements; 33 of the requests (25.6 percent) were eventually a pproved on the basis of the transplant center’s successful SIA comp letion and much-improved outcomes data for the affected program; 24 of the requests (18.6 percent) involved tran splant centers that were approved and the transplant centers were permitted to continue operation because CMS determined that the transplant cente rs 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 transp lant 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 request s (1.6 percent) were approved because natural disasters temporarily impacted the tr ansplant 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 withdr ew its participation from the Medicare

program. 2. Coordination with Efforts of the Orga n 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 wh ich to focus. We also sought to organize

CMS activities in a manner that would reinfo rce and continue the OPTN as the first line of external review and quality im provement for transplant centers.1268 The OPTN is the unified transplant netw ork established under the National Organ Transplant Act (NOTA) of 1984. The NOTA ca lled for the network to be operated by a private, nonprofit organization under Federal contract. Th e OPTN is a public-private partnership that links all of the professionals involved in th e donation and transplantation system. The primary goals of the OPTN ar e 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 avai lable 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 a nd Services Administration (HRSA) are considering adoption of an alternative methodology for calcu lating expected transplant outcomes, known as the “Bayesian” methodol ogy, and for setting a threshold that would “flag” a transplant center for OPTN revi ew 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 c hooses 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 b een flagged for review by the OPTN, CMS

would take these facts into c onsideration if the transplant program has requested approval1269 based on mitigating factors. For a persp ective 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 regul ations at § 488.61 to include specific additional provisions describing and expanding the mitigating factors that CMS may consider when determining requests and e xplain 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 ar e met or exceeded; (2) the availability of Medicare-approved transplant centers in the area; and (3) extenuati ng circumstances that may have a temporary effect on meeting the CoPs. We are proposi ng 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 thr ee mitigating factors and the conditions under which they would apply. Finally, we are pr oposing 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 para graphs (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 fa ctors, as well as by adding new factors for review. We also are proposi ng 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 situati ons of immediate jeopardy, as follows:

● The extent to which outcome measur es are not met or exceeded (existing paragraphs (a)(4)(i) and (c)(4)(i); now proposed paragraph (f)(1)(i)).

● Availability of Medica re-approved transplant cent ers 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 (existi ng paragraphs (a)(4)(iii) and (c)(4)(iii); now proposed paragra ph (f)(1)(iii)).

● Program improvements that substantially address root causes of graft failures or patient deaths and that have been imple mented and institutiona lized on a sustainable basis (proposed new pa ragraph (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 rela tive to other transplant programs, such as a high rate of transplant ation of individuals who are highly sensitized or children who have undergone the Fontan procedure, where CMS finds that the innovative practices are suppor ted 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 re levant key factors into consideration (proposed new para graph (f)(1)(vi)).

● The program’s performance, based on the OPTN method of calculating patient and graft survival, is within the OPTN’s th resholds for acceptable performance and does not flag OPTN performance review under th e 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 consideri ng successful mitigating re quests. 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 outcom es, program improvements or innovations that have been implemented or planned, and, in th e case of natural disasters, the recovery actions planned. Examples of information to be submitted with each request could include, but are not limite d 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 pr ogram(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 s upporting 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 cont ributing factors for patie nt deaths and graft failures;

◦ Program improvements or innovations (where applicable) that have been implemented and improvements that are planned;

◦ Patient and donor/organ se lection criteria and eval uation protocols, including methods for pre-transplant patient eval uation by cardiologists, hematologists, nephrologists, and psychiatrists or psyc hologists, to the extent applicable;

◦ Organizational chart with full-time equi valent levels, roles, and structure for reporting to hospital leadership;

◦ Waitlist management protocols and practices relevant to outcomes;

◦ Pre-operative management protocols and practices;

◦ Immunosuppression/infecti on prophylaxis protocols;

◦ Post-transplant monitoring and ma nagement protocols and practices;

◦ Quality Assessment and Performan ce Improvement (QAPI) Program meeting minutes from the most recent four meetings and attendance rosters from the most recent 12 months;

◦ Quality dashboard and ot her performance indicators;

◦ Recent outcomes data for both pati ent survival and graft survival; and

◦ Documentation of whether the program has engaged with the OPTN to review program outcomes, the status of any such re view, 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 informati on. 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 th e program’s request to seek consideration of mitigating factors. CMS would requi re that all information necessary for

consideration be received with in 30 days of CMS’ initial not ification for any deficiency, except a deficiency based on insufficient clinic al experience or outcomes; and within 120 days of CMS’ written notification for a deficiency based on insufficient clinical experience or outcomes. Failure of a transp lant 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 pr opose to clarify and expand on the description of the mitigating factors applic ation and review process. Under existing regulations, a transplant cen ter seeking initial approval or re-approval of Medicare participation based on the presence of mitiga ting 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 a nd program improvement, but does not yet qualify for1275 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 enga ge in a significant a nd directed regimen of further quality improvement under a Systems Improvement Agreement (SIA). As we noted above, programs that have entered in to SIAs have demonstrated significant improvements. Therefore, we are proposing to provide an explic it 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) ini tial approval or re-approval of a program’s Medicare participation based upon consideration of mitigating f actors; (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 impr ovements that address root causes and are institutionally su pported 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 clar ify 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 e nded, 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 de ficiency. However, CMS could approve a1276 program with a standard-level deficien cy upon receipt of an acceptable plan of correction. A condition-level deficiency repr esents a serious classification and, unless the deficiency is remedied, precludes a pr ovider from participa ting in Medicare. A standard-level deficiency represents a less seri ous deficiency, such as one in which just a small part of a CoP is found to be out of comp liance. 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 a nd 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 hos pital governing body, and is on a quality improvement path th at 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 pr ogram if the transplant center can show that it has identified, or is act ively improving its identificatio n of, the root causes of its1277 noncompliance and if the transp lant center has initiated acti ons 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 f actors, the proposed rule would explicitly provide CMS with the option of offering a tim e-limited SIA to those transplant centers that have demonstrated progr ess in making substantive prog ram improvements to address root causes of deficient outcomes, agree to undertake a structured regimen of further quality improvement, and agree to waive thei r appeal rights. In some instances, a voluntary period of inactivity of the transp lant center is warr anted, or a period of inactivity may be required by CMS as a condi tion of an SIA approva l, as a requirement of initiating an SIA for a specified period, or until certain milestones are achieved. During the SIA period, CMS’ oversight a nd enforcement authority continue and CMS may conduct routine unannounced surveys, complaint investigations, and/or terminate the transplant center’s participati on in the Medicare program if there is not substantial compliance with Federal requi rements 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 transpla nt center would be required to waive any appeal rights that they may have, either admi nistratively or judicially, if CMS ultimately terminates Medicare participati on or denies initial approval of the tran splant center. We are proposing that such a waiver applies, re gardless of whether revoc ation or termination of approval/re-approval occurs due to a finding that the hospital failed to fulfill the terms1278 of the SIA or due to the deficiency findi ngs that the SIA was designed to address, pursuant to CMS’ enforcement au thority under the regulations. A transplant center’s approval to opera te 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 determin es 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 revi ew any prior mitigating factors approval to determine if the circumstances that origin ally 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 r ecertification 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, pa ncreas, liver, or lung transplant program. Each SIA is focused on a particular organ tr ansplant program. The SIA is a plan for a series of actions, activities, and goals that provide oppor tunities for the hospital and transplant center to conduc t internal improvement anal ysis and action, and engage1279 external experts to ensure that the transplant center is in complianc e with evidence-based

standards and advances in the field that w ould optimize the care provided to patients. Through an SIA, CMS is able to offe r transplant centers additional time to achieve compliance with the CoPs through a structured a nd monitored process. In particular, the use of the formal SIA pro cess reflects CMS’ re cognition 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 possi bility if highly unus ual 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 afte r transplant compare with the risk-adjusted expected number of deaths or graft failure fo r a particular transplant program. The SRTR risk adjustment methodology (used to calcula te the expected numbers) takes into consideration the organs transp lanted and the characteristic s of the donors and recipients (for example, factors that have a bearing on the risk to patien t or graft survival, such as diabetes, hypertension, advanced age, cold isch emic time of the organ to be transplanted, among others). For example, the national number of expected d eaths 1 year after transplant for all transp lant centers in the United States is 1.0. A transplant center that had twice the expected number of deaths would have a standardized mortality ratio1280 (SMR) of 2.0. As of August 2013, adult kidn ey 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 performa nce rate from 2.05 to 1.17 (close to the 1.0 national average). The transplant cent ers 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). Tr ansplant 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 inco rporates 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 hosp ital 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, tran splant 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 cent er must agree to a regimen of specified activities, including (but not lim ited to) all of the following:

185 Hamilton, Thomas E., Regulatory Oversight in Transplanta tion: Are Patients Really Better Off , C urr Opin Organ Transplant 2013, 18:203–209. Available at: at http://www.co-transplantation.com

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● Patient notification about the de gree 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-pocke t costs of copayments and testing expenses for any wait-listed individual who wishes to be listed with anot her program (proposed paragraph (h)(1)(i)).

● An external independent peer review team that c onducts an onsite assessment of program policies, staffing, operations, relatio nship to hospital services, and factors that contribute to program outcomes; that sugge sts quality improvements the hospital should consider; that provides both ve rbal 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 releva nt organ type(s), a tran splant administrator, an individual with expertise in transplant QAPI systems, a so cial 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, nephrologi st, or hepatologist. Except for the transplant surgeon, CMS may pe rmit substitution of an individual with one type of expertise for another in dividual who has expertise part icularly needed for the type of challenges experienced by the program, such as substitution of an infection control specialist in lieu of, or in a ddition to, a social worker (p roposed paragraph (h)(1)(ii)).

● An action plan that addresses systemic quality improvements and is updated after the onsite peer review (proposed pa ragraph (h)(1)(iii)).1282

● An onsite consultant whose qualifications are a pproved by CMS, and who provides services for 8 days per month on av erage for the duration of the agreement, except that CMS may permit a portion of the ti me to be spent offsite and may agree to fewer consultant days each month after the fi rst 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 transpla nt 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 th e use of registry data to analyze outcomes and inform quality improvement effo rts (proposed para graph (h)(1)(vi)).

● A staffing analysis that examines the le vel, 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 performa nce 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 confer ence calls with CMS regarding the status of programmatic improve ments, the results of the actions, data, reports, or other deliverables specified in the SIA, and regarding the number of1283 transplants, the death and graft failures that occur within 1 year pos t-transplant (proposed paragraph (h)(1)(ix)).

● Additional or alternative requireme nts specified by CMS, tailored to the transplant program type and circumst ances (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 pe riod, subject to CMS’ discreti on 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 th e Congress: Medicare Payment Policy” and have given the recommendations in the repo rt consideration in conjunction with the proposed policies set forth in this proposed rule. MedPAC recommendations for the

IPPS for FY 2015 are addressed in A ppendix 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 MedP AC’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 re quests for data related to the prospective payment system, we have established a pr ocess under which commenters can gain access to raw data on an expedited basis. Generall y, the data are now available on compact disc (CD) format. However, many of the f iles 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 wishi ng to purchase data tapes, cartridges, or diskettes should submit a written request al ong with a company check or money order1285 (payable to CMS-PUF) to cover the cost to the following address: Centers for Medicare & Medicaid Services, Public Use Files, A ccounting Division, P.O. Box 7520, Baltimore, MD 21207-0520, (410) 786-3691. Files on the In ternet may be downloaded without charge. 1. CMS Wage Data Public Use File

This file contains the hos pital 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 vers ions 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/AcuteInpa tientPPS/WIFN/list.asp#TopOfPage

. Periods Available: FY 2 007 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, we1286 refer readers to the wage index schedule in section III.J. of the preamble of this proposed

rule.

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. 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 thes e files are created each year to support the rulemaking.

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. Period Available: FY 2015 IPPS Update. 4. Other Wage Index Files CMS releases other wage index analysis files after each proposed and final rule.

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. Periods Available: FY 2 005 through FY 2015 IPPS Update.1287

5. FY 2015 IPPS SSA/FIPS CBSA State and County Crosswalk

This file contains a crosswalk of St ate and county codes used by the Social Security Administration (SSA) and the Federa l Information Processing Standards (FIPS), county name, and a historical list of Metropolitan Statisti cal Areas (MSAs).

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. Period Available: FY 2015 IPPS Update. 6. HCRIS Cost Report Data

The data included in this file contain cost reports w ith fiscal years ending on or after September 30, 1996. These data files cont ain 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 bi lls. The file contains records for all prospective payment system eligible hospitals , including hospitals in waiver States, and data elements used in the prospective paym ent system recalibration processes and related activities. Beginning with December 1988, th e 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 hospita l inpatient prospective payment system.

The case-mix index is a measure of the costline ss 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 versi ons of this file are created each year to support the rulemaking.

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Periods Available: FY 1985 through FY 2015. 9. MS-DRG Relative Weights (Also Table 5 - MS-DRGs) This file contains a listing of MS-DRG s, 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 s upport the rulemaking. (We note that Table 5 is issued concurrently with the proposed rule a nd the final rule and is available only via the Internet on the CMS Web site.)

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Periods Available: FY 2005 through FY 2015 IPPS Update.1289 10. IPPS Payment Impact File

This file contains data used to es timate payments under Medicare’s hospital impatient prospective payment systems for opera ting and capital-related costs. The data are taken from various sources, including th e Provider-Specific File, HCRIS Cost Report Data, Minimum Data Sets, and prior impact file s. The data set is abstracted from an internal file used for the impact analysis of the changes to th e 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/AcuteInpa tientPPS/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, standa rd deviation, and coefficien t of variation statistics by MS-DRG for length of stay and standardiz ed 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 creat ed each year to support the rulemaking.

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. Periods Available: FY 2005 through FY 2015 IPPS Update.1290 12. Prospective Payment System (PPS) Standardizing File

This file contains information that st andardizes the charges used to calculate relative weights to determine payments under the hospital inpatient operating and capital prospective payment systems. Variables incl ude wage index, cost-o f-living adjustment (COLA), case-mix index, indirect medical e ducation (IME) adjustment, disproportionate share, and the Core-based St atistical Area (CBSA). The file supports the rulemaking.

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. Period Available: FY 2015 IPPS Update. 13. Hospital Readmissions Reduction Program File

This file contains information on th e calculation of the Hospital Readmissions Reduction Program payment adjustment. Va riables include the proxy excess readmission ratios for acute myocardial infarctio n, pneumonia and heart failure and the proxy readmissions payment adjustment for each pr ovider included in the program. The file supports the rulemaking.

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. Period Available: FY 2015 IPPS Update. 14. Medicare Disproportionate Shar e Hospital (DSH) Supplemental File

This file contains information on th e calculation of the uncompensated care payments for FY 2015. Variables include a hos pital’s SSI days and Medicaid days used to determine a hospital’s sh are of uncompensated care payments, total uncompensated1291 care payments and estimated per claim uncompe nsated care payment amounts. The file supports the rulemaking.

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. Period Available: FY 2015 IPPS Update. 15. Hospital-Acquired Condition ( HAC) Reduction Program File

This file contains information on the calculation of the paym ent 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 reduc tion program, the associated percentile, and a flag if the hospital would be s ubject to the FY 2015 reduction under section 1886(p)(1) of the Act based on this percent ile. The file suppor ts the rulemaking.

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. 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 a ny data used in constructing this proposed

rule should contact Nish a Bhat at (410) 786-5320. B. Collection of Information Requirements 1. Statutory Requirement fo r 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 of1292 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 collecti on 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 auto mated 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 fo r 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 fu ll description of the clin ical applications of

the medical service or te chnology and the results of any clinical evaluations demonstrating that the new medi cal service or technology repres ents a substantial clinical improvement. In addition, the request must contain a significant sample of the data to

demonstrate that the medical service or technology meet s the high-cost threshold.

We believe the burden associated with th is requirement is exempt from the PRA under 5 CFR 1320.3(c), which defines the agency collection of informa tion subject to the requirements of the PRA as information colle ction imposed on 10 or more persons within any 12-month period. This information collect ion 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 preamb le of this proposed rule discusses the occupational mix adjustment to the proposed FY 2015 wage i ndex, respectively. Wh ile the preamble of this proposed rule does not contain any ne w ICRs, we note that there is an OMB approved information collection request asso ciated with the hospital wage index.1294 Section 304(c) of Pub. L. 106–554 amende d section 1886(d)(3)(E) of the Act to require CMS to collect data at least on ce every 3 years on the occupational mix of employees for each short-term, acute care hosp ital participating in the Medicare program in order to construct an occupational mix adju stment to the wage index. We collect the data via the occupational mix survey.

The burden associated with this inform ation 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 aforem entioned burden is s ubject to the PRA; it is currently approved under OCN 0938-0907. 4. Hospital Applications for Geogra phic 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 reclassifi cations. As stated in that section, under section 1886(d)(10) of the Act, the MGCRB ha s the authority to accept short-term IPPS hospital applications requesti ng geographic reclassification fo r 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 appl ication process is the time and effort necessary for an IPPS hospital to complete a nd 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 Inpati ent Quality Reporting (IQR) Program The Hospital IQR Program (formerly re ferred to as the Reporting Hospital Quality Data for Annual Payment (RHQDAPU) Program) was originally established to implement section 501(b) of the MMA, P ub. L. 108-173. This program expanded our voluntary Hospital Quality Initiative. The Ho spital 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 colle ction requirements previously approved

under OMB control number 0938-0918 have be en combined with the information collection request pr eviously 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 implementa tion of section 5001( a) of the DRA. Section 1886(b)(3)(B)(v iii)(III) of the Act, added by section 5001(a) of the DRA, requires that the Secretary expand the “start er set” of 10 quality measures that were established by the Secretary as of Novemb er 1, 2003, to include measures “that the1296 Secretary determines to be appropriate fo r the measurement of the quality of care furnished by hospitals in inpatient settings.” The burden associated with these reporting requirements was previously approv ed 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 collec tion 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 revi sed request for the FY 2017 payment determination, we will add the 4 claims-based measures that we are proposing in this proposed ru le: (1) Hospital 30-day, all-cause, unplanned, riskstandardized readmission ra te (RSRR) following coronary artery bypass graft (CABG) surgery; (2) Hospital 30-day, all-cause, ri sk-standardized mortality rate (RSMR) following coronary artery bypass graft (C ABG) surgery; (3) Hospital-level, risk-standardized 30-day episode-of-care payment measure for pneumonia; and (4) Hospital-level, risk-standardized 30-da y episode-of-care payment measure for heart

failure. We will also add the chart-abstract ed measure we are proposing in this proposed rule: Severe sepsis and septic shock: management bundle (NQF#0500). In addition, we believe ther e will be a reduction in the burden associated with the removal of 20 total measures pr oposed for removal in this rule: 186 (1) AMI-1 Aspirin at Arrival; (2) AMI-3 ACEI/ARB for left vent ricular 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 pr oposed 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-IN F-1 Prophylactic antib iotic received within 1 hour prior to surgical incision; (7) SCIP-IN F-2 Prophylactic antibiotic selec tion for surgical patients; (8) SCIP INF-3 Prophylactic antibiotics disc ontinued within 24 hour s after surgery end time (48 hours for cardiac surgery); (9) SCIP INF-4: Cardiac surg ery patients with controlled 6AM postoperative serum glucose; (10) SCIP INF-6 Appropriate hair removal; (11) SCIP-INF-9 Postoperative urinary cathe ter 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 Be ta Blocker prior to arrival who received a Beta Blocker during the periope rative period; (14) PN-6 A ppropriate 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 monito red 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 chart1298

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 Ho spital 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 hospitalChartabstracted and structural measures, forms 3,300 1,291 hours 963 hours -328 hours

Review reportsfor claimsbased measures 3,300 4 hours 4 hours 0

Reporting of voluntary electronic clinical qualitymeasures (ECQM) in placeof 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 wi ll be a reduction in burden for 15 of

the 20 chart-abstracted measures that we are proposing for rem oval: (1) AMI-8a Timing1299 of Receipt of Primary Percutaneous Coronary Intervention (PCI); (2) HF-2 Evaluation of left ventricular systolic function; (3) SC IP-INF-1 Prophylactic antib iotic received within 1 hour prior to surgical in cision; (4) SCIP-INF- 2 Prophylactic antibiotic selection for surgical patients; (5) SCIP INF-3 Prophylact ic antibiotics discontinued within 24 hours after surgery end time (48 hours for cardiac su rgery); (6) SCIP INF-4: Cardiac surgery patients with controlled 6AM postoperative se rum 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 r eceived appropriate VTE prophylaxis within 24 hours pre/postsurgery; (9) SCIP Cardiovascul ar-2: Surgery Patients on a Beta Blocker prior to arrival who received a Beta Blocke r during the perioperative period; (10) PN-6 Appropriate initial antibiotic selection; ( 11) STK-2 Antithrombotic therapy for ischemic stroke; (12) STK-3 Anticoagulation therapy fo r 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 m onitored by protocol.

The four chart-abst racted measures that we are proposing to remove have been suspended from the program; therefore, th eir 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 remova l of 20 measures (both chart-abstracted and structural) to be 1,775 hour s annually per hospital. We estimate the total reduction in1300

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. Th is 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 a nd are approved under se parate OMB control

numbers. We intend to enroll up to 100 hospitals in a voluntary large scale test of validation for electronic clinical quality measures fo r 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 accomp lished by medical records and health information technology staff, with a mean hour ly wage in general medical and surgical hospitals of $19.24. 187

. ● Applying OMB Circular A-76, we a ssumed 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 t echnicians. 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 pa st 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/o mb/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 electroni cally 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 w ith 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 elect ronic 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 co st 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 secti on II.K. of Appendix A to this proposed rule. Previously, we required hospitals to pr ovide 96 patient charts for validation per hospital per year, including 36 ch arts for HAI validation (with an average page length of 1,500) and 60 charts for clinical process of care measure validation (w ith 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 for1302 clinical process of care valid ation, 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 2366 7). 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 es timate 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 Hosp ital 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 sect ion 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, w ould increase the tota l number of measures for the FY 2017 PCHQR measure set to 19 measures.1303 We also are proposing to update the speci fications for the 5 previously finalized clinical process/oncology care measures to re quire 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 subm it the proposed new clinical effectiveness measure data as well as the proposed samp le 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 meas ures) 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 requireme nts 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 estimate s represented a worst case scenario of estimated burden. In this proposed rule, we are providing a revise d 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 PC Hs can use to report the five clinical process/oncology care measures. The re vised FY 2016 and new FY 2017 burden estimates also incorporate the sampling me thodology allowed for the SCIP measures and HCAHPS Survey because last year’s burden re flected the “worst-case scenario” of our1304 burden estimates (78 FR 50958). The antici pated 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 traini ng and measure maintenance, as well as the time required for collection, aggregation, a nd 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 pe r each existing measure, and a maximum of 5 hours summarizing and re porting 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/oncol ogy care measures in th is 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 repor ting 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 PC HQR Program requirements to be 21,643 hours per PCH. This FY 2017 estimate, which includes an additional proposed measure,

188 FY 2011 CMS MedPAR file based on Medicare data alone.1305 represents a decrease of 30,287 hours 189 per PCH from the FY 2016 burden estimate that we published in the FY 2014 IPPS/LTCH fina l 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 bur den 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 th e proposed adoption of a new sampling methodology that PCHs can use to report the clinical process/oncology care measures. However, we note that these estimate s are based on PCH reporting of Medicare data only. We intend to update the burden estim ate to more accurately reflect the burden to PCHs for reporting all-patient data in futu re 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 th is proposed rule, we are proposing to adopt three new measures for the FY 2017 Hospital VBP Program: (1) Me thicillin-Resistant Staphylococcus aureus (MRSA) Bacteremia; (2) Clostridium difficile are measures of

189 Represents the difference between previous burden estimate (51,930 hours) in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50958) and curre nt burden estimate (21,643 hours). 190 We 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 Pr ior to 39 Completed Weeks Gestation is a

chart-abstracted measure. We also ar e proposing to adopt Hospital-level RiskStandardized Complication Rate (RSCR) Following Elective Primary Total Hip Arthroplasty (THA) and Total Knee Arthr oplasty (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 Pr ogram. Therefore, their inclusion in the Hospital VBP Program does not result in any additional burden because the Hospital VBP Program uses data that are re quired for the Hospital IQR Program. 9. ICRs for the Long-Term Care Hosp ital 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-Assoc iated Urinary Tract Infections (CAUTI) Outcome Measure (NQF #0138); (2) Nationa l Healthcare Safety Network (NHSN)

Central Line Catheter-Associated Blood Stream Infection Event (CLABSI) Outcome Measure (NQF #0139); and (3) and Percent of Re sidents or Patients with Pressure Ulcers That Are New or Worsened (Short-Stay ) (NQF #0678). For the FY 2016 payment determination and subsequent years, we ar e 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 Give n the Seasonal Influenza Vaccine (Short-1307 Stay) (NQF #0680); and (2) Influenza Vaccination Coverage among Healthcare Personnel (NQF #0431). For the FY 2017 paymen t determination and subsequent years, we are retaining the following three measures in addition to the measures finalized for previous years: (1) National Health Safe ty Network (NHSN) Facility-Wide Inpatient Hospital-Onset Methicillin-resistant Staphylococcus aureus (MRSA) Bacteremia Outcome Measure (NQF #1716); (2) Nationa l Health Safety Network (NHSN) Facility-Wide Inpatient Hospital-Onset Clostridium Difficile Infection (CDI) Outcome Measure (NQF #1717); and (3) All-Cause U nplanned 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 year s: 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 th is proposed rule, we are proposing three new quality measures for in clusion in the LTCH QR 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) Functiona l Outcome Measure: Change in Mobility among Long-Term Care Hospital Patients Requ iring Ventilator Support; and (3) National Healthcare Safety Network (NHSN) Ve ntilator-Associated Event (VAE) Outcome

Measure. Six of the previously adopted and newly proposed measures eith er will or would

be collected via the NHSN. The NHSN is a secure, Internet-based healthcare-associated1308 infection (HAI) tracking system maintained and managed by the CDC. The NHSN

enables health care faci lities to collect and use data a bout HAIs, adherence to clinical practices known to prevent HAI s, and other adverse events within their organizations.

NHSN data collection occurs via a Web-base d tool hosted by the CDC and provided free of charge to facilities. We believe that a ny burden increase related to complying with the submission of the proposed NHSN VAE Outc ome 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, w ith 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 Medi care claims-based measure. Because

claims-based measures can be calculated ba sed on data that are al ready reported to the Medicare program for payment purposes, we be lieve that this measure will not add any additional reporting burden for LTCHs. The remaining five previously adopted and newly proposed meas ures either will

or would be collected utiliz ing 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 propos ing in section IX.C.7.a. of the preamble of this proposed rule: (1) Per cent of Long-Term Care Hospital Patients with an Admission1309 and Discharge Functional Assessment and a Ca re 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 info rmation collection request. Assuring data accuracy is vital to pub lic 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 e ach from a given CY (for a total of portions of 1,300 LTCH patient charts) to a CMS validat ion 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 list ed 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 page s; the physician, physic ian’s assistant, or nurse practitioner’s admission history and physic al 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 be1310 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 subm itted 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 Reco rd (EHR) Incentive Program and Meaningful Use (MU) In section IX.D. of the pr eamble 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 additi on, 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 plac e 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 Re gulations 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 au thority 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 th is proposed rule provi sion do not change the requirements on MA organizations for submi ssion of information to CMS, which have1311 been in place for several years. Ther efore, this proposal does not impose new information collection requirements on MA or ganizations. Consequently, because there are no new information collection requireme nts 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 colle ction and recordkeeping requirements, please submit your comments electr onically 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 acknowle dge 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 a nd procedure, Health facili ties, Health professions, Kidney diseases, Medicare, Reporting a nd recordkeeping, rural areas, X-rays.

42 CFR Part 412 Administrative practice and procedure, Health facilitie s, 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 a nd procedure, Health facili ties, Health maintenance, organizations (HMO), Medicare, Penaltie s, Privacy, Reporting and recordkeeping requirements.

42 CFR Part 424 Emergency medical services, Health f acilities, Health professions, Medicare.

42 CFR Part 485 Grant programs—health, Health facilit ies, Medicaid, Medicare, Reporting and recordkeeping requirements.1313

42 CFR Part 488 Administrative practice a nd procedure, Health facili ties, 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 IN SURANCE FOR TH E 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 “Interme diary 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 dete rmination (contractor determination) means the following: (1) With respect to a provider of se rvices that has file d a cost report under §§ 413.20 and 413.24 of this chapter, the term m eans 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 pe riod, for items and services fu rnished to beneficiaries for which reimbursement may be made on a reas onable 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 th is 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 peri od, under that system for the period covered by the final determination. (3) For purposes of appeal to the Pr ovider Reimbursement Review Board, the term is synonymous with the phrases “intermediary's final determination,” “final determination of the organization serving as it s fiscal intermediary,” “Secretary’s final

determination” and “final dete rmination of the Secretary”, as those phrases are used in section 1878(a) of the Act, and with the phrases “final Medica re administrative contractor determination, ” “final contractor determinati on”, and “final Secretary determination” as those phrases are used in this subpart. (4) For purposes of § 405.376 concerning cl aims collection activ ities, the term does not include an action by CMS with re spect to a compromise of a Medicare1315 overpayment claim, or termination or susp ension of collection action on an overpayment claim, against a provider or physician or ot her 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 co ntractor 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), cri tical access hospital (CAH), comprehensive outpatient rehabilitation facility (CORF), renal dialys is facility, Federally qualified health center (FQHC), home health agency (HHA), rural heal th clinic (RHC), skil led nursing facility (SNF), and any other entity included under the Act. (FQHCs and RHCs are providers, for purposes of this subpart, effective with cost reporti ng periods beginning on or after October 1, 1991).

* * * * * 3. Section 405.1803 is amended by revisi ng the section head ing and paragraph (a) introductory text to read as follows: § 405.1803 Contractor determination a nd 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 c ontractor must within a reasonable period of time (as described in § 405.1835(a)(2)(ii)), fu rnish the provider a nd other parties as appropriate (see § 405.1805) a written noti ce reflecting the co ntractor’s final1316

determination of the total amount of reimbur sement 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; cont ents of, and adding issues to, hearing request. (a) Right to a contractor heari ng on final contractor determination

. A provider (but no other individual, entity, or party) has a right to a co ntractor hearing, as a single provider appeal, for specific items claimed for a cost reporting period that is subject to a

final contractor or Secr etary determination if— (1) The amount in controversy (as de termined 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; or1317 (ii) If the final contractor determina tion 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 th e expiration of the 12-month pe riod 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 th e date the contractor stamped “Received” unless it is shown by a prepondera nce of the evidence that the contractor received the cost repo rt on an earlier date. (b) Contents of request for a contractor hearing

. The provider’s request for a contractor hearing must be submitted in writ ing 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, th e 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 sa tisfies the requirements for a contractor hearing as specified in paragraph (a) of this section, including a specific identification of

the final contractor or Secret ary 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, w hy 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 th e 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 initi al hearing request and the specific matters identified in subsequent reque sts to add issues, when comb ined, satisfy the requirements of paragraph (a)(1) of this section. (3) The contractor hearing officer receive s the requests to add issues no later than 60 days after the expiration of the applicab le 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 a dding 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 in cluded 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 re garding the question of whether the provider’s cost report included an appropriate claim for the specific item under app eal. Upon receipt of timely submitted factual evidence and legal argument (if any), the contractor hearing officer(s) must review such evidence and argument, a nd prepare written specific findings of fact1320 and conclusions of law on the question of wh ether the provider’s cost report complied with, for the specific item under appeal, the co st 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 wh ether the provider’s cost report included an appropriate claim for the sp ecific item under appeal. The contractor hearing officer(s) must promptly give a copy of such written sp ecific factual findings and legal conclusions to each party to the appeal, and such factua l findings and legal conclusions must be included in the record of administrative pro ceedings 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 conclu sions of law (pursuant to paragraph (b)(1) of this section) must not be invoked or reli ed on by the contractor hearing officer(s) as a basis to deny, or decline to ex ercise, jurisdiction over a specific item or take any other of the actions specified in para graph (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 paragr aph (b)(1) of this section) on the question of whether the provider’s cost report include d 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 offi cer(s) issues an overall contractor hearing decision (as specified in paragr aph (d) of this section) rega rding the specific item under1321 appeal, the contractor hearing officer(s)’s written specific factual findings and legal conclusions (pursuant to paragr aph (b)(1) of this section) must be included in such overall contractor hearing decision regarding the specifi c item, along with the other matters that are required by the regulations fo r an overall contractor hearing decision. However, if the contractor hearing officer(s ) issues an overall jurisdictional dismissal decision (as specified in paragr aph (e) of this section) rega rding the specific item under appeal, the contractor hearing officer(s)’s written specific factual findings and legal conclusions (pursuant to paragr aph (b)(1) of this section) must not be included in the overall jurisdictional dismissal decision rega rding 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 su ch reimbursement may be permitted only to the extent authorized by para graph (f) of this section. (c) Prohibition of certain types of decisi ons, orders, and other actions. (1) If the contractor hearing officer(s) determines, in it s findings of fact and conclusions of law (as prescribed by paragraph (b)(1) of this section), that the pr ovider’s cost report did not include an appropriate claim for the specifi c item under appeal, the contractor hearing officer(s) may not-- (i) Deny jurisdiction over the specific it em under appeal, based on (in whole or in part) the contractor hearing officer(s)’s f actual 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 c ontractor hearing officer(s)’ s factual findings and legal conclusions (reached under paragrap h (b)(1) of this section); or (iii) Impose any sanction or take any other action ag ainst 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 fi ndings and legal conclusions (reached under paragraph (b )(1) of this section). (2) Regardless of whether the contract or hearing officer(s) determines, in its findings of fact and conclusions of law (as pres cribed 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 it em 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 contra ctor 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 fi nal contractor or Secretary determination, the contractor must deny jurisd iction 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 fi nal contractor or Secr etary determination under1323 appeal, of an adjustment, revision, correction, or other change to the specific item under appeal, or the lack of a particular determ ination by the contractor or the Secretary regarding the specific item; or (iii) Impose any sanction or take any other action ag ainst 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 contract or or Secretary determ ination under appeal, of an adjustment, revision, correcti on, or other change to the spec ific item under appeal, or the lack of a particular determination by th e contractor or the S ecretary regarding the specific item. (d) Contractor hearing decision must in clude 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 re port included an ap propriate 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 whet her 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 th e other parts of the contractor hearing decision. If the contractor hearing officer(s) determines that the pr ovider’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 heari ng decision must also

address whether the other substantive reimbur sement requirements for the specific item are also satisfied; or (2) Did not include an appropriate cl aim for the specific item under appeal, the contractor hearing officer(s) ha s discretion whether or not to address in the contractor hearing decision whether the other substant ive reimbursement requirements for the specific item are also satisfied. (e) Contractor jurisdictional dismissal decision must not incl ude factual findings and legal conclusions under para graph (b)(1) of this section. If the contractor hearing officer(s) issues a jurisdictional dismissal decision regarding th e specific item under appeal (pursuant to § 405.1814(c)), the contractor hearing office r(s)’s specific findings of fact and conclusions of law (reached under paragraph (b)(1) of this section) on the question of whether the provide r’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 heari ng 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 paragra phs (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 accordance1325 with Medicare policy, but only if the contractor hearing offi cer(s) further determines in

such final contractor heari ng decision that all the othe r 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, regardle ss of whether the contractor hearing officer(s) further determines in such final contractor hear ing decision that the other substantive reimbursement requiremen ts 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 decisi on issued by the CMS reviewing official (under paragraph (e) of this section) will address, the c ontractor 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 fi nal contractor determination

. A provider (but no other individual, entity, or party) has a right to a Board hearing, as a singl e 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 de termined 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 determina tion 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 th e expiration of the 12-month pe riod for issuance of the final1327

contractor determination. The date of r eceipt 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 provide r satisfies the requirements for a Board hearing as specified in paragraph (a) of this section, including a specific identification of

the final contractor or Secret ary 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, incl uding 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 th e 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 in itial hearing request and the specific items identified in subsequent reque sts to add issues, when comb ined, satisfy the requirements of paragraph (a)(2) of this section. (3) The Board receives the request to a dd issues no later than 60 days after the expiration of the applicable 180-day period pres cribed in paragraph (a )(2) of this section. § 405.1836 [Amended] 10. In § 405.1836, paragraphs (a) an d (b) are amended by removing the cross-reference “§ 405.1835(a)(3)” and a dding in its place the cross-reference “§405.1835(a)(2)”. 11. Section 405.1837 is amended by revi sing paragraphs (a)(1), (c)(2) introductory text, (c)(2)(iii) a nd (e)(4) to read as follows: § 405.1837 Group appeals. (a) ** * (1) The provider satisfies individually th e 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 th e 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 reques t 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 a dding of issues to such appeal, the date of receipt of the provider’s request to form or join the group ap peal is consider ed the date of receipt for purposes of meeting the app licable 180-day period prescribed in § 405.1835(a)(2).

* * * * * § 405.1839 [Amended] 12. In 405.1839, paragraph (a)(1) is ame nded by removing the cross-reference “§ 405.1811(a)(2) of this subpa rt” and adding in its pl ace the cross-reference “§405.1811(a)(1)”; and by removing the cros s-reference “§ 40 5.1835(a)(2) of this subpart” and adding in its place th e 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 potent ially 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 sp ecific item and any pa rty to such appeal questions whether the provider’s cost report in cluded 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 ar gument regarding the question of whether the pr ovider’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 conclu sions, the Board must follow the procedures set forth in § 413.24(j)(3) of this chapter for determining wh ether the provider’s cost report included1331 an appropriate claim for the sp ecific 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 para graph (c) of this section. Upon giving the parties to the appeal the Bo ard’s written specific factual findings and legal conclusions (pursuant to paragraph (b)(1) of th is section) on the question of whether the provider’s cost report included an appropr iate 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 respec t to the specific item. If the Board issues either of two types of overall Board decisions (as speci fied in paragraph (d) of this section) regarding the specific item under appeal, the Board’s written specific factual findings and legal conclu sions (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 pert inent type of overall Board decision. However, if the Board issues ei ther of two other types of overall Board decisions (as specified in paragraph (e) of this section) regarding th e specific item under appeal, the Board’s written specific factual findings and legal conc lusions (pursuant to paragraph (b)(1) of this section) must not be included in the overall Board decision1332 regarding the specific item. The Board ma y 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 paragr aph (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 sec tion), that the provider’s co st report did not include an appropriate claim for the specific ite m under appeal, the Board may not-- (i) Deny jurisdiction over the specific it em 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 fort h in § 405.1868(b), (c), or (d), impose any sanction, or take any other action against the in terests of any party to the appeal, except as provided in paragraph (f) of this secti on, based on (in whole or in part) the Board’s factual findings and legal conc lusions (reached under paragra ph (b)(1) of this section). (2) Regardless of whether the Board de termines, in its findings of fact and conclusions of law (as prescrib ed by paragraph (b)(1) of this section), that the provider’s cost report did or did not in clude an appropriate claim for the specific item under appeal, the Board may not--1333 (i) Deny jurisdiction over the specific it em under appeal, based on (in whole or in part) the absence, in the final contractor determination or Secret ary determination under appeal, of an adjustment, revision, correction, or other change to the specific item under appeal, or the lack of a particular determ ination 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, othe rwise changed in a revised fi nal contractor or Secretary determination, the Board must deny jurisdic tion 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 abse nce, in the final contractor determination or Secretary determination under appeal, of an adjustment, revision, correc tion, or other change to the specific item under appeal, or the lack of a pa rticular determination by the contractor or the Secretary regarding the specific item; or (iii) Take any of the actions set fort h in § 405.1868(b), (c), or (d), impose any sanction, or take any other action against the in terests of any party to the appeal, except as provided in paragraph (f) of this section, ba sed on (in whole or in part) the absence, in

the final contractor determination or S ecretary 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 contra ctor 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 th e 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 th e specific item, must be included in such hearing decision along with th e other matters prescribed by § 405.1871(a). The Board’s factual findings and legal conc lusions (reached under paragra ph (b)(1) of this section), about whether there was an appropriate cost report claim for the specific item under appeal, are subject to the provi sions 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 th e specific item under appeal (as prescribed in § 413.24(j) of this chapter), the Board’s he aring decision must also address whether the other substantive reimbursement requirements fo r 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 addr ess in the Board’s hearing decision whether the other substantive reimbursement requirement s 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 para graph (b)(1) of this1335 section), on the question of whether the provi der’s cost report included an appropriate claim for the specific item, must be include d in such EJR decision along with the other matters prescribed by § 405.1842(f)(1). Th e Board’s factual findings and legal conclusions (reached under para graph (b)(1) of this section) about whether there was an appropriate cost report cl aim 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 juri sdictional dismissal decision regarding the specific item under appeal (pursuant to § 405.1840( c)), the Board’s specific findings of fact and conclusions of law (reach ed 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 jurisdictiona l dismissal decision. (2) Board expedited judicial revi ew (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 para graph (b)(1) of this section), on the question of whether the provi der’s cost report included an appropriate claim for the same item, must not be incl uded in such EJR decision. If the Board conducts further proceedings and issues another decision (as specified in1336 § 405.1842(h)(2)(i)), the Board’s specific fi ndings 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 specifi c item under appeal (as prescribed in paragraph (d) of this section); but (ii) Must not be included in any furt her 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 find ings and legal conclusions under paragraph (b)(1) of this section in tw o 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 th e 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 ap propriate cost report claim for the specific item under appeal, then the specific item is not reimbursable, regardle ss 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 (pursu ant to § 405.1875), as applicable, in a final and binding EJR decision that gr ants EJR regarding a legal ques tion that is relevant to the specific item under appeal (pursuant to § 405.18 42(g)(1) and paragra phs (b)(1) and (d)(2) of this section), that th e provider’s cost report-- (i) Included an appropriate claim for th e 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 perm itted 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 re port 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 perm itted 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) in troductory 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), a nd (a)(2)(iii) of this section upon issuance of the decision.

* * * * * (2) * * * (v) If the Administrator reviews a Bo ard hearing decision regarding a specific item, or for a Board EJR decision, on the ques tion of whether there is Board jurisdiction over a specific item, the Administrator’s re view 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 addre ss, the Board’s specific findings of fact and conclusions of law in such hearing deci sion or EJR decision (as prescribed in § 405.1873(b)(1) and (d)) on the question of whet her the provider’s cost report included an appropriate claim for the specific item under appeal (a s 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 appropriate1339 circumstances, including, but not limited to, for the purpose of effectuating a court order (as described in § 405.1877(g)(2)). When the cont ractor’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 allege d failure of the provide r 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 rule s that the basis of th e 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 te rm 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 Federa lly 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 receiv e direct graduate medical education payment for those residents. However, in connection with cost reporting periods for which “all or substantially all of th e 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 tr avel and lodging where applicable ) of residents training at the RHC or FQHC, the RHC or FQHC may recei ve direct graduate medical education payments for those residents.

* * * * *

PART 412--PROSPECTIVE PAYM ENT 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)(i i) introductory text, and (e)(6)(ii)(B)(2). b. Revising paragraphs (e)(7)(i) and (e)(7)(ii) in troductory 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. Excep t as specified in para graphs (e)(6)(ii) and (e)(6)(iii) of this section for the pe riod beginning December 29, 2007 and ending December 28, 2012, and the period beginni ng April 1, 2014 and ending September 30, 2017, a moratorium applies to the establishm ent and classification of a long-term care hospital as described in paragraphs (e) and (e )(1) through (e)(5) of th is section or a longterm care hospital satellite fac ility 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 satelli te 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 projec t specified in paragra ph (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 ex isting long-term care hospital or long-term care hospital satellite f acility 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 be yond the number of Medicare-certified beds on April 1, 2014.

* * * * * 21. Section 412.64 is amended by— a. Removing para graph (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)(v i), 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 mo re urban areas is deemed to be located in an urban area and receives the Federal paym ent amount for the urban area to which the greater number of workers in the county comm ute 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 w ho commute to (and, if applicable under the standards, from) the central county or centr al counties of all adjacent MSAs. Qualifying counties are determined based upon OMB st andards, using the most recent OMB standards for delineating stat istical 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 chap ter) 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 befo re 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) fo r prospective payment hospitals, subject to the provisions of paragra ph (d)(2) of this section, less 0.25 percentage point. (iv) For fiscal years 2012 and 2013, the pe rcentage 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 pr ospective payment hospitals, subject to the1345 provisions of paragraph (d)(2) of this sect ion, 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 pr ospective 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 quart erly 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 ch apter) for prospective payment hospitals is

reduced—

* * * * * (ii) Any reduction pursuant to this para graph (d)(2) will apply only to the fiscal year involved and will not be taken into acc ount in computing the applicable percentage change for a subse quent 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 elec tronic 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 percenta ge increase in the market basket index (as defined in § 413.40( a)(3) of this chap ter) for prospective payment hospitals is reduced—

* * * * *1346 22. Section 412.101 is amended by revising pa ragraphs (b)(2)(i), (b)(2)(ii), (c)(1), (c)(2) introductory text, and (d) to read as follows: § 412.101 Special treatment: Inpatient hospit al payment adjustment for low-volume hospitals.

* * * * * (b) * * * (2) * * * (i) For FY 2005 through FY 2010 a nd 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 s ubmitted cost report, and be located more than 25 road miles (as define d 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 discha rges, as defined in paragraph (a) of this section, during the fi scal 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 th is section, from the nearest “subsection (d)” (section 1886(d) of the Act) hospital.

* * * * * (c) * * *1347 (1) For FY 2005 through FY 2010 a nd the portion of FY 2015 beginning on April 1, 2015 and subsequent fiscal years, th e adjustment is an additional 25 percent for each Medicare discharge. (2) For FY 2011 through FY 2014 a nd 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 Apr il 1, 2015, and subsequent fiscal years, a new hospital will be eligible for a low-volum e adjustment under this section once it has submitted a cost report for a cost reporting pe riod that indicates that it meets discharge requirements during the applicable fiscal year and has provided its fiscal intermediary or

Medicare administrative contra ctor with sufficient evidence that it meets the distance requirement, as specified under para graph (b)(2) of this section.

23. Section 412.102 is revised to read as follows: § 412.102 Special treatment: Hospitals loca ted 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 Fe deral 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 disproportionate1348 share payments as described in § 412.106 ar e adjusted on the basis of an additional amount that equals two-thirds of the diffe rence between the urban standardized amount and disproportionate share payments appli cable 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 ru ral disproportionate share payments as described in § 412.106 ar e adjusted on the basis of an additional amount that equals two-thirds of the di fference 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 Fede ral fiscal year for which the adjustment is

made. (b) Second year adjustment. (1) Eff ective on or after October 1, 1983 and before October 1, 2014, if a hospital’s status continue s 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 am ount that equals one-third of the difference

between the urban standardized amount and disproportionate share payments applicable to the hospital before its redesignatio n and the rural standardized amounts and disproportionate share payments otherwise appli cable 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 redesignati on, 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 re sult of implementation of the most recent OMB standards for delineating statistical areas adopted by CMS and the rural disproportionate share payments otherwise appli cable 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 loca ted 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 mo st recent Census Bureau data, may be reclassified as being located in a rural ar ea for purposes of mee ting the rural location requirement at § 485.610(b) of this chapter fo r 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 pr ior 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 equivale nt cap may be adjusted based on the period of years equal to the minimum accr edited length of each new program. (B) For new programs started on or af ter 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 th e 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 st arted, for hospitals for which the full-time equivalent cap may be adjusted in acco rdance 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 rura l hospital is redesigna ted as urban due to

the most recent OMB standards for delineati ng statistical areas a dopted by CMS and was training residents in a new program prior to the redesignation beco ming effective, the redesignated urban hospital may retain any ex isting increases to its full-time equivalent resident cap and receive an increase to its fu ll-time equivalent resi dent cap for the new program in which it was training residents wh en the redesignation became effective, in accordance with paragraph (f )(1)(vii) of this section. (v)(A) For a hospital’s cost repo rting periods beginning on or after October 1, 1997, and before October 1, 1998, th e total number of full-time equivalent residents for payment purposes is equal to th e average of the actual full-time equivalent resident counts (subject to the requirem ents listed in paragraphs (f)(1)(ii)(C) and (f)(1)(iv) of this sect ion) for that cost reporting peri od and the preceding cost reporting period. (B) For a hospital’s cost reporting pe riods beginning on or after October 1, 1998, the total number of full-time equivalent resi dents for payment purposes is equal to the1352 average of the actual full-time equivalent re sident count (subject to the requirements set forth in paragraphs (f)(1)(ii)(C) and (f)(1)(iv) of this section) fo r 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 pa ragraph (f)(1)(iv) of this section for new medical residency programs created under paragr aph (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-ti me equivalent count for the cost reporting period ending during calendar year 1996 is added after ap plying the averaging rules in paragraphs (f)(l)(v)(A), (f)(1)(v)(B), and this paragraph (f)(1)(v)(C) fo r a period of years. Residents participating in new medical residency trai ning programs are included in the hospital’s full-time equivalent count before applying th e averaging rules afte r 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 re sident begins training in each new program. (D) For new programs started on or af ter October 1, 2012, for hospitals for which the full-time equivalent cap may be adjust ed 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 th e 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 be1353 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 st arted, for hospitals for which the full-time equivalent cap may be adjusted in accordan ce with § 413.79(e)(3) of th is 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 hosp itals 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 re porting period that precedes the start of the sixth program year of each individual new program star ted for hospitals for which the full-time equivalent cap may be adjusted in accordan ce 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 paragr aph (f)(1)(ix) of this section, full-time equivalent residents that are displaced by the closure of either anot her 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 hosp ital for the duration of time that the displaced residents are training at the receiving hospital. (F) Subject to the provisions of paragra ph (f)(1)(x) of this section, effective for cost reporting periods begi nning on or after April 1, 2000, fu ll-time equivalent residents at an urban hospital in a rural track program are included in the ur ban hospital’s rolling average calculation described in this paragraph (f)(1)(v)(B).

* * * * *1354 26. Section 412.106 is amended by revising pa ragraph (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 car e on the most recent available data on utilization for Medicaid and Medicare SSI pa tients, 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) introduc tory 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 hosp ital, 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 hospi tal. Specific requirements for submission of a request for an extension or exemption are available on QualityNet.org.

* * * * * 29. Section 412.152 is amended by revi sing the definition of “Applicable hospital” to read as follows: § 412.152 Definitions for the Hospital Readmissions Reduction Program.

* * * * * Applicable hospital is a hospital describe d 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 rem oving and reserving paragraph (d). 31. Section 412.160 is amended by revisi ng 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 opera ting payment plus any applicable new technology add-on payments under subpart F of this part. This amount is determined1356 without regard to any payment adjustme nts under the Hospital Readmissions Reduction Program, as specified under § 412.154. This amount does not include any additional payments for indirect medical edu cation under § 412.105, the treatment of a disproportionate share of low-income patie nts under § 412.106, outli ers under subpart F of this part, or a low volume of discharges under § 412.101. (2) With respect to a Medicare-depende nt, small rural hospital that receives payments under § 412.108(c) or a sole commun ity hospital that receives payments under § 412.92(d), the wage-adjusted DRG operati ng 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 medi cal 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 disc harges under § 412.101. With respect to a Medicare-dependent, small ru ral hospital that receives payments under § 412.108(c) (for discharges occurring in FY 2013) or a sole community hosp ital that receives payments under § 412.92(d), this amount also does not in clude 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 Ho spital VBP Program, and are calculated with respect to a measure for a fiscal year no la ter than 60 days prior to the start of the1357 performance period for that measure for that fi scal year. The performance standards for a measure may be updated as follows: (1) To make a single corre ction to correct a calculation error, data issue, or other problem that would significantly cha nge the performance standards; or (2) To incorporate nonsubstantive te chnical 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 calculate s hospital performance on that measure at the conclusion of the performance period fo r 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 hos pitals, as that term is defined in § 412.160. § 412.172 [Amended] 33. Section 412.172 is amended by rem oving and reserving paragraph (c). 34. Section 412.232 is amended by revising pa ragraph (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 for1358 redesignation to an MSA as an outlying count y using the most recent OMB standards for delineating statistical areas a dopted by CMS and the most recent Census Bureau data.

* * * * * 35. Section 412.234 is amended by revisi ng 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 ther eafter, hospitals located in counties that

are in the same Combined St atistical Area (CSA) or Core-B ased 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 meeti ng the proximity requirement for reclassification to the urban area to which they seek redesignation.

* * * * * 36. Section 412.500 is amended by adding para graphs (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 esta blishment of new1359 long-term care hospitals and sate llite facilities and on the increase in the number of beds in existing long-term care hospitals and sa tellite facili ties 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 secti ons 114(c) and (d) of Public Law 110-173. (6) Section 1206 of Public Law 113-67, wh ich further extended certain payment rules and moratoria under the long-term car e 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 s ite 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 hospita ls established under secti on 1886(d)(1)(B)(i v)(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 th e Federal payment rate established in accordance with § 412.523, including adjust ments described in § 412.525, and, if1360 applicable during a transition period, on a bl end 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 prospectiv e payment rates.

* * * * * (c) * * * (3) * * * (xi) For long-term care hospital pros pective payment system fiscal year beginning October 1, 2014, and ending Septem ber 30, 2015. The standard Federal rate for the long-term care hospital prospectiv e 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 fis cal 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 removi ng and reserving pa ragraph (d)(3). 40. A new § 412.526 is added to read as follows: § 412.526 Payment provisions for a “subc lause (II)” long-term care hospital. (a) Definition. A “subclause (II)” lo ng-term care hospital is a hospital that qualifies as an LTCH under section 1886(d)(1)(B)(i v)(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 beginni ng 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 unde r Subpart O of this part, as adjusted. The adjusted payment amount is determined based on r easonable cost, as de scribed at § 412.526(c). (c) Determining the adjusted payment for Medicare inpatient operating and capital-related costs under the reasonable co st-based reimbursement rules. Medicare inpatient operating costs are paid based on r easonable cost, subject to a ceiling. The ceiling is the aggregate upper limit on the am ount 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 reporti ng period, the ceiling is determined by multiplying the updated target amount, as define d in paragraph (c)(2) of this section, for that period by the number of Medicare disc harges paid under this subpart during that period. (2) Target amounts.--(i) For cost re porting periods beginning during Federal fiscal year 2015, the target amount equals the hospital’s ta rget amount determined under § 413.40(c)(4) for its cost reporting period be ginning during Federal fiscal year 2000,1362 updated by the applicable annual rate-of-incr ease percentages specified in § 413.40(c)(3) to the subject period. (ii) For subsequent cost reporting peri ods, the target amount equals the hospital's target amount for the previous cost repor ting 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 Medi care allowable net inpatient op erating costs for that period (as defined at § 413.40(a)(3)) are paid on a reason able 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 al lowable net inpatient capital costs are paid on a reasonable cost ba sis, 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 hosp ital 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 th e 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 discharg es 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 SN F for a fixed day period of between 4 days and 30 consecutive days before being readmitte d 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 subse quent 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 hospi tal will receive two separate Federal prospective payments if one of the following conditions are met:

* * * * *1364 (5) For long-term care hospital discharg es occurring on or after October 1, 2014, if a patient who has been disc harged from a long-term care ho spital to another facility is readmitted to the long-term care hospital for additional treatment or services directly following the stay at the othe r facility, the subsequent ad mission to the long-term care hospital is considered a new st ay, even if the case is determined to fall into the same MS-LTC-DRG, and the long-term care hospi tal will receive two separate Federal prospective payments only if th e 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 a dding in its place the year “2016” in paragraph (c)(1)(i) and (ii) a nd (c)(2) paragraph heading. c. Revising paragraph (c)(3). d. Removing the year “2013” and a dding 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) intr oductory 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 beginni ng on or after October 1, 2004 and before October 1, 2007 and for cost reporting pe riods 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 Oct ober 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 i npatient population of whom no more than 25 percent were admitted to the hospital or its satellite facility from the co-located hospital, payments ar e 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 satell ite facility describe d 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 met hodology 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 beginn ing on or after July 1, 2007 and before July 1, 2016, payment for a long-term care hos pital satellite facility described in § 412.22(h)(3)(i) will be determined using th e 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 beginn ing 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 th e 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-te rm care hospitals. Except as specified in paragraph (h)(4) of this sec tion, 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 § 412.2 2(f) and a satellite facility of a longterm care hospital as describe d 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 descri bed in § 412.23(e)(2)( i) that meets the criteria in § 412.22(f), the polic ies set forth in this para graph (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 enti ty that is a provider-based, off-campus location of a subsection (d) hospital which di d 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 discharg es 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 reserv ing paragraph (a)(1)(iii). b. Revising paragraph (a)(2) introductory text. c. Removing and reserv ing paragraph (a)(2)(ii). d. Removing paragraph (a)(3).

The revisions read as follows: § 412.536 Special payment provisions for long-te rm care hospitals and satellites of long-term care hospitals that discharged Med icare patients admitted from a hospital

not located in the same bu ilding or on the same cam pus as the long-term care hospital or satellite of the long-term care hospital. (a) * * * (1) * * *1368 (iii) [Reserved].

* * * * * (2) For cost reporting periods beginn ing on or after July 1, 2007 and before July 1, 2016, the policies set forth in this sec tion 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 th e 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 reserv ing 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 r eceive 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 prov ider’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 re port, if the provider seeks payment that it believes may not be allowable or may not comport with Medicare policy (for example, if the provider believe s the contractor lacks the authority or discretion to award the reimbursement the pr ovider seeks for the item), by following the1370 procedures (set forth in paragraph (j)(2) of this section) for properly self-disallowing the specific item in the provider’s co st 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 specif ic 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 pr ovider self-disallowe d 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 th ere is an appropriate cost report claim

. Whether the provider’s cost report for its co st reporting period in cludes an appropriate claim for a specific item (as prescribed in pa ragraph (j)(1) of this section) must be determined by reference to the cost report that the provider submits or iginally 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, wh ether there is an appropriate cost report claim for the specifi c item must be determined by reference to such amended cost report, prov ided that neither of the excep tions 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 sp ecific item must be determined by reference to the provider’s cost report, as such cost repo rt 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 se ction does not apply; (iii) If the contractor re opens either the initial cont ractor determination for the provider’s cost reporting period (pursuant to § 405.1885 of this chapter) or a revised contractor determination for such period (i ssued 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 clai m 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 co ntractor 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 fo r a specific item (as specified in paragraphs (j)(1), (j)(2), and (j)(3) of this section) and that all th e other substantive reimbursement requirements for the specific item are also satisfied, the fi nal 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 made1372 an appropriate cost report cl aim 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 contr actor 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 appropria te cost report claim for a specific item, the

final contractor determination must not incl ude 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 th ere is an appropriate cost report claim

. If the provider files an admini strative appeal (pursuant to Part 405, Subpart R of this chapter) seeking reimbursement for a speci fic item and any party to such appeal questions whether the provider’s cost report in cluded 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 fort h 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 secti on in determining whether the pr ovider’s cost report included an appropriate claim for the specific item under appeal. The reviewing entity may permit1373 reimbursement for the specific item under appe al solely to the extent authorized by § 405.1873(f) of this chapter (if the appeal wa s filed originally w ith the Board) or by § 405.1832(f) of this chapter (if the a ppeal 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 rura l track residency program that an urban hospital may

include in its FTE count and that is in a ddition to the number of FTE residents already included in the hospital’s FTE cap.

* * * * * 49. Section 413.78 is amended by revising pa ragraph (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 a ny settled cost reports

as to which there is not a jurisdictionally prop er appeal pending as of March 23, 2010, on direct GME or IME payments. Cost reporti ng periods beginning before July 1, 2010 are not governed by paragraph (g) of this section.1374

* * * * * 50. Section 413.79 is amended by revising pa ragraphs (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 hospi tals that are redesignated as urban. A rural hospital redesignated as urban after Septem ber 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 it s FTE resident cap th at 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 be ginning on or after Oc tober 1, 2014, if a rural hospital is redesignated as ur ban due to the most recent OMB standards for delineating statistical areas adopted by CMS, and was trai ning residents in a new program prior to the redesignation becoming effectiv e, the redesignated urban hosp ital 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 reside nts when the redesignation became effective, in accordance with paragraph (e) of this section. (d) * * * (5) (i) For new programs started prio r to October 1, 2012, if a hospital qualifies for an adjustment to the limit established unde r paragraph (c)(2) of this section for new1375 medical residency programs created under paragr aph (e) of this sec tion, the count of the residents participating in new medical residency traini ng 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 medi cal residency training programs are included in the hospital’s FTE count before applying th e averaging rules afte r 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 le ngth 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 af ter October 1, 2012, for hospitals for which the FTE cap may be adjusted in accordan ce with § 413.79(e) of this chapter, FTE residents participating in ne w medical residency training pr ograms 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 accordan ce with § 413.79(e)(1) of this chapter, and prior to the beginning of the applicable hospi tal’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 acco rdance 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 starte d for hospitals for which the FTE cap may be adjusted in accordance with § 413.79(e)(1) of this chapter, and afte r the applicable1376 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 ch apter, FTE residents participating in new medical residency training programs are incl uded in the hospital’ s FTE count before applying the averaging rules.

* * * * * (k) * * * (7) (i) Effective for cost reporting pe riods beginning prior to October 1, 2014, if an urban hospital had establis hed a rural track training pr ogram under the provisions of this paragraph (k) with a hospi tal 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 th e 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 esta blish a rural track pr ogram with hospitals that are designated rural based on the most recent geographical location delineations adopted by CMS. (ii) Effective for cost reporting peri ods 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 hos pital located in a rural area and, during the 3-year period that is

used to calculate the urban hos pital’s rural track FTE limit, that rural area subsequently1377 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 pr ograms established prio r to the adoption of

such new OMB standards for delineating statistical areas. (iii) Effective for cost reporting peri ods beginning on or after October 1, 2014, if an urban hospital had establis hed a rural track training pr ogram under the provisions of this paragraph (k) with a hospi tal located in a rural area and that rural area subsequently

becomes an urban area due to the most rece nt OMB standards for delineating statistical areas adopted by CMS and the most recent Census Bureau data, regardless of whether the redesignation of the rural hospita l occurs during the 3-year peri od that is used to calculate the urban hospital’s rural track FTE limit, or af ter the 3-year period used to calculate the urban hospital’s rural track FTE limit, the urba n hospital may continue to adjust its FTE resident limit in accordance with this pa ragraph (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 adjustme nt to its FTE resident cap for training FTE

residents in the rural track resi dency program that was establis hed 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 statisti cal areas are adopted by CMS: the hospital that has been redesignated from rural to ur ban must reclassify as rural under § 412.103 of this chapter, for purposes of IME only; or th e urban hospital must fi nd a new site that is1378 geographically rural consistent with the mo st recent geographical location delineations adopted by CMS. In order to receive an ad justment to its FTE resident cap for an

additional new rural track resi dency program, the urban hospi tal must establish a rural track program with sites that are geogra phically rural based on the most recent geographical location delin eations adopted by CMS.

* * * * *

PART 415— SERVICES FURNISHED BY PHYSICIANS IN PROVIDERS,

SUPERVISING PHYSICIANS IN TEACH ING 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 lim its 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 equivalency1379 limits and, to the extent possible, consider s average physician inco mes 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 Medi care 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 adju stment 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 pa yments 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 pa ragraphs (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 Medi care DSH percentages; (iv) To conduct quality revi ew and improvement activities; (v) For Medicare coverage purposes; (vi) To conduct evaluations and other analysis to support th e Medicare program (including demonstrations) and to support publ ic 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 da ta described in paragraphs (a) through (d) of this section, CMS may release the minimum da ta 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 bene ficiary identifier elements and beneficiary confidentiality, including—1381 (A) A prohibition against public di sclosure of beneficiary identifying information; (B) Release of beneficiary identifying information to other HHS agencies, other Federal executive branch agencies, Congression al support agencies, and States only when such information is needed; and (C) Release of beneficiary identifying info rmation to external entities only to the

extent needed to link datasets. (iv) Subject to the aggregation of paym ent 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 Se curity Act (42 U.S.C. 1302 and 1395(hh)). 57. Section 424.11 is amended by revising pa ragraph (d)(5) to read as follows: § 424.11 General procedures.

* * * * * (d) * * * (5) For all inpatient hospital services, including inpatient ps ychiatric 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 Se curity 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 se ction or the requirements of paragraph (b)(3), (b)(4), or (b)(5) of this section.

* * * * * (5) Effective on or after October 1, 2 014, for a period of 2 years beginning with

the effective date of the most recent Offi ce of Management and Budget (OMB) standards for delineating statistical areas adopted by CMS, the CAH no longer meets the location1383 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 standard s 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 Se curity Act (42 U.S.C. 1302 and 1395(hh)). 62. Section 488.61 is amended by— a. Revising paragra phs (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 doe s not meet the data submission, clinical experience, or outc ome requirements, or other c onditions of participation: (i) The extent to which outcome measures are not met or exceeded; (ii) Availability of Medicare-appr oved 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 substantia lly address root caus es of graft failures or patient deaths and that have been imple mented and institutiona lized on a sustainable basis; (v) Recent patient and graft survival da ta 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 ex tensive use of innovati ve transplantation practices relative to other transp lant programs, such as a high rate of transplantation of individuals who are highly sensitized or children w ho have undergone a Fontan procedure compared to most other transp lant programs, where CMS finds that the innovative practices are suppor ted by evidence-based publis hed research literature or nationally recognized standard s or Institution Review Boar d (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 w ithin the OPTN’s thresholds for acceptable performance and does not flag OPTN perfor mance 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 contribute d to outcomes, program improvements or innovations that have been impl emented 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 pr ogram(s) for which approval is requested;1386 (iii) The conditions of participation th at the program does not meet for which the transplant center is requesting CM S’ review for mitigating factors; (iv) The rationale and supporting eviden ce for CMS’ review may include (but is not limited to)— (A) Root Cause Analysis for patient d eaths and graft failure s, including factors the program has identified as lik ely causal or contributing f actors 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 ev aluation protocols, including methods for pre-transplant patient eval uation by cardiologists, hematologists, nephrologists, and psychiatrists or ps ychologists to the extent applicable; (D) Organizational chart with full-time e quivalent 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 Performan ce 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 patie nt survival and graft survival; and (L) Whether the program has engage d 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 th at is not for insufficient clin ical experience or outcomes, and 120 days of the CMS written notification fo r a deficiency due to clinical experience

or outcomes. Failure to meet these timefram es 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 approv al or re-approval of a progr am’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 improveme nts that address root causes and are1388 institutionally supported by the hospital’s gove rning body on a sustainable basis, and has requested more time to design or implemen t 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 determ ination 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 approv e any program with a condition-level deficiency. However, CMS may approve a pr ogram 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 in to voluntarily by the hospital and CMS, through which CMS extends a prospective Me dicare termination date and offers the program additional time to achieve complian ce 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 demonstrat e compliance. In some cases, transplant programs may enter a period of inactivity—voluntarily, or im posed as a condition of the Systems Improvement Agreement.1389 (1) Content. In exchange for the additio nal 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) a ll 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-pocke t 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, opera tions, relationship to hospital services, and factors that contribute to program outcom es; that suggests quality improvements the hospital should consider; that provides both ve rbal and written fee dback to the hospital; and that provides a verbal debriefing to CM S. Neither the hospita l nor the peer review team is required to provide a written report to CMS. The p eer review team must include a transplant surgeon with expertise in th e 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 w ith expertise in conditions particularly relevant to the a pplicable 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 in dividual who has expertise part icularly 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 sy stemic quality improvements and is updated after the onsite peer review; (iv) An onsite consultant whose quali fications are approve d by CMS, and who provides services for 8 days per month on av erage for the duration of the agreement, except that CMS may permit a portion of the ti me 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 polic ies, procedures, and protocols of the transplant program with those of other programs in areas of endeavor that

are relevant to the center’s cu rrent quality improvement needs; (vi) Development of increased prof iciency, or demonstration of current proficiency, with patient-level data from the Sc ientific Registry of Transplant Recipients and the use of registry data to analyze outco mes and inform quality improvement efforts; (vii) A staffing analysis that examines th e level, type, trainin g, and skill of staff in order to inform transplant center effort s to ensure the engagement and appropriate training and creden tialing 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 specifie d) reporting and conf erence calls with CMS regarding the status of programmatic improvements, results of the deliverables in1391 the Systems Improvement Agreement, and the number of transplants, deaths, and graft failures that occur within 1 year post-transplant; and (x) Additional or alte rnative 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 ex tend the agreement for up to an additional 6-month period.CMS-1607-P (Catalog of Federal Domestic Assistan ce Program No. 93.773, Medicare--Hospital Insurance; Program No. 93.774, Medicare--Supp lementary 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-P1393 Note: The following Addendum and Appendixes will not appear in the Code of Federal Regulations. Addendum—Proposed Schedule of Standardiz ed 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 pa yment rates for Medica re hospital inpatient operating costs and Medicare hospital inpati ent capital-related costs for FY 2015 for acute care hospitals. We also are setting fo rth the proposed rate-of-increase percentages for updating the target amounts for certain hosp itals excluded from the IPPS for FY 2015. We note that, because certain hospitals exclude d from the IPPS are paid on a reasonable cost basis subject to a rate-of-increase ceili ng (and not by the IPPS), these hospitals are not affected by the figures for the standardiz ed 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 pe riods beginning on or after October 1, 2014. In addition, we are setting forth a descrip tion 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 discha rge 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 hospita l 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, unc ompensated 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 198 7 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 e nd of FY 2013 (that is, for discharges occurring after September 30, 2013) through th e 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 ha lf 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 th e end of FY 2013. U nder 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, M DHs 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 disc harge, whichever was higher. Section 5003(c) of Pub. L. 109-171 further required th at MDHs be paid based on the Federal national rate or, if higher, the Federal nati onal rate plus 75 per cent of the difference

between the Federal national ra te and the updated hospital-speci fic rate. Further, based on the provisions of section 5003(d) of P ub. 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-s pecific rate based on average costs per case of Puerto Rico hospitals for the base year and 75 percent of the Fe deral national rate. (We refer readers to section II.D.2. of th is 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 prosp ective 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 cap ital-related costs for FY 2015. In section IV. of this Addendum, we are setting forth our pr oposed 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 unde r the LTCH PPS for FY 2015. The tables to1396 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 hospita ls for FY 2005 and subs equent fiscal years is set forth under § 412.64. The basic me thodology for determining the prospective payment rates for hospital inpatient operating co sts for hospitals located in Puerto Rico for FY 2005 and subsequent fiscal y ears is set forth under §§ 412.211 and 412.212.

Below we discuss the factors we are usi ng 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 availa ble via the Internet)

reflect—

● Equalization of the sta ndardized amounts for urban and other areas at the level computed for large urban hospitals duri ng FY 2004 and onward, as provided for under section 1886(d)(3)(A)(iv )(II) of the Act.

● The labor-related share that is applie d to the standardized amounts and Puerto Rico-specific standardized amounts to give th e hospital the highest payment, as provided for under sections 1886(d)(3)(E) an d 1886(d)(9)(C)(iv) of the Act. For FY 2015, depending on whether a hospita l submits quality data under the rules established in accordance with section 1886(b)(3 )(B)(viii) of the Act (hereafter referred1397 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 sec tion IV.B. of the preamble of this proposed rule for a complete discu ssion 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)(x ii) 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 0.751398

● 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 per centage 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 reclassifica tion, as provided for under sec tion 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 effect s of geographic reclas sification 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 tran sitional wage index provisions provided by CMS as a result of the proposed adoption of th e new OMB labor market area delineations.1399

● An adjustment to ensure the e ffects of the rural community hospital demonstration program required under sec tion 410A of Pub. L. 108-173, as amended by sections 3123 and 10313 of Pub. L. 111-148, wh ich extended the demonstration program for an additional 5 years, are budget neutra l as required under s ection 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 sec tion 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 am ount of the increase in aggregate payments as a result of not completing the pros pective adjustment authorized under section 7(b)(1)(A) of Pub. L. 110-90 until FY 2013. Beginning in FY 2008, we applied the budge t neutrality adjustme nt for the rural floor to the hospital wage indices rather th an the standardized amount. As we did for FY 2014, for FY 2015, consistent with current la w, 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 floo r. We note that, in section III.G.2.b. of the preamble to this proposed rule, we ar e proposing to extend the imputed floor policy1400 (both the original methodology and alternat ive 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 neutrali ty adjustment, which will be reflected in the proposed FY 2015 wage index. A. Calculation of the Proposed Adjusted Standardized Amount

1. Standardization of Base-Y ear Costs or Target Amounts In general, the national standardized am ount is based on per discharge averages of adjusted hospital costs from a base peri od (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-s pecific 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 otherwis e 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 us ed 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 th en standardize the cost data in order to1401

remove the effects of certain sources of cost variations among hospitals. These effects include case-mix, differences in area wage le vels, cost-of-living adjustments for Alaska and Hawaii, IME costs, and costs to hosp itals serving a dispro portionate 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’ co sts that are attributable to wages and wage-related costs. In general, the standard ized amount is divided into labor-related and nonlabor-related amounts; only the proportion co nsidered to be the labor-related amount is adjusted by the wage index. Section 1886( d)(3)(E) of the Act re quires 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. Specificall y, under section 1886(d)(3 )(E) of the Act, the Secretary estimates from time to time the propor tion 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 attributab le to wages and wage-re lated costs, of the DRG prospective payment rates . . . .” We re fer to the proportion of hospitals’ costs that are attributable to wages and wage-related costs as the “labor-rela ted share.” For FY 2015, as discussed in section III. of the preamble of this proposed rule, we are proposing1402 to establish a labor-related share of 69.6 per cent 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 gr eater than 1.0000. Consistent w ith section 188 6(d)(3)(E) of the Act, we are proposing to a pply the wage index to a labo r-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 hospi tals whose wage indices are greater than 1.0000, we are proposing to apply the wage inde x 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 divi ded by the proposed national average hourly rate (the sum of all salaries and hours for all hos pitals in the 50 Unite d 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 hosp ital located in Puerto Rico by the proposed Puerto Rico-specific national average hourly rate (the sum of all sala ries and hours for all hospitals located only in Puer to 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 opera ting costs appear in Tables 1A, 1B, and 1C that are listed and pub lished in section VI. of the Addendum to this proposed rule

and are available via the Internet. 2. Computing the National Average Standa rdized Amount and Puerto Rico-Specific

Standardized Amount Section 1886(d)(3)(A)(iv)(I I) of the Act requires that , beginning with FY 2004 and thereafter, an equal standa rdized amount be computed fo r 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 ar e proposing to calculate the FY 2015 national average standardized amount a nd Puerto Rico-specific standa rdized amount irrespective of whether a hospital is located in an urban or rural location. 3. Updating the National Average Standard ized 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 am ount 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 proposi ng to reduce the proposed FY 2015 applicable1404 percentage increase (which is based on IHS Global Insight, In c.’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 hospita ls in all areas. Sections 1886(b)(3)(B)(xi) and (xii) of Act, as added and amende d by sections 3401(a) and 10319(a) of the Affordable Care Act, further state that thes e adjustments may result in the applicable percentage increase being less than zero. Th e percentage increase in the market basket reflects the average change in the price of goods and services comprising routine, ancillary, and special care un it 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 s ubmits 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 ar e four possible applicable percentage increases that coul d be applied to the standardiz ed amount. We refer readers to section IV. of the preamble of this pr oposed rule for a complete discussion on the FY 2015 proposed inpatient hospital update to the standardized amount . We also refer1405

readers to the table above for the four possible proposed app licable percentage increases that would be applied to update the nati onal standardized amount. The proposed

standardized amounts shown in Tables 1A thro ugh 1C that are published in section VI. of

this Addendum and that are available via th e Internet reflect these differential amounts. Section 401(c) of Pub. L. 108-173 amende d 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 aver age standardized amount for hos pitals located in any area of Puerto Rico that is equal to the av erage 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 y ear) increased by the a pplicable percentage increase under subsection (b)(3)(B ) for the fiscal year involve d. Therefore, the update to the Puerto Rico-specific operating standardi zed 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 (tha t 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 ar e set by law, we are required by section 1886(e)(4) of the Act to recommend, taking in to account MedPAC’s recommendations, appropriate update factor s for FY 2015 for both IPPS hospitals and hospitals and hospital units ex cluded from the IPPS. Section 1886(e)(5)(A) of the Act requires that we publish our pr oposed recommendations in the Federal Register for1406 public comment. Our recommendation on the u pdate 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 ad just the FY 2015 standardized amount to remove the effects of the FY 2014 geographi c 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 DR G 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 th e changes. If we removed the prior year’s adjustment, we would not satisfy these conditions. Budget neutrality is determined by co mparing aggregate IPPS payments before and after making changes that are required to be budget neutra l (for example, changes to MS-DRG classifications, recalib ration of the MS-DRG relative weights, updates to the wage index, and different geograp hic reclassifications). We include outlier payments in the simulations because they may be a ffected by changes in these parameters. In order to appropriately estimate aggregate payments in our modeling, we make

several inclusions and exclusions so that th e appropriate universe of claims and charges1407

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 methodol ogy 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 se ction 1886(d) of the Ac t, we believe these payments must be part of these budget neutra lity calculations. However, we note that it is not necessary to include Medicare Advant age IME payments in the outlier threshold

calculation or the outlier offset to the sta ndardized 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 in clude 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 to tal Medicare Advantage IME payment amount to the budget neutrality adjustments. Second, consistent with the methodol ogy 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 f ile 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 indicato r of “3” for blood clotting wi th a revenue code of “0636” from the covered charge field for the budget ne utrality adjustments. We also removed1408 organ acquisition charges from the covere d 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 Improve ment (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 define d models of care, which link payments for multiple services beneficiaries receive duri ng an episode of care. Under the BPCI initiative, organizations ente r into payment arrangements that include financial and performance accountability for episodes of care. On January 31, 2013, CMS announced the health care organizations se lected to participate in the BP CI 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 fina lized a methodology to treat hospitals that participate in the BPCI initi ative the same as prior fiscal years for the IPPS payment modeling and ratesetting process (which in cludes recalibration of the MS-DRG relative weights, ratesetting, ca lculation of the budget neutrality fa ctors, and the impact analysis) without regard to a hospital’s participation within these bund led payment models (that is, as if they are not participating in those mode ls under the BPCI initiative). Therefore, for FY 2015, as discussed in secti on II.H.4.of the preamble to this proposed rule, we are proposing to continue to include all appli cable data from subs ection (d) hospitals1409 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 ra te setting process.

The Affordable Care Act establishe d the Hospital Readmissions Reduction Program and the Hospital VBP Program which adjust payments to certain IPPS hospitals beginning with discharges on or after Oct ober 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 budge t neutrality calculations. We discuss the treatment of these two programs in the cont ext of budget neutrality adjustments below. Section 1886(q) of the Act establishes the “Hospital Readmissions Reduction Program” effective for discharges from an “a pplicable hospital” beginning on or after October 1, 2012, under which payments to thos e hospitals under sec tion 1886(d) of the

Act are reduced to account for certain excess readmissions. Under the Hospital Readmissions Reduction Program, for di scharges 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 propos ed FY 2015 policy changes to the Hospital1410 Readmissions Reduction Program. We also note that the Hospital Readmissions Reduction Program provided for under section 18 86(q) of the Act is not budget neutral. Section 1886(o) of the Act requires th e 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 perf ormance period for that fiscal year. As specified under section 1886(o )(7)(B)(i) of the Act, these va lue-based incentive payments are funded by a reduction applied to each eligible hospital’s base-operating DRG payment amount, for each discharge occurri ng in the fiscal year. As required by section 1886(o)(7)(A) of the Ac t, the total amount of allo cated 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 Ho spital VBP Program. Thus, the Hospital VBP Program is estimated to have no net eff ect 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 (reductio n) 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 ov erall sum of aggregate payments on each1411 side of the comparison within the budget neut rality calculations. For example, when we calculate the budget neutrality factor for MS-DRG reclassi fication 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 r eaders to section II.A.4.a. of th is Addendum for full details.) Other factors, such as the DSH and IME paym ent adjustments, are the same on both sides of the comparison because we are only seeki ng to ensure that aggr egate payments do not

increase or decrease as a result of th e 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 readmissi ons 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/LTC H PPS final rule (77 FR 53687 through 53688). That is, we are proposing to apply th e readmissions payment adjustment factor and the hospital VBP payment adjustment f actor on both sides of our comparison of aggregate payments when determining all budge t 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 us e excess readmission ratios and aggregate payments for excess readmissions based on ad missions from the prior fiscal year’s applicable period because hospitals have had the opportunity to revi ew and correct these1412 data before the data were made public under the policy we ad opted regarding the reporting of hospital-specific re admission rates, consistent w ith section 1886(q)(6) of the Act. For this proposed rule, we are propos ing to calculate the readmissions payment adjustment factors using excess readmission ratios and aggregate payments for excess

readmissions based on admissions from the fi nalized applicable period for FY 2015 as hospitals have had the opportunity to revi ew and correct these data under our policy regarding the reporting of hos pital-specific readmission rate s 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 pol icy 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 neutra lity 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 re view 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/A SC final rule with comment period1413 (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 fo r computing the Medicare DSH payment adjustment beginning in FY 2014. Beginning in FY 2014, IPPS hospitals receiving Medicare DSH payment adjustments will receive an empiri cally justified Medicare DSH payment equal to 25 percent of the amount th at 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 pe rcent 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 base d on their share of the total amount of uncompensated care reported by Medicare DS H hospitals for a given time period. In order to properly determine aggregate pa yments on each side of the comparison for budget neutrality, prior to FY2014, we include d 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 jus tified Medicare DSH payments that will be paid in accordance with secti on 1886(r)(1) of the Act and also to include estimates of the additional uncompensated care payments made to hospitals receiving Medicare DSH1414 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 hosp itals 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 paym ents 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 sect ion IV. of the preamble to this proposed

rule , when computing the Federal national rate plus 75 percen t of the difference between

the Federal national rate and th e updated hospital-specific rate , we are continuing to take into consideration uncompensated care paym ents in the computation of payments under the Federal rate and the hospital-specific rate for MDHs. Also, for FY 2015, CMS has yet to finaliz e a list of hospitals that are not meaningful EHR users under sec tion 1886(b)(3)(B)(ix) of the Act. Therefore, we are proposing not to include this adjustment to the standardized amount (for those hospitals1415 that are not meaningful EHR users) in our modeling of aggregate payments for budget neutrality for FY 2015. CMS intends to releas e a final list of hospitals that are not meaningful EHR user in September 2014. Hospita ls identified on this list will be paid based on the applicable proposed standardiz ed amount in Table 1A for discharges occurring in FY 2015. We finally note that the wage index valu e is calculated and a ssigned 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) esta blished 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 co mparison for our budget ne utrality 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 Metr opolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical Areas, and provided guidance on the use of

the delineations of these stat istical 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 rule1416 (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 propos ed rule, we are proposing to adopt the new

OMB labor market area delineations as desc ribed in the February 28, 2013 OMB Bulletin No. 13-01, effective for the FY 2015 IPPS wage index. Consistent with our pro posal 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 pr oposed transitional budget neutrality factor and proposed outlier threshold as explained be low). 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 affe cted. As discussed in section II.H. of the preamble of this proposed rule, we normalized the recalibrated1417 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 averag e case relative weight after recalibration to the average case relative weight before recal ibration does not necessa rily achieve budget neutrality with respect to a ggregate payments to hospitals because payments to hospitals are affected by factors other th an average case relative weight . Therefore, as we have done in past years, we are proposing to ma ke 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 requi res us to update the hospital wage index on an annual basis beginning October 1, 1993. Th is provision also requires us to make any updates or adjustments to the wage inde x 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 percen t 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 th e Secretary shall calculate the budget neutrality adjustment for the adjust ments 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 requir es that we implement the updates to the wage index in a budget neutral manner, but that our budget ne utrality adjustment should not take into account the requirement that we set the la bor-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 adju stment, section 1886(d)(3 )(E)(i) of the Act prohibits us from taking into ac count the fact that hospitals wi th 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 preamb le of this proposed rule. For FY 2015, to comply with the requir ement 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 we ights, 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 delineationsproposed for FY 2015, the proposed FY 2015 relative weights, and the FY 2014 prereclassified wage data, and applied the sa me 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 sec tion IV. of this Addendum, we also are proposing to apply the proposed MS-DRG reclassification and recalibration budget1419 neutrality factor of 0.992938 to the hospital-specific rates that are e ffective for cost reporting periods beginning on or after October 1, 2014.

In order to meet the stat utory requirements that we do not take into account the labor-related share of 62 percent when co mputing 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 re lative weights and the updated wage index and

labor-related share have no e ffect on aggregate payments for IPPS hospitals. Under the first step, we determined a proposed MS- DR G reclassification and recalibration budget neutrality factor of 0.992938 (by using th e same methodology described above to

determine the MS-DRG reclassification and reca libration 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 re lative weights and the FY 2014 prereclassified wage indices, applied the FY 2014 labor-related share of 69.6 percent to all hospitals (regardless of whet her the hospital’s wage index was above or below 1.0), and applied the proposed FY 2015 hospital read missions 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 rela tive weights and the proposed FY 20151420 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 ho spital VBP payment adjustments applied

above. In addition, we applied the proposed MS -DRG reclassificatio n and recalibration budget neutrality factor (derived in the first step) to the paym ent 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 i ndex. Finally, we multiplied the proposed

MS-DRG reclassification and recalibration budget neutral ity adjustment factor of 0.992938 (derived in the first step) by the propos ed budget neutrality adju stment factor of 1.000578 for changes to the wage index (derived in the second step) to determine the proposed MS-DRG reclassification and r ecalibration 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 th e Act provides for th e 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, th e Secretary is requir ed to adjust the

standardized amount to ensure that aggregate payments under the IPPS after1421 implementation of the provisions of sectio ns 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act are equal to the aggregate prospect ive payments that would have been made absent these provisions. We note that th e wage index adjustments provided for under section 1886(d)(13) of the Act are not budget ne utral. 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 propos ed 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 reclassifi cations 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 hos pital 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 app lied the same proposed hospital readmissions payment adjustments and the estimated hos pital VBP payment adjustments applied

above.

We note that the reclassifications applied under the second simulation and comparison are those listed in Tables 9A 2 and 9C2, which are posted on the CMS Web

site. These tables reflect r eclassification crosswalks base d on the new OMB labor market1422 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, c onsistent with the statute. The proposed FY 2015 budget neutrality ad justment factor was applied to the proposed standardized am ount 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 adjustme nt 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 fl oor 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 Ca re Act and as discussed in section III.G. of the preamble of this proposed rule and codi fied 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 s ection III.G.2.b. of the preamble of this proposed rule, in the FY 2012 IPPS/LTCH PPS fi nal 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 esta blished an alternative methodology for1423 calculating the imputed floor and establishe d a policy that the minimum wage index

value for an all-urban stat e would be the higher of th e value determined under the original methodology or the value com puted 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 ye ars, 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 calcu lated using the new OMB delineations. Under the OMB delineations used for FY 2014, the imputed floor (both the original methodology and alte rnative methodology) was applied to New Jersey and

Rhode Island because these were the onl y two all-urban States. Under OMB’s 2010

revised delineations based on Census 2010 data , in addition to New Jersey and Rhode1424 Island, Delaware would become an all-urban state. Therefore, for FY 2015, the proposed imputed floor would be applied to Ne w Jersey, Rhode Island, and Delaware.

Similar to our calculation in th e FY 2012 IPPS/LTCH PPS final rule (76 FR 51593 and 51788), the FY 2013 IPPS/LTC H 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 nati onal rural Puerto Rico wage index (used to adjust the

labor-related share of the national standardiz ed amount for hospitals located in Puerto Rico which receive 75 percent of the nationa l standardized amount) and a proposed rural Puerto Rico-specific wage index (which is us ed to adjust the labor-related share of the Puerto Rico-specific standardized amount fo r hospitals located in Puerto Rico that receive 25 percent of the Puerto Rico-specifi c standardized amount). Because there are no rural Puerto Rico hospitals with establis hed 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 area s) that are contiguous (share a border with)

to the rural counties to co mpute 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 co ntiguous 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 (CBSA1425 32420); Ponce, PR (CBSA 38660), San Germ an, PR (CBSA 41900) and San JuanCarolina-Caguas, PR, PR (CBSA 41980). To calculate the proposed national rura l floor and imputed floor budget neutrality adjustment factor and the proposed Puerto Rico-specific rural fl oor budget neutrality adjustment factor, we used FY 2013 discharg e data to simulate payments, the proposed

FY 2015 new OMB labor market area delineat ions, 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 rura l floor applied. Based on this comparison, we determined a proposed national rural budget neutrality adjustment factor of 0.989455 a nd 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 nationa l rural floor budget neutral wage index and the proposed Puerto Ri co-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 Tr ansition Budget Neutrality As discussed in section III. of the preambl e to this proposed rule, in the past, we have provided for transition periods when adopting change s 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 th at would become rural under the new OMB delineations. To alleviate the decreased paym ents associated with having a rural wage index, in calculating the ar ea wage index, similar to th e transition provided in the FY 2005 IPPS final rule, we generally are pr oposing a policy to assign them the urban wage index value of the CBSA to which th ey are physically located for FY 2014 for FYs 2015, 2016, and 2017. In addition to the 3-year transition adju stment for hospitals being transitioned

from urban to rural status as discussed a bove, 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 reclassi fication and redesignation) ex clusively 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 imput ed 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 th an the proposed FY 2015 wage index with FY 2014 CBSAs, we are proposing that a bl ended wage index would be computed,1427 consisting of 50 percent of each of the tw o wage indexes added together. We are proposing that this blended wage index woul d 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 ne w OMB delineations. We refer readers to section III. of the preamble to this propos ed rule for a completer discussion on the transitional wage index policy. In the past, CMS has budget neutralized tr ansitional wage indexes. Because we are proposing a policy that allows for the a pplication of a transitional wage index only when it would benefit the hospita l, we believe that it would be appropriate to ensure that such a transitional policy does not increas e aggregate Medicare payments beyond the payments that would be made had we simp ly adopted the new OMB delineations without any transitional provisions. Therefore, for FY 2015, we are proposing to use our exceptions and adjustments authority under sec tion 1886(d)(5)(I)(i) of the Act to make an adjustment to the national and Puerto Rico-s pecific standardized am ounts to ensure that total payments, including the effect of th e transitional wage i ndex 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 th e rural and imputed floor applied computed based on FY 2014 CBSAs. Because the pr oposed 50/50 blend methodology would use data based on FY 2014 CBSAs, in order to pr operly calculate the proposed transitional budget neutrality factor, it was first necessa ry to calculate the following proposed budget1428 neutrality factors based on the FY 2014 CBSAs: an MS-DRG and a wage index budget neutrality, a reclassification budget neutrality, and a rural fl oor budget neutrality. It was necessary to compute the firs t three budget neutrality factor s of MS-DRG, wage index, and reclassification budget neut rality (which are applied to the standardized amount) to

ensure that the calculation of the rural and imputed floor budge t neutrality factor applied to the wage index based on FY 2014 CBSAs is accurate. We calculated these four budget neutrality factors using the same me thodology stated above, but used the FY 2014 CBSAs instead of the proposed FY 2015 CBS As on both the sides of the comparison. After calculating all of the proposed budge t 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, pr oposed 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 delinea tions), and applied the proposed FY 2015 hospital readmissions payment adjustments and the proposed estimated FY 2015 hospital VBP payment adjustments; and

● Aggregate payments using propose d FY 2015 relative weights, proposed FY 2015 wage data after applying the transiti onal wage indexes, and applied the same proposed hospital readmissions payment adju stments and the estimated hospital VBP1429 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 propos ed rural floor budget neutrali ty based on the proposed FY

2015 new OMB delineations. Based on these simulations, we calcu lated a proposed budget neutrality adjustment factor of 0.998856. Therefore, for FY 2015, we are proposing to apply a transitional wage index budget neutrality ad justment factor of 0.998856 to the national average and Puerto Rico-specifi c 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 th e FY 2015 national and Puerto Rico-specific

standardized amounts in order to offset the incr ease in payments in FY 2015 as a result of these transitional wage indexes. For subseque nt fiscal years, we are proposing to not take into consideration the adjustment f actor applied to the national and Puerto Rico-specific standardized amounts in the prev ious fiscal year’s update when calculating the current fiscal year transitional wage inde x budget neutrality adjustment factor (that is, we are proposing that this adjustment woul d 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 pr oposed adoption of the new OMB delineations, we intend to propose transitional wage index budget neutrality adjustment factors to apply to the FY1430 2016 and FY 2017 national and Puerto Rico-sp ecific standardized amounts during those respective rulemaking cycles. Similar to th e 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 propo sed rule and previously finalized policies (including our historical adju stments to the payment rates) relating to the effect of changes in documentation and coding that do not reflect real ch anges 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 s ection 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 th e $11 billion recoupment required by section 631 of ATRA in FY 2014, a one-time -9.3 pe rcent 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 m oderate the effect on payment rates in any 1 year. Therefore, consis tent with the policies that we have adopted1431 in many similar cases, for FY 2014, we applied a -0.8 percent adjustment to the

standardized amount. In this proposed rule, we are proposi ng to apply an additional -0.8 percent adjustment to the st andardized 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 woul d not apply to the Puerto Rico-specific standardized amount and hospita l-specific payment rates. e. Rural Community Hospital De monstration Program Adjustment As discussed in section IV.L. of the pr eamble of this propose d rule, section 410A of Pub. L. 108-173 originally required the Secretary to esta blish a demonstration program that modifies reimbursement for inpatient se rvices for up to 15 small rural hospitals. Section 410A(c)(2) of Pub. L. 108-173 require s that “[i]n conducting the demonstration program under this section, the Secretary shal l ensure that the aggregate payments made by the Secretary do not exceed the amount whic h 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 a llowed up to 30 hospitals to participate in 20 States with low population densities dete rmined by the Secretary. (In determining which States to include in the expansion, the Se cretary 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 fi nal rule (77 FR 53449 through 53453), in order to achieve budget neutrality, we adju sted the national IPPS payment rates by an

amount sufficient to account for the added costs of this demonstration program as1432

described in section IV.K. of th at final rule. In other word s, we applied budget neutrality across the payment system as a whole rather th an merely across the participants of this demonstration program, consistent with past practice. We stated that we believe the language of the statutory budget neutrality re quirement permits the agency to implement the budget neutrality provision in this manne r. The statutory language requires that “aggregate payments made by the Secretary do not exceed the amount which the Secretary would have paid if the demons tration...was not implemented,” but does not identify the range across which aggreg ate payments must be held equal. As we did for FY 2014, for FY 2015, we ar e 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 pream ble 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 neut rality 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 correspond ing 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 co rresponding year’s IPPS fi nal rule. For this FY 2015 IPPS/LTCH PPS proposed rule, we have calculated the amount by which the

actual costs of the demonstra tion in FY 2008, (that is, the co sts 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 amount1433

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 curre ntly working with the MACs that service the hospitals participating in the demonstr ation to obtain finali zed cost reports for FYs 2009, 2010, and 2011). Depending on our progr ess in obtaining these cost reports, we may also include in the FY IPPS final ru le the difference between the demonstration costs for one or more of these years and the am ounts that were finali zed 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 be tween the total estimat ed FY 2014 reasonable cost amount to be paid under the demons tration to the 22 par ticipating 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); an d (2) the amount by which the actual costs of demonstration for FY 2008, which are cal culated in accordance with the finalized cost reports for the hospitals that participated in th e demonstration during FY 2008, exceed the budget neutrality offset amount th at 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 of1434 0.999283 for the rural community hospital dem onstration 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 ad dition to the basic prospective payments for “outlier” cases invo lving 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 or der to qualify for an outlier payment). We refer to the sum of the prospective paym ent 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 determ ine whether the costs of a case exceed the fixed-loss cost threshold, a hospital’s CCR is a pplied 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 per cent nor more than 6 pe rcent 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 operati ng 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 calculati on. Section 1886(d)(3)(B) of th e Act requires the Secretary to reduce the average standardized amount by a factor to account for the estimated proportion of total DRG payments ma de 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 Puer to 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-lo ss 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 calcula te 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. Theref ore, in order to determine the proposed FY 2015 outlier threshold, we inflated the ch arges 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 aver age charge per case because our prior methodology used a 6-month measure, which inherently uses fewe r claims than a 1-year measure and makes it more susceptible to fluctuations in the av erage 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-o f-change in charges per case for FY 2015, we are proposing to compare the second quart er of FY 2012 through th e 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 (Janua ry 1, 2013, through December 31, 2013). This rate-of-change is 5.6 percent (1.055736) or 11.5 percent (1.1 14579) over 2 years. As we have done in the past, we are proposing to establis h 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 con tinue to apply an adju stment factor to the CCRs to account for cost and charge infla tion (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 co mpare the national average case-weighted operating and capital CCR from the most recen t 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 in1437 the national average case-weighted oper ating CCR and capital CCR from the December 2012 update of the PSF to the national aver age 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 na tional 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 us e the same case count on both sides of the comparison as this will produce th e true percentage change in the average case-weighted operating and capit al CCR from one year to th e next without any effect from a change in case count on different sides of the comparison. Using the proposed methodology abov e, we calculated a December 2012 operating national average case-wei ghted 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 na tional operating case-weighted CCRs by subtracting the December 2012 operating nati onal average case-weighted CCR from the December 2013 operating national average ca se-weighted CCR and then dividing the result by the December 2012 national operati ng average case-weighted CCR. This resulted in a proposed national ope rating CCR adjustment factor of 0.981315. We also used the same methodology propos ed 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 calcul ated the percentage change between the two national capital case-weighted CCRs by subtracting the December 2012 capital1438 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 re sulted in a proposed national capital CCR adjustment factor of 0.991587. Consistent with our methodology in the pa st and as stated in the FY 2009 IPPS final rule (73 FR 48763), we continue to beli eve that it is appropriate to apply only a 1-year adjustment factor to the CCRs. On av erage, it takes approxima tely 9 months for a fiscal intermediary or MAC to tentatively settle a cost report from the fiscal year end of a hospital’s cost report ing 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 app lied the proposed FY 2015 payment rates and policies using cases from the FY 2013 Me dPAR files in calculating the proposed

outlier threshold. As discussed above, for FY 2015, we ar e proposing to apply transitional wage indexes because of the proposed adopti on of the new OMB labor market area delineations. Also, as discussed in secti on 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 floor1439 adjustments will be calculated and applied af ter 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 subj ect to budget neutrality, and will only be extended to hospitals geographi cally 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 an d adjust the wage index of those eligible hospitals in a frontier State wh en calculating the outlier thre shold 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 pa yments would be too low, and, as a result, our proposed outlier threshold would be too hi gh, 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 ha ve these ratios reconciled upon cost report settlement. In addition, it is difficult to pred ict the specific hospitals that will have CCRs and outlier payments reconciled in any give n year. We also note that reconciliation occurs because hospitals’ actual CCRs for the co st reporting period are different than the1440 interim CCRs used to calculate outlier pa yments when a bill is processed. Our simulations assume that CCRs accurately m easure hospital costs based on information

available to us at the time we set the ou tlier threshold. For these reasons, we are proposing not to make any assumptions about the effects of reconc iliation 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 Hosp ital 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 standard ized amount. Specifically, consis tent with our definition of the base operating DRG payment amount for the Hospital Readmissions Reduction Program under § 412.152 and the Hospita l VBP Program under § 412.160, outlier payments under section 1886(d)(5)(A) of th e 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). Conse quently, we are proposing to exclude the hospital VBP payment adjustments and the hospital readmissions payment adjustments

from the calculation of the outli er 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 care1441 payment under section 1886(r)(2), like the em pirically justified Medicare DSH payment under section 1886(r)(1), may be consid ered 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 sec tion 1886(d)(5)(A). As we did for FY 2014, for FY 2015 we also are proposing to allocate an es timated 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 calculati on of the outlier fixed-loss cost threshold would best approximate the amount we w ould 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-d ischarge 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 unco mpensated 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 co st 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 th e calculation of the outli er 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 ju stified 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 threshol d of $21,748. We believe that the increase in the charge inflation factor (compare d to the FY 2014 charge inflation factor) contributed to a higher propos ed 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 thres hold 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 ho spital inpatient operati ng costs and hospital inpatient capital-related costs. When we modeled the combined operating and capital outlier payments, we found that using a commo n 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 cap ital 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 th e same percentage to account for the projected proportion of paym ents paid as outliers.1443 The proposed outlier adjustment factors th at 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 th e effects of the FY 2014 outlier adjustment factors on the

standardized amount. To determine whether a case qualifie s 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 se parately 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 averag e 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 fo r 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 in1444 section VI. of this Addendum (and available only via the Internet) contains the proposed statewide average operating CCRs for urban hos pitals 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 o ccurring on or after October 1, 2014, these statewide average ratios would replace the ratios posted on our Web site athttp://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) c ontains the proposed co mparable 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 la test 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) cont ains the proposed statewide average total

CCRs used under the LTCH PPS as discusse d in section V. of this Addendum. We finally note that we published a ma nual 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 ma nual update covered an array of topics, including CCRs, reconciliation, and the time va lue of money. We encourage hospitals that are assigned the statewid e average operating and/or capital CCRs to work with their fiscal intermediary or MAC on a possible al ternative 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 or1445 underpayments at cost report settlement, ther eby ensuring better a ccuracy when making outlier payments and negating the need for outlier reconciliation. We also note that a hospital may request an altern ative 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 (C hange 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 refe r 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 esti mated 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 act ual 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 actu al total MS-DRG payments. Therefore, the data indicate that , for FY 2013, the percenta ge of actual outlier payments relative to actual total payments is lower than we projected for FY 2013.1446 Consistent with the policy and statutory in terpretation we have maintained since the inception of the IPPS, we do not make retroa ctive adjustments to outlier payments to ensure that total outlier paym ents 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) c ontain 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 A ddendum (and available vi a 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 standardiz ed 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 appl ication of that percen tage would result in1447 lower payments to a hospital than would othe rwise 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 le ss than or equal to 1.0000. In addition, Tables 1A and 1B incl ude the proposed standardized amounts reflecting the proposed applicable percentage increases for FY 2015. Under section 1886(d)(9 )(A)(ii) of the Act, the Federa l portion of the Puerto Rico payment rate is based on the discharge-we ighted 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 Ta ble 1C listed and publishe d in section VI. of this Addendum (and available vi a the Internet). This tabl e also includes the proposed Puerto Rico-specific standardized amounts. Th e labor-related share ap plied to the Puerto Rico-specific standardized amount is the propos ed 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 lowe r payments to the hospital.) The following table illust rates the proposed changes from the FY 2014 national standardized amount. The second through fift h columns display the proposed changes

from the FY 2014 standardized amount s for each applicable FY 2015 proposed

standardized amount. The first row of th e table shows the updated (through FY 2014) average standardized amount after restoring the FY 2014 of fsets for outlier payments,1448 demonstration budget neutrality, the geographi c reclassification budget neutrality, and the retrospective documentation and coding ad justment under section 7(b)(1)(B) of

Pub. L. 110-90. The MS-DRG reclassificat ion and recalibration wage index budget neutrality adjustment factors are cumulati ve. Therefore, those FY 2014 adjustment

factors are not removed from this table.

COMPARISON OF FY 2014 STANDARDI ZED 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%): $1,847.751449 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 0.9490001450

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 Than1.0000; 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 to1.0000; 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: $2,025.441451 The following table illust rates the proposed changes from the FY 2014 Puerto Rico-specific payment rate for hospitals lo cated 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 Puer to Rico-specific outlier payments, rural community hospital demonstr ation program budget neut rality, and the geographic reclassification budget neutrality. Th e MS-DRG recalibration budget neutrality adjustment factor is cumulative a nd is not removed from this table.

COMPARISON OF FY 2014 PUERTO RI CO-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 to1.0000; 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 to1.0000; 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 propos ed labor-related and nonlabor-related shares that we used to calculate the proposed prosp ective payment rates for hospitals located in the 50 States, the District of Columbia, a nd Puerto Rico for FY 2015. This section1453 addresses two types of adjustments to th e standardized amounts that are made in determining the prospective payment ra tes 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 ar ea 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 propos ed 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 Secret ary deems appropriate to take into account the unique circumstances of hospitals lo cated in Alaska and Hawaii.” Higher

labor-related costs for these tw o States are taken into account in the adjustment for area wages described above. To account for highe r nonlabor-related costs for these two States, we multiply the nonlabor-related porti on of the standardized amount for hospitals located in Alaska and Hawaii by an adjustment factor.

In the FY 2013 IPPS/LTCH PPS final ru le, we established a methodology to update the COLA factors for Alaska and Hawa ii that were published by the U.S. Office of Personnel Management (OPM) every 4 year s (at the same time as the update to the

labor-related share of the I PPS market basket), beginning in FY 2014. We refer readers1454 to the FY 2013 IPPS/LTCH PPS proposed and fi nal rules for additional background and a detailed description of this methodol ogy (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 publishe d by OPM for 2009 (as these are the last COLA factors OPM published prior to transiti oning 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 es tablished in FY 2014 for FY 2015 to adjust the nonlabor-related portion of the standardi zed amount for hospitals located in Alaska

and Hawaii. Below is a table listi ng 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-kilome ter (50-mile) radius by road 1.23 City of Fairbanks and 80-kilome ter (50-mile) radius by road 1.23 City of Juneau and 80-kilomete r (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 factor s for Alaska and Hawaii would occur in FY 2018. C. Calculation of the Proposed Prospective Payment Rates

General Formula for Calculation of th e Prospective Payment Rates for FY 2015 In general, the operating prospective paym ent rate for all hospitals paid under the IPPS located outside of Puerto Rico, excep t 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 pream ble of this proposed rule, section 1106 of the Pathway to SGR Refo rm 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 disc harges occurring before April 1, 2014). Subsequently, section 106 of the Protecti ng Access to Medicare Act of 2014 (Pub. L. 113-93), enacted on April 1, 2014, further extended the MDH program through the first1456 half of FY 2015 (that is, fo r 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 progr am 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 (w hich, as discussed in section IV.F. of the preamble of this proposed ru le, includes uncompensated care payments); the updated hospital-specific rate based on FY 1982 costs per discharge; the upda ted hospital-specific rate based on FY 1987 costs per discharge; th e updated hospital-specific rate based on FY 1996 costs per discharge; or the update d hospital-specific rate based on FY 2006 costs per discharge to determine the rate th at 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 Fede ral rate plus 75 percent of

the difference between the Federa l rate and the hospital-specific rate as described below. For MDHs, the updated hospital-specific ra te is based on FY 1982, FY 1987 or FY 2002 costs per discharge, whichever yields the greatest aggregate payment. The prospective payment rate for hospita ls located in Puerto Rico for FY 2015 equals 25 percent of the Puerto Rico-speci fic payment rate plus 75 percent of the applicable national rate.

1. Federal Rate1457

The Federal rate is determined as follows: Step 1--Select the applicable averag e standardized amount depending on whether the hospital submitted qualifying quality data an d is a meaningful EHR user, as described

above. Step 2--Multiply the labor-related por tion 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 Alas ka and Hawaii, multiply the nonlabor-related portion of the standardized amount by the a pplicable 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 fr om Step 4 by the relative weight corresponding to the app licable 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 adjust ment 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 adjust ed by the hospital readmissions payment adjustment and the hospital VBP payment adjustment as described under sections 1886(q) and 1886(o) of the Ac t, respectively. Finally, we add the1458 uncompensated care payment to the total claim payment amount. We note that, as discussed above, we take uncompensated ca re 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 aggr egate 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 cost s per discharge; orthe updated hospitalspecific rate based on FY 2006 co sts per discharge to determin e the rate that yields the greatest aggregate payment. As discussed previously, currently MDHs are paid ba sed 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 calcu lation 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 to1459 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 a nd FY 2006 Hospital-Specific Rate for

FY 2015 Section 1886(b)(3)(B)(iv) of the Act pr ovides 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 th e 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 equa l to the update factor for all other IPPS hospitals, the update to the hospital-specific ra tes 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)(x ii) of the Act -0.2 -0.2 -0.2 -0.2 Proposed Applicable Percentage IncreaseApplied to HospitalSpecific Rate 2.1 1.425 1.425 0.75

For a complete discussion of the appli cable 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 us e 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 adju sted by a budget neutrality factor to ensure that changes to

the MS-DRG classifications and the recalib ration of the MS-DRG relative weights are1461 made in a manner so that aggregate IPPS paym ents are unaffected. Therefore, a SCH’s and MDH’s hospital-specific ra te is adjusted by the propos ed 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 di scharges 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 ad justment to the hospital-specific rate. We refer readers to section II.D. of the pream ble of this proposed rule for a complete discussion regarding our proposed policies and previously finalized policies (including our historical adjustments to the payment ra tes) 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 Pros pective 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 pr ovides that, effective for discharges occurring on or after October 1, 2004, hospitals located in Puer to Rico are paid based on a blend of 75 percent of the national prosp ective payment rate and 25 percent of the Puerto Rico-specific rate. a. Puerto Rico-Specific Rate The Puerto Rico-specific prospective pa yment rate is determined as follows:1462 Step 1 - Select the applicable aver age standardized amount considering the applicable wage index (obtained from Ta ble 1C published in section VI. of this

Addendum and available via the Internet). Step 2 - Multiply the labor-related por tion 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 th is 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 na tional 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 th e 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 th is 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 ra te and the national prospective payment rate computed above equals the prospectiv e 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 Ra tes for Acute Care Hospital Inpatient Capital-Related Costs for FY 2015 The PPS for acute care hospital inpatien t capital-related costs was implemented for cost reporting periods beginning on or afte r October 1, 1991. Effec tive with that cost reporting period, over a 10-year transition peri od (which extended through FY 2001) the payment methodology for Medicare acute care hospital inpatient capital-related costs changed from a reasonable cost-based me thodology to a prospective methodology (based fully on the Federal rate). The basic methodology for determining Fede ral capital prospective rates is set forth in the regulations at 42 CFR 41 2.308 through 412.352. Below we discuss the factors that we used to determine the pr oposed 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). Therefor e, 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 actua rial 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 estimate d proportion of outlier payments under the1465 capital Federal rate to total capital payments under the capita l Federal rate. In addition, § 412.308(c)(3) requires that the capital Federal rate be reduc ed by an adjustment factor equal to the estimated proportion of paymen ts for exceptions under § 412.348. (We note that, as discussed in the FY 2013 IPPS/LTC H 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) re quires that the capit al standard Federal rate be adjusted so that the effects of the annual DRG reclassification and the recalibration of DRG weights a nd changes in the geographic ad justment factor (GAF) are budget neutral. Section 412.374 provides for blended paymen ts to hospitals located in Puerto Rico under the IPPS for acute care hospital inpa tient capital-related costs. Accordingly, under the capital PPS, we compute a separate pa yment 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, hos pitals located in Puerto Rico are paid for operating costs under a special payment fo rmula. 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 applicab le standardized amount specific to Puerto1466 Rico hospitals and 75 percent of the applicable national aver age standardized amount. In conjunction with this change to the operating blend percentage, effec tive 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 na tional capital Federal rate (69 FR 49185). A. Determination of the Proposed Federal Ho spital Inpatient Capital-Related Prospective Payment Rate Update In the discussion that follows, we explai n 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 increase s approximately 0.9 percent, compared to the FY 2014 capital Federal rate. As discusse d in the impact analysis in Appendix A to this proposed rule, we estimate that capita l payments per discharge would increase 1.2 percent during that same period. Becau se capital payments constitute about 10 percent of hospital payments, a percent change in the capi tal Federal rate yields only about a 0.1 percent change in ac tual 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 upda ted on the basis of an analytical framework that takes into acc ount changes in a cap ital input price index (CIPI) and several other policy ad justment factors. Specifica lly, we adjust the projected CIPI rate-of-increase as appropriate each ye ar for case-mix index-related changes, for1467 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 fram ework is based on a projected 1.5 percent increase in the FY 2010-based CIPI, a 0.0 per centage 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 recalibrati on, 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 pri ce 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 de termines 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 Medicar e patients changes (“real” case-mix change);

● Changes in hospital documentation a nd coding of patient records result in higher-weighted DRG assignments (“coding effects”); and

● The annual DRG recla ssification and recalibration changes may not be budget neutral (“reclassi fication effect”).1468 We define real case-mix change as actual changes in the mix (and resource requirements) of Medicare patients as oppos ed to changes in documentation and coding

behavior that result in assi gnment of cases to higher-wei ghted 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 200 5 (69 FR 28816)). (We no longer use an update framework to make a recommendation for updating the operating IPPS

standardized amounts as discu ssed 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 percen t total increase in the case-mix index.

We estimated that the real case-mix increas e 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 th e 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 adju stment is intended to remove the effect on total payments of prior year’s changes to th e DRG classifications and relative weights, in order to retain budget ne utrality for all case-mix index-re lated changes other than those due to patient severity of illness. Due to the la g time in the availability of data, there is a 2-year lag in data used to de termine the adjustment for the effects of DRG reclassification and recalibration. For example, we have data available to evaluate the effects of the1469

FY 2013 DRG reclassification and recalibration as part of our update for FY 2015. We

estimate that FY 2013 DRG reclassification and r ecalibration resulted in no change in the case-mix when compared with the case-mix inde x that would have resulted if we had not

made the reclassification and recalibration ch anges to the DRGs. Therefore, we are proposing to make a 0.0 percenta ge point adjustment for recl assification 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 historic al 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 fact ors. 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 capit al 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 poin t 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 th e FY 2006-based CIPI (1.3 percent) by 0.1 percentage point because the prices asso ciated with both the depreciation and other1470 capital-related cost categories grew more quick ly than anticipated. Because this forecast error does not exceed the 0.25 percentage poi nt 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 framewor k, we also make an adjustment for changes in intensity. Historically, we cal culated 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 fina l product, that is, the discharg e. This component accounts for changes in the use of qua lity-enhancing services, for ch anges within DRG severity, and for expected modification of practice patt erns to remove noncost-effective services. Our intensity measure is ba sed 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 re liable estimates of the propor tions of the overall annual intensity increases that are due, respectivel y, to ineffective practice patterns and the combination of quality-enhancing new technol ogies 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 t hus provides an add-on to the input price index rate of

increase of one-half of the estimated annual in crease in intensity, to allow for increases within DRG severity and the adopt ion 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 for1471 FY 2015 (we refer readers to the FY 2011 I PPS/LTCH PPS final rule (75 FR 50436) for a full description of our Medi care-specific intensity measur e). Specifically, for FY 2015, we are proposing to use an intensity measur e 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 th at 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) intens ity adjustment was appropriate. Consistent with this approach, because we estimate that intensity declined dur ing that 5-year period, we believe it is appropriate to propose to cont inue to apply a zero in tensity adjustment for FY 2015. Therefore, we are proposing to ma ke a 0.0 percentage point adjustment for intensity in the update for FY 2015. Above, we described the basis of the co mponents used to develop the proposed 1.5 percent capital update fact or under the capital update framework for FY 2015 as

shown in the table below.

PROPOSED CMS FY 2015 UPDATE FACT OR TO THE CAP ITAL 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 Reclassi fication and Recalibration 0.0 Forecast Error Correction 0.0 Total Update 1.51472 *The capital input price index is based on the FY 2010-based CIPI.

b. Comparison of CMS and Me dPAC Update Recommendation In its March 2014 Report to Congress, Me dPAC did not make a specific update recommendation for capital IPPS payments for FY 2015. (We refer readers to MedPAC’s Report to the Congress: Medica re Payment Policy, March 2014, Chapter 3.) 2. Outlier Payment Adjustment Factor Section 412.312(c) estab lishes 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 inpatien t 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 adjust ment 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 paym ents are projected to be 5.1 percent of total opera ting IPPS DRG payments. For FY 2014, we estimated that outli er 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-re lated payments based on the proposed capital Federal rate in FY 2015. Therefore, we are proposing to apply an outlier adjust ment factor of 0.9374 in determining the proposed capital Federal ra te for FY 2015. Thus, we estimate that the1473 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 pe rmanently 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 th e 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) require s that the capital Federal ra te be adjusted so that aggregate payments for the fiscal year based on the capital Federal rate after any changes resulting from the annual DRG reclassificati on and recalibration and changes in the GAF are projected to equal aggregat e 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 neutra lity adjustments for the national GAF and the Puerto Rico GAF. We apply the sa me budget neutrality factor for DRG

reclassifications and recalibra tion 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 capita l 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 cap ital Federal rate payments based on the

FY 2014 MS-DRG classifications and relativ e 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 adjust ment factor of 0.9891 through FY 2015. For the Puerto Rico GAFs, we are proposing to apply an incremen tal budget neutrality adjustment factor of 1.0011 for FY 2015 to the previous cumulative FY 2014 adjustment factor of 1.0076, yielding a proposed cumula tive adjustment factor of 1.0087 through

FY 2015. We then compared estimated aggregat e capital Federal rate payments based on the FY 2014 MS-DRG relative weights a nd the proposed FY 2015 GAFs to estimated aggregate capital Federal rate payments base d on the cumulative effects of the proposed

FY 2015 MS-DRG classifications and relativ e 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 classificati ons and changes in relative weights and for changes in the GAFs through FY 2015 are 0.984 8 nationally and 1.0043 for Puerto Rico. (We note that all the values are calcula ted with unrounded numbers.) The GAF/DRG1475 budget neutrality adjustment factors are built pe rmanently 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 estim ated aggregate payments each year be no more or less than they would have been in the absence of the a nnual DRG reclassification

and recalibration and ch anges in the GAFs. The methodology used to determine the recalibration and geog raphic adjustment factor (GAF/DRG) budget neutrality adjustme nt 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 reclassifi cations are determined separate ly 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 neutralit y adjustment factor (the national capital rate and the Puerto Rico capital rate are de termined separately) for changes in the GAF (including geographic reclassification) and th e 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 hos pitals. As a result of this proposed update and the proposed budget neutrality factors discu ssed above, we are proposing to establish a na tional capital Federal rate of $433.01 for FY 2015. The propos ed 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 adju stment factor that is applied to the proposed capital Federal rate for proposed changes in the MS-DRG classifications and relative weights and cha nges 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 add itional MS-DRG documentation and coding adjustment to the capital IPPS Federal rates for FY 2015.) Because the proposed FY 2015 capital Federa l rate has already been adjusted for differences in case-mix, wages, cost-of-livi ng, indirect medical education costs, and payments to hospitals serving a disproportionate share of low-income patients, we are not proposing to make additional ad justments in the capital Fede ral rate for these factors, other than the proposed budget neutrality fa ctor for proposed changes in the MS-DRG classifications and relative weights a nd 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 co mputation of the proposed FY 2015 national capital Federal rate in comparison to th e FY 2014 national capital Federal rate. The proposed FY 2015 update factor has the effect of increasing the cap ital Federal rate by 1.5 percent compared to the FY 2014 capital Federal rate. The proposed GAF/DRG budget neutrality adjustment factor has the e ffect 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 a ll the proposed change s 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 ADJ USTMENTS: FY 2014 CAPITAL FEDERAL RATE AND PROPOSED FY 2015 CAPITAL FEDERAL RATE

1 The proposed update factor and the propos ed GAF/DRG budget neutrality adjustment fact ors are built permanently into the capita l Federal rates. Thus, for example, the pr oposed incremental change from FY 2014 to FY 2015 resulting from the application of th e 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 appli ed 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 ca re hospital inpatient FY 2014 Proposed FY 2015 Change Percent Change Update Factor 1 1.0090 1.0150 1.0150 1.50 GAF/DRG Adjustment Factor 1 0.9987 0.9957 0.9957 -0.43 Outlier Adjustment Factor 2 0.9393 0.9374 0.9980 -0.20 Capital Federal Rate 429.31 433.01 1.0086 0.861478 capital-related costs. Accordingly, unde r 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 fo r capital-related cost s. Under the broad authority of section 1886(g) of the Act, begi nning with discharges occurring on or after October 1, 2004, capital payments made to hospi tals located in Puerto Rico are based on a blend of 25 percent of the Pu erto Rico capital rate and 75 percent of the capital Federal rate. The Puerto Rico capital rate is derive d from the costs of Puer to 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 de pending on the labor market area or rural area in which the hospital is lo cated. We use the Puerto Ri co wage index to determine the GAF for the Puerto Rico part of the capita l-blended rate and the national wage index

to determine the GAF for the national part of the ble nded 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 sa me budget neutrality adjustment factor for

MS-DRG reclassifications and recalibrati on nationally and for Puerto Rico. The proposed budget neutrality adjustment factor s for the national GAF and for the Puerto Rico GAF and the proposed budget neutrality factor for MS-DRG reclassifications and1479 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 comput ed from national data for all hospitals in the United States and Puerto Rico). For FY 2014, the special capit al rate for hospitals loca ted 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 Fede ral 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 Al aska 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 paymen ts 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 inpatient1480 capital-related payments. The proposed outlier thresholds for FY 2015 are in

section II.A. of this Addendum . For FY 2015, a case would qualif y as a cost outlier if the cost for the case plus the (operating) IM E 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 Federa l rate. Effective with the third year of operation, we pay the hospital based on 100 percent of the capital Federa l 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 fr om the operating input price index in one important aspect--the CIPI reflects the vintag e nature of capital, which is the acquisition and use of capital over time. Capital expenses in any give n 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 measuri ng capital price changes needs to reflect this vintage nature of capital. Therefore, the CIPI was developed to capture the vintage1481 nature of capital by using a weighted-average of past cap ital 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 a nd 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 in crease 1.5 percent in FY 2015. This reflects a projected 1.9 percent increase in vintage-we ighted depreciation prices (building and fixed equipment, and movable equipment), a nd a projected 2.6 percen t increase in other capital expense prices in FY 2015, partially offset by a proj ected 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 ch ildren’s hospitals, 11 cancer hospitals, and hospitals located outside the 50 States, the District of Columb ia and Puerto Rico (that is, short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and Am erican 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 annua lly 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 establishe d 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 upda ting the target amounts for the 11 cancer hospitals, children’s hospitals, and the short-te rm acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Marian a Islands, and American Samoa, as well as

RNHCIs would be the estimat ed 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 in crease in the FY 2010-based IPPS operating market basket to update these target amount s. Based on IHS Global Insight, Inc.’s 2014 first quarter forecast, we estimate that th e FY 2010-based IPPS operating market basket update for FY 2015 is 2.7 percent (that is, the estimate of the mark et 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 LTC H PPS are updated a nnually. 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 propos ed 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 Paym ent 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 th is 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 po licy of annually updating the standard Federal rate because, at that ti me, we believed that was the most appropriate method for updating the LTCH PPS standard Federal rate fo r 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 th e 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 bask et update as the basis of the annual update factor, it was appropriate to adjust the standa rd Federal rate to account for the effect of documentation and coding in a prior period that was unrelated to patients’ severity of1485 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 bask et at that time, offset by an adjustment to account for changes in case-mix in prior pe riods 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 th e effect of documentation and coding that was unrelated to patients’ severity of illn ess 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 upda ted the standard Fe deral 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 a dded by section 3401(c) of the Affordable Care Act, specifies that, fo r rate year 2010 and each subs equent rate year, any annual update to the standard Fede ral rate shall be reduced:

● For rate year 2010 through 2019, by the ot her 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 sect ion VII.C.2. of the preamble of this proposed rule.1486 Section 1886(m)(3)(B) of the Act provides th at 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 ra te 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 LTC H 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 Fede ral 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) a nd 1886(m)(3)(A)(ii) with 1886( m)(4)(C) of the Act. Accordingly, at § 412.523(c)(3)(x ) of the regulations, we esta blished 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 esta blish an annual update to the LTCH PPS

standard Federal rate based on the full es timated increase in the LTCH PPS market basket, less the proposed MFP adjustment cons istent with section 1886(m)(3)(A)(i) of the Act, and less the 0.2 percentage point re quired 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 further1487 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, ba sed on the best available data, we are proposing to establish an annual update to the standard Federa l 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 pe rcentage point consis tent with section 1886(m)(3)(A)(i) of the Act, and less the 0.2 percentage point requ ired 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 propos ed 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. Accordingl y, 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 fo r FY 2015. This proposed 0.1 percent update

is calculated based on the full estimated in crease 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 es timate of the increase in the LTCH PPS market1488 basket, including any statutory adjustments. Consistent with our hi storical practice, for FY 2015, we are proposing to apply the pr oposed 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 adjust ment to the standard Federal rate under § 412.523(d)(3), as discussed in greater detail in sec tion VII.C.3. of the preamble of this proposed rule. In ad dition, in determining the proposed FY 2015 standard Federal rate, we are proposing to ap ply 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 OM B delineations, and labor-related share) in ac cordance 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 Fede ral 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 po int 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 Fe deral rate of $40,607.31 to determine the FY 2014 standard Federal rate. We also adju sted the standard Federal rate for FY 2014 by the one-time prospective adjustme nt factor for FY 2014 of 0.98734 under1489 § 412.523(d)(3)(ii). Furthermore, for FY 2014, we applied an area wage level budget neutrality factor of 1.0010531 to the standard Fe deral 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 (increas e or decrease) in estimated aggregate LTCH PPS payments. Consequentl y, 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 (tha t 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 percen tage point, consistent with section 1886(m)(3)(A)(i) of the Act, and less the 0.2 percentage point requ ired by sections 1886(m)(3)(A)(ii) and(m)(4)(E) of th e 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 firs t quarter 2014 forecast, which are the best

available data at this time. Consistent w ith 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 propos ing to reduce the proposed annual update to the LTCH PPS standard Federal rate by an additional 2 percentage points consistent1490 with section 1886(m)(5) of the Ac t. Therefore, we are propos ing to establish an annual update to the LTCH PPS standard Federal rate of 0.1 percen t (that is, 2.1 percent minus 2.0 percentage points = 0.1 per cent 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 st andard 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 ad justment 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 th at any proposed changes to the area wage level adjustment (that is, th e proposed annual update of the wage index values and labor-related share) would not resu lt in any change (increase or decrease) in estimated aggregate LTCH PPS payments. Acco rdingly, 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 di scharges from LTCHs that submit quality reporting data for FY 2015 in accordance w ith the requirements of the LTCHQR Program under section 1886(m)(5) of the Ac t. For LTCHs that fail to submit quality reporting data for FY 2015 in accordance w ith 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 th e 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 leve ls 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 reclassifi cation 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 ta king into account geogr aphic reclassification under section 1886(d)(8) and secti on 1886(d)(10) of the Act. For additional information on the phase-in of the area wage level adjust ment under the LTCH PPS, we refer readers to the August 30, 2002 LTCH PPS final ru le (67 FR 56015 through 56019) and the RY 2008 LTCH PPS final rule (72 FR 26891).1492 2. Proposed Geographic Classifications (La bor Market Areas) Based on the New OMB

Delineations In adjusting for the differences in ar ea wage levels under the LTCH PPS, the labor-related portion of an LTCH's Federal pr ospective payment is adjusted by using an appropriate area wage index base d on the geographic classifica tion (labor market area) in which the LTCH is located. Specifically, th e 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 Metr opolitan Statistical Area (MSAs) (which includes a Metropolitan division, where applicable), as defined by the Executive OMB

and a “rural area” is defined as a ny area outside of an urban area. The CBSA-based geographic classificati on (labor market area) definitions currently used under the LTCH PPS, effectiv e for discharges occu rring on or after July 1, 2005, are based on the OMB’s CBSA de finitions that were developed based on 2000 U.S. Census data. As discussed in greate r detail in section V II.D. of the preamble of this proposed rule, OMB announced revision s to the statistical boundaries of its labor market areas for MSAs, Micropolitan Statisti cal Areas, and Combined Statistical Areas, and provided guidance on the uses of the deli neations of these areas in OMB Bulletin No. 13-01, issued on February 28, 2013 (referre d 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 deve lopment, and the proposed FY 2014 LTCH PPS area wage indexes had already been devel oped based on the previous OMB CBSA-based1493

labor market area definitions that are curren tly 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 de signations under the LTCH PPS for FY 2014

based on the new OMB labor market areas de lineations that were developed based on 2010 Decennial Census data. Rather, to allo w for sufficient time to assess the new changes and their ramifications, we stated th at we intended to propose to adopt the new OMB delineations, and the corresponding change s 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 wi th the approach used under the IPPS. (We

refer readers to the FY 2014 IPPS/LTCH PP S 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 secti on 123 of the BBRA, as amended by section 307(b) of the BIPA, we are proposing to a dopt the new OMB delineations beginning in FY 2015. We

believe that these new OMB delin eations 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 th at 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 th e labor market area in which the LTCH is

located. The LTCH PPS labor-related shar e currently represents the sum of the labor-related portion of operating costs (Wages and Salaries; Employee Benefits; Professional Fees Labor-Related, Administ rative and Business Support Services; and All-Other: Labor-Related Services) and a labo r-related portion of capital costs using the applicable LTCH PPS market basket. Additional background information on the historical development of the labor-rel ated 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-ba sed 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 cate gory of the FY 2009-based LTCH-specific market basket. For more de tails, we refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53477 through 53479).

Consistent with our hist orical 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 importa nce 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. Specifi cally, based on IGI’s second quarter 2013 forecast of the FY 2009-based LTCH-specifi c 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 establ ish a labor-related share under the LTCH PPS based on IGI’s first quarter 2014 for ecast of the FY 2009-based LTCH-specific

market basket. Consistent with our histor ical 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-relate d share relative importance using IGI’s first quarter 2014 fo recast of the FY 2009-based LTCH-specific market basket. The sum of the proposed re lative importance for FY 2015 for operating costs (Wages and Salaries; Employee Bene fits; Professional Fees Labor-Related, Administrative and Business Support Services; and All Other: Labor-Related Services) is 58.366 percent. We are proposing that th e 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 perc ent 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-rel ated 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-rela ted 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 s ection 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 LA BOR-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 Wa ge 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) a nd 1886(d)(10) of the Act (67 FR 56019). The area wage level adjustment establishe d under the LTCH PPS is based on an LTCH’s actual location without regard to the “urban” or “rural” de signation of any related or affiliated provider.1497 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, da ta 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 fina l 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 ar eas) 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 methodol ogy, 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 ar e 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 geogr aphic reclassification under sections 1886(d)(8) and 1886(d)(10) of the Act. We are proposing to use FY 2011 wage data1498 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 fo r determining the area wage index values used under the LTCH PPS, we refer read ers 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 la bor 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 polic y of not taking into account IPPS geographic reclassi fications under sections 18 86(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 apporti on wage data for multicampus hospitals with campuses located in different labor market areas to each CBSA where the campus or campuses are located, as discusse d 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 ex isting 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 inde x values for areas that have no IPPS wage data in the

RY 2009 LTCH PPS final rule. For more in formation about this methodology, we refer

readers to the RY 2009 LTCH PPS final rule (73 FR 26817 through 26818) for an1499 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 with in the State, and the LTCH P PS 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 con tiguous to the rural c ounties 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 ar ea wage index values in th is proposed rule, there are no IPPS wage data for the urban area Hinesv ille, 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 th at, 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 valu es in this proposed rule, there are no1500 proposed rural areas without IPPS hospital wage data. Therefore, it is not necessary to use our established methodology to calcula te 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 ar eas 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 grea ter detail in section VII.D. of the preamble of this proposed rule. Under this proposal, there w ould be some changes to the current CBSA compositions as a result of the new OMB delin eations, which would result in the creation of new CBSAs, “urban” countie s that are now “rural,” “rur al” counties that are now “urban,” and existing CBSAs that are divide d into separate bounda ries. Under existing § 412.503, an “urban area” is defined as a Metr opolitan 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 de lineations 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 delineatio ns would result in LTCH PPS area wage index values being more representati ve 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 decr eases in area wage index values, while other LTCHs would experience increases in area wage index values. Therefore, to1501 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 so lely as a result of th e proposal to adopt the

new OMB delineations under the LTCH PPS wo uld receive a blended area wage index for FY 2015. That is, for purposes of de termining 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 propos ed 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 su m of 50 percent of each wage index value (referred to as the proposed 50/50 blende d wage index), as described below. Therefore, to determine the applicable area wage index value for each LTCH under this proposed transitional wage index polic y 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) th e wage index values calculated using the proposed new OMB delin eations; 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) and1502 Table 12B (for rural areas), which are avai lable 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 transi tional wage index po licy. As explained previously, under our proposed transitiona l 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 th e 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 inde x policy in a budget ne utral manner. Each LTCH’s proposed labor market area under th e new OMB delineations and the current (FY 2014) CBSA-based labor market area de signation can be found in the LTCH PPS1503 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 shar e 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 es timated aggregate LTCH PPS payments without such changes to the area wage level adjustment. Under th is 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-lev el 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-l evel 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 reader s 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 to1504 account for the estimated effect of the pr oposed adjustments or updates to the area wage-level adjustment under § 412.525(c )(1) on estimated ag gregate LTCH PPS payments using a methodology that is consiste nt 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 pr oposing a transitional wage index policy to mitigate the impacts of implementing cha nges to the LTCH PPS labor market areas (CBSAs) based on new OMB delineations, as di scussed above and in section VII.D.2.e. of the preamble of this proposed rule. B ecause 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 th e 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 adju stment budget neutrality factor that we would be applied to the standard Federal ra te 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 fa ctor 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 accord ance with § 412.523(d)(4). The proposed1505

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 Adju stment (COLA) for LTCHs Located in

Alaska and Hawaii Under § 412.525(b), a cost-of-living adjust ment (COLA) is provided for LTCHs

located in Alaska and Hawaii to account for th e 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 th e standard Federal payment rate by the applicable COLA factors esta blished annually by CMS. Hi gher labor-related costs for

LTCHs located in Alaska and Hawaii are ta ken into account in th e 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 fr ozen as of October 28, 2009, and then proportionately reduced to reflect the pha se-in of locality pay). For FY 2013, we believed that it was appropriate to use “frozen” COLA factor s 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 Federa l rate for LTCHs located in Alaska and Hawaii in FY 20131506 under § 412.525(b). We also es tablished a methodology to upda te 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), be ginning in FY 2014 (77 FR 53712 through 53713). The methodology we established to update th e COLA factors is based on a comparison of the growth in the CPIs for Anchorage, Al aska, 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 fi nal rule (77 FR 53481 through 53482).) For FY 2014, we updated the COLA fact ors 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 finali zed 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 of1507

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 y ears; the first year began in FY 2014 (77 FR 53482). Accordingly, in this proposed rule, fo r 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 f actors established in the FY 2014 IPPS/LTCH PPS final rule, which were based on the 2009 OPM COLA factor s updated through 2012 by the comparison of the growth in the CP Is 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 tabl e 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 Fa ctors 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-k ilometer (50-mile) radius by road 1.23 City of Juneau and 80-k ilometer (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 BI PA, 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 dete rmining 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 perc ent of total estimated payments under the LTCH PPS.1509 Under § 412.525(a) in the regulations (i n conjunction with § 412.503), we make outlier payments for any discharges if the es timated 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 hi gh 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 th e outlier threshold (adjusted MS -LTC-DRG payment plus the fixed-loss amount). The fixed percentage of co sts 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 hos pital 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 estima ting aggregate payments with and without an outlier policy. The fixed-lo ss amount results in estimated total outlier payments being projected to be equal to 8 percent of projected total LTC H PPS payments. Currently,

MedPAR claims data and CCRs based on da ta from the most recent Provider-Specific1510 File (PSF) (or from the applicable stat ewide average CCR if an LTCH's CCR data are faulty or unavailable) are used to esta blish 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 th e 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 set tled cost report, whic hever 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 speci fied by CMS or that is requested by the hospital under the provisions of the re gulations at § 412.525(a)(4)(iv)(A) and1511 § 412.529(f)(4)(i).) Under the LTCH PPS, a singl e prospective payment per discharge is made for both inpatient operating and capital-r elated 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 an cillary costs) by its total Medicare charges (that is, the sum of its opera ting and capital inpatient rou tine and ancillary charges). b. LTCH Total CCR Ceiling Generally, an LTCH is assigned the a pplicable statewide average CCR if, among other things, an LTCH's CCR is found to be in excess of the app licable maximum CCR threshold (that is, the LTCH CCR ceiling). Th is is because CCRs above this threshold are most likely due to faulty data reporti ng or entry, and CCRs based on erroneous data should not be used to identify and make paym ents for outlier cases. Therefore, under our established policy, generally, if an LTCH' s calculated CCR is above the applicable ceiling, the applicable LTCH PPS statew ide average CCR is assigned to the LTCH instead of the CCR computed from its most rece nt (settled or tentatively settled) cost report data. In this proposed rule, using our es tablished 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 prop osing 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) for1512 HCOs and § 412.529(f)(4)(iii)(B) for SSOs. Cons istent with our hi storical policy of using the best available data, we also are proposing that if more recent data become available, we would use such data to es tablish 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 averag e 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 re porting period preceding the period in which the hospital began to be paid as an LTCH (tha t is, the period of at least 6 months that it was paid as a short-term, acute care hospita l), or data from other comparable LTCHs, such as LTCHs in the same chain or in the same region.)1513

Consistent with our histor ical practice of using the be st available data, in this proposed rule, using our established met hodology 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 pr oposing to establish LTCH PPS statewide average total CCRs for urban and rural hospitals that would be effective for discharges occurring on or after Oct ober 1, 2014 through September 20, 2015, in Table 8C listed in section VI. of the Addendum to this proposed rule (and available vi a the Internet). .

Consistent with our historic al policy of using the best available data, we also are proposing that if more recent data become ava ilable, 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 Colu mbia, New Jersey, and

Rhode Island would be classified as urba n. 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 esta blished when we revised our methodology for determining the applicable LTCH statewide av erage 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 hospita ls or LTCHs located in those areas as of December 2013. Therefore, consistent w ith our existing methodology, we are proposing to use the national average to tal CCR for rural IPPS hospitals for rural Connecticut and1514

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 exis ting methodology, in determining the urban and rural statewide average total CCRs fo r 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 tota l 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 gr eater 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 calculate d 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 additiona l 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 de termine the outlier paymen t 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) (i n conjunction with § 412.503), if the

estimated cost of the case exceeds the outli er threshold, we make an outlier payment equal to 80 percent of the di fference 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 ru le (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 calculate d using our exis ting methodology to calculate the fixed-loss amount for FY 2014 (bas ed on the data and th e rates and policies presented in that final rule) in order to main tain 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 dete rmining the fixed-loss amount for FY 2014, we

used the most recent available LTCH claims data and CCR data, that is, LTCH claims1516 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 gene ral, we are proposing to continue to use our existing methodology to calculate a fixe d-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 pr oposed 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 de termine 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 da ta become available,

we would use such data to determine a fixe d-loss amount for FY 2015 in the final rule. (For additional detail on the ra tionale for setting the HCO pa yment “target” at 8 percent of total estimated LTCH PPS payments, we re fer 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 a nd section 307(b)(1) of BIPA, we are proposing to establis h a fixed-loss amount of $15,730 for FY 2015. Therefore, we are proposing to make an addi tional 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 Federa l LTCH payment for the MS-LTC-DRG and the1517 proposed fixed-loss amount of $ 15,730). We also note that the proposed fixed-loss amount of $ 15,730 for FY 2015 is slightly high er 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 outli er 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).) Ma intaining 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 fixe d-loss amount would result in more cases qualifying as outlier cases, as well as highe r 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 sma ller. For these reasons, we believe that proposing to raise the fixed-loss amount is ap propriate and necessary to maintain that estimated outlier payments would equal 8 pe rcent 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 fi nal rule (67 FR 56026), under some rare circumstances, an LTCH discharge could qua lify as an SSO case (as defined in the regulations at § 412.529 in conj unction with § 412.503) and also as an HCO case. In this scenario, a patient could be hospitalized for le ss than five-sixths of the geometric average length of stay for the specific MS-LTC -DRG, and yet incur extraordinarily high1518

treatment costs. If the estimated costs exceeded the HCO threshold (that is, the SSO payment plus the fixed-loss amount), the discha rge is eligible for pa yment 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 cas e and the outlier threshold (the sum of the proposed fixed-loss amount of $15,730 and th e 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 DS H 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 pa yment 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 a nd 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 i npatient operating costs “for the costs of serving a disproportionate share of low-income patients.” Under the statutory changes to the Medicare DSH payment adjustment metho dology that began in FY 2014, in general, eligible IPPS hospitals receive an empirica lly justified Medicare DSH payment equal to 25 percent of the amount they otherwise woul d have received under the statutory formula for Medicare DSH payments prior to the ame ndments made by the Affordable Care Act. The remaining amount, equal to an estimate of 75 percent of the am ount that otherwise would have been paid as Medicare DSH pa yments, reduced to reflect changes in the1519 percentage of individuals under the age of 65 who are uninsured, is made available to make additional payments to each hospital th at 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 fo r 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 statutor y 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 st ated that we will include a reduced Medicare DSH payment amount that reflects the projected percentage of the payment amount calculated based on the statutory Medi care DSH payment formula prior to the amendments made by the Affordable Care Act th at will be paid to eligible IPPS hospitals as empirically justified Medi care DSH payments and uncompensated care payments in that year (that is, a percentage of the opera ting 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 uncompensat ed 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 resu lts in appropriate payments under the LTCH PPS and is consiste nt with our inten tion that the “IPPS comparable amount” and the “IPPS equiva lent amount” under the LTCH PPS closely resemble what an IPPS payment would have been for the same episode of care, while1520 recognizing that some features of the IPPS ca nnot be translated directly into the LTCH

PPS. For FY 2014, aggregate Medicare IPPS ope rating 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 Medi care 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 (tha t is, the operating Me dicare DSH payment amount historically included in those calcu lations) (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 otherw ise 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 uninsure d. The resulting amount is th en used to determine the amount of proposed uncompensated care payments that would be made to eligible IPPS hospitals in FY 2015. In other words, Medica re 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 Medi care DSH payments pursuant to section1521 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 Medi care DSH payments of 85.26 percent of the amount of Medi care 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 calculati on of the “IPPS comparable amount” under § 412.529 and the “IPPS equivalent amount” under § 412.534 a nd § 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 base d 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 a nd the “IPPS equivalent amount” under § 412.534 and § 412.536 for FY 2015. F. Computing the Proposed Adjusted LTC H PPS Federal Prospective Payments for

FY 2015 Section 412.525 sets forth the adjustme nts to the LTCH PPS standard Federal rate. Under § 412.525(c), the sta ndard 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 12A1522 through 12D listed in section VI. of the Addendum of this proposed rule and are available via the Internet). The proposed standard Federa l 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 char t 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 18 86(m)(5) of the Act), as di scussed above in section V.A.2. of the Addendum to this proposed ru le. 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 sec tion VI. of the Addendum of this proposed

rule and available via the In ternet 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 vi a 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 co mpute the wage-adjusted proposed Federal1523 prospective payment amount by multiplying th e 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 Fe deral rate (37.429 perc ent; adjusted for cost of living, if applicable) to determine the adjusted pr oposed 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 = $ 38,211.001524 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 majo rity 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 th e 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 e nd 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 w ith this FY 2015 proposed rule because there are no proposed new, revised, or deleted dia gnosis 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), enac ted on April 1, 2014, extended, through the first half of FY 2015 (that is, for disc harges occurring before April 1, 2015), the temporary changes in the low-volu me 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 se ction 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 ca re amount that a DSH will receive under

section 3133 of the Affordable Care Act. F actor 3 is the hospital’s estimated number of Medicaid days and Medicare SSI days relativ e 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 Fa ctor 3 for all hospitals and identifies whether or not a hospital is projected to rece ive 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 Tre itel at (410) 786-4552. The following IPPS tables for this FY 2015 proposed rule are available only through the Internet on th e 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 Averag e Hourly Wages for Federa l Fiscal Years 2013 (2009 Wage Data), 2014 (2010 Wage Data), and 2015 (2011 Wage Data); and Proposed 3-Year1526 Average of Hospital Average Hourly Wage s; Based on CBSA Delineations used in

FY 2014 Table 2-2.—Acute Care Hospitals Case-M ix Indexes for Discharges Occurring in Federal Fiscal Year 2012; Proposed Hospital Wa ge 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 Frontie r, with Acute Care Hospitals Receiving at a Minimum the Frontier State Floor Wage Index; Urban Areas with Acute Care Hospitals Receiving the Proposed Statewide Ru ral Floor or Imputed Floor Wage Index— FY 2015; Based on CBSA Delineations Used in FY 2014. Table 4D-2.—States Designated as Frontie r, with Acute Care Hospitals Receiving at a Minimum the Frontier State Floor Wage Index; Urban Areas with Acute Care Hospitals Receiving the Proposed Statewide Ru ral 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 Ad justment for Acute Care Hospitals—

FY 2015 Table 5.—List of Proposed Medicare Severity Diagnosis-Related Groups (MS-DRGs), Relative Weighting Factors, a nd 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 Av erage Capital Cost-to-Charge Ratios (CCRs) for Acute Care Hospitals Table 9A-1.—Hospital Reclassificati ons 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 Ar eas 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 th an 1,600 Medicare Disc harges Based on the December 2013 update of the FY 2013 MedPAR f ile and Potentially Eligible Hospitals’ FY 2015 Low-Volume Payment Adjustment fo r Discharges Occurring Before April 1,1530 2015 (Eligibility for the low-vol ume 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 Read missions Adjustment Factors Table 16.—Proposed Updated Proxy Hosp ital 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 athttp://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, Re lative Weights, Geometric Average Length of Stay, Short-Stay Outlier (SSO) Th reshold, and “IPPS Comparable Threshold” for Discharges Occurring from Octobe r 1, 2014 through September 30, 2015 under the

LTCH PPS1531 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 $1,620.351532

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, LABO R/NONLABOR (NATIONAL: 62 PERCENT LABOR SHARE/38 PERC ENT NONLABOR SHARE BECAUSE

WAGE INDEX IS LESS THAN OR EQ UAL 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 STAN DARD 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 Re gulatory Review (February 2, 2011) the Regulatory Flexibility Act (RFA) (Septemb er 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 agenci es to assess all costs and benefits of available regulatory alterna tives and, if regulation is n ecessary, to select regulatory approaches that maximize net benefits (inc luding potential economi c, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both co sts and benefits, of reducing costs, of harmonizing rules, and of promoting flexibilit y. A regulatory impact analysis (RIA) must be prepared for major rules with economica lly significant effects ($100 million or more in any 1 year). We have determined that this propose d rule is a major rule as defined in 5 U.S.C. 804(2). We estimate that the pr oposed 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 percen tage increase to the IPPS rates required by the1535 statute, in conjunction with ot her 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 estimate d $126 million increase in FY 2015 capital payments (or 1.2 percent change). These ch anges 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 s ection 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 sta ndardized amount, which represents part of the recoupment required under section 631 of the ATRA. In addition, our operating payment impact estimate includes the pr oposed 2.1 percent ho spital update to the standardized amount (which in cludes the estimated 2.7 percen t market basket update less 0.4 percentage point for the proposed multifact or 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 wi ll also affect overall payment changes. The analysis in this Appendix, in co njunction with the remainder of this document, demonstrates that this proposed rule is consistent with the regulatory philosophy and principles identified in Ex ecutive Orders 12866 and 13563, the RFA, and section 1102(b) of the Act. This proposed ru le would affect payments to a substantial number of small rural hospitals, as well as other classes of hospitals, and the effects on1536 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 or der to make payment and policy changes

under the Medicare IPPS for Medicare acute ca re hospital inpatient services for operating and capital-related costs as we ll as for certain hospitals a nd hospital units excluded from the IPPS. This proposed rule also is nece ssary 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 cr eate incentives for hospitals to operate efficiently and minimize unnecessary costs whil e 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 th e hospital industry and ensuring access to high quality health care for Medica re beneficiaries. We expect that these proposed changes will ensure that the outco mes of the prospectiv e payment systems are reasonable and equitable while avoidi ng or minimizing unintended adverse

consequences.1537 D. Limitations of Our Analysis The following quantitative analysis presen ts the projected effects of our proposed policy changes, as well as statutory cha nges effective for FY 2014, on various hospital groups. We estimate the effects of indivi dual proposed policy changes by estimating payments per case while holding all other paym ent policies constant. We use the best data available, but, generally, we do not atte mpt 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 acut e care hospitals encompass mo st general short-term, acute care hospitals that participate in the Medica re program. There were 32 Indian Health Service hospitals in our database, which we ex cluded 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 loca ted outside the 50 Stat es, 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 Me dicare-participating hospitals. The majority of this impact anal ysis focuses on this se t of hospitals. There1538 also are approximately 1,332 CAHs. These sm all, limited service hos pitals are paid on

the basis of reasonable costs rather than under the IPPS. IPPS-excluded hospitals and units include IPFs, IRFs, LTCHs, RNHCIs, ch ildren's hospitals, 11 cancer hospitals, and 5 short-term acute care hospitals located in the Virgin Islands, Guam, the Northern Mariana Islands, and Am erican Samoa, which are paid under separate payment systems. Changes in the prospective payment syst ems for IPFs and IRFs are made through separate rulemaking. Payment impacts for th ese IPPS-excluded hospi tals 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 child ren's hospitals, 11 cancer hospitals, 5 short-term acute care hospitals located in th e 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 unde r § 413.40. (In accordance with § 403.752(a) of the regulation, RNHCIs are paid unde r § 413.40.) Among the remaining providers, 244 rehabilitation hospitals and 896 rehabili tation units, and 432 LTCHs, are paid the Federal prospective per discharge rate under the IRF PPS and the LTCH PPS, respectively, and 487 psychiat ric hospitals and 1,139 psychi atric 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 hos pitals, 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 th e preamble of the FY 2014 IPPS/LTCH PPS final rule, we rebase d the IPPS operating market basket to a FY 2010 base year. Therefore, we are proposi ng 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 th e 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. Consis tent with current law, based on IHS Global Insight, Inc.’s 2014 first quarter forecast of the FY 2010-base d market basket increase, we are estimating that the pr oposed FY 2015 update based on the IPPS operating market basket is 2.7 percent (that is, the current estimate of the mark et 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 resul ting in a proposed 2.1 percent applicable percentage increase for IPPS hospitals that s ubmit quality data and are meaningful EHR users, as discussed in section IV.B. of th e preamble of this proposed rule. Children’s hospitals, the 11 cancer hospitals, the 5 short-term acute care hospitals located in the1540 Virgin Islands, Guam, the Northern Marian a 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 u pdate 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 th e rate-of-increase limit on those excluded hospitals depends on the cumulative cost increases experienced by each excluded hospital since its applicable base peri od. For excluded hospitals that have maintained their cost

increases at a level below the rate-of-increas e 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 increa ses above the cumulative update in their rate-of-increase limits, the major effect is th e amount of excess costs that will not be paid. We note that, under § 413.40(d)(3), an excl uded hospital that continues to be paid under the TEFRA system and whose costs exce ed 110 percent of its rate-of-increase limit receives its rate-of-increase limit plus the lesse r 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, hos pitals 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 announc ing proposed policy changes and payment rate updates for the IPPS for FY 2015 for ope rating costs of acute care hospitals. The proposed FY 2015 updates to the capital payments to acute care hospita ls are discussed in section I.J. of this Appendix. Based on the overall percenta ge 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 pro posed 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 standa rdized 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 an alyses of the proposed changes to each system. This section deals with the pr oposed changes to the operating inpatient prospective payment system for acute care hospitals. Our payment simulation model

relies on the most recent available data to en able 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 availa ble that will allow us to estimate the1542 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 quantita tive 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 no t 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 admissi ons, lengths of stay, or underlying growth in real case-mix. Second, due to the interd ependent nature of the IPPS payment components, it is very difficult to precisel y 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 indivi dual 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 hos pitals 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 th an inpatient operating co sts, are not analyzed1543 in this section. Proposed estimated paymen t 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 appl ication of the documentation and coding adjustment and the proposed a pplicable 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 change s 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 be ginning during FY 2011, compared to the FY 2010 wage data, and the proposed adoption of new OMB labor

market area delineations to calcu late the FY 2015 wage index.

● The combined effects of the proposed recalibration of the MS-DRG relative weights as required by secti on 1886(d)(4)(C) of the Act and the proposed wage index (including the updated wage data and the pr oposed adoption of new OMB labor market area delineations), including the proposed wage and recalibration budget neutrality

factors.

● The effects of the geographic re classifications by the MGCRB (as of publication of this proposed ru le) and the effects of the proposed adoption of new OMB1544

labor market area delineations on these reclas sifications, that woul d be effective for

FY 2015.

● The effects of the propos ed rural floor and imputed floor with the application of the national budget neutrality factor applie d 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 transitiona l blended wage index for hos pitals whose FY 2015 wage indexes will decrease solely as a resu lt 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 implementa tion 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 percen tage of residents of the county where the hospital is located commute to work at hospita ls in counties with higher wage indexes.

● The effects of the proposed policie s for implementation of the Hospital Readmissions Reduction Program under sec tion 1886(q) of the Act, as added by section 3025 of the Affordable Care Act, th at adjusts a hospital’ s base operating DRG amount by an adjustment factor to acc ount 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 tota l 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 Affordab le 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 pa yments based on the proposed FY 2015 policies relative to payments based on FY 2014 policies that incl ude the applicable percentage increase of 2.1 percent (or 2.7 per cent market basket update with a proposed reduction of 0.4 percentage point for the mu ltifactor productivity adjustment, and a 0.2 percentage point reduction, as required unde r 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 accordan ce 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 an d the proposed documentation and coding recoupment adjustment of 0.8 percent to th e Federal standardized amount; the FY 2014 MS-DRG GROUPER (Version 31.0); the current FY 2014 CBSA designations for1546 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 ad ded 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 Ca re 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 s ubsection (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-qua rter 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 user s 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 re ceive the full market basket rate-of-increase for FY 2014 because they failed the quality da ta submission process or did not choose to participate. For purposes of the simulati ons shown below, we modeled the payment changes for FY 2015 using a reduced update fo r these 64 hospitals. However, we do not have enough information at this time to de termine 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 ar e 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 m eaningful 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 ar e not meaningful EHR users) in our modeling of aggregate payments for FY 2015. We intend to release a final list of hosp itals that are not meaningful EHR user in September 2014. Hosp itals identified on this list will be paid based on the applicable proposed standardiz ed 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 incorporati ng all of the proposed changes. This simulation allows us to is olate 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 no t discussed separately have significant impacts here. The first factor is the update to the standa rdized amount. In accordance with section 1886(b)(3)( B)(i) of the Act, we are updati ng 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 re quired under the Affordable Care Act. (Hospitals that fail to comply with the quality data submission requirements and are meaningful EHR users would receive a propos ed update of 1.425 percent. This update includes a reduction of one-quarter of the mark et 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 ma rket basket update. Furthermore, hospitals that do not comply w ith the quality data submission requirements and also are not meaningful EHR users woul d 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 adjustme nt to the standardized amount (for those hospitals that are not meaningful EHR users) in our modeling of aggregate payments for1549 FY 2015. Under section 1886(b)(3)( B)(iv) of the Act, the upda tes to the hospital-specific amounts for SCHs also are equal to the applicab le 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 th e 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 re classified 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 tota l MS-DRG payments. When the FY 2014 IPS/LTCH PPS final rule was published, we pr ojected 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 expect ed outlier payments during FY 2014 (as discussed in the Addendum to this proposed rule) are reflected in the analyses below comparing our current es timates 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 anal ysis of the proposed changes for FY 2015. The table categorizes hospitals by various geographic and sp ecial payment consideration1550 groups to illustrate the varying impacts on di fferent 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 furthe r divided into large ur ban and other urban; and rural. There are 2,542 hos pitals located in urban area s 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 ar eas (populations of 1 million or fewer). In addition, there are 846 hospita ls in rural areas. The next two groupings are by bed-size categories, shown separately for urban a nd rural hospitals. The final groupings by geographic location are by census divisions, al so shown separately for urban and rural hospitals. The second part of Table I shows hosp ital groups based on hospitals’ proposed FY 2015 payment classifications, includi ng 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 numb ers of hospitals paid based on these categorizations after consideration of geographic re classifications (including recl assifications 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 some1551 combination of these two adjustments. There are 2,352 nonteachi ng 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 ar e grouped according to their DSH payment status, and whether they are considered urban or rural for DSH purposes. The next category groups together hospita ls 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 im pacts 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 thr ough 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 ge ographic reclassification status of hospitals. The first grouping displays all ur ban hospitals that were reclassified by the MGCRB for FY 2015. The second grouping show s the MGCRB rural reclassifications. The final category shows the impact of th e proposed policy changes on the 15 cardiac hospitals.1552TABLE I.—IMPACT ANALYSIS OF PROPOSED CHANGES TO THE IPPS FOR OPERATING COSTS FOR FY 2014No. ofHospitals1ProposedHospital RateUpdate andDocumentation andCoding Adjustment2Proposed FY2015 Weightsand DRGChanges withAppli-cationof RecalibrationBudget Neutrality3Proposed FY2015 WageData withAppli-cation ofWage BudgetNeu-trality4Proposed FY2015 DRG, Rel.Wts., WageIndex Changeswith Wage andRecali-brationBudgetNeutrality5ProposedFY 2015MGCRBReclassifications6ProposedRural Floorand ImputedFloor withApplica-tionof NationalRural FloorBudget Neutrality7ProposedImpact of theNew OMBCBSA Designations8ProposedApplicationof the CBSATransitionWage IndexwithBudgetNeutra-lity9(9)ProposedApplication oftheFrontierWage Indexand OutMigra-tionAdjustment10(10)ProposedHospitalReadmissionsReductionProgram11ProposedChangestoMedicareDSH12ProposedImplementation ofthe HACReductionProgram13AllProposedFY 2015Changes14(14)(1) (2) (3) (4) (5) (6) (7) (8) (11) (12) (13)All Hospitals3,388 1.3 0 0 0 0 0 0 0 0.1 -0.4 -1 -0.3 -0.8By Geographic Location:Urban hospitals 2,542 1.3 0.1 0 0.1 -0.1 0 0 0 0.1 -0.4 -1 -0.3 -0.9Large urban areas 1395 1.3 0.1 0.1 0.2 -0.3 0 0 0 0 -0.4 -1.1 -0.4 -0.9Other urban areas 1147 1.3 0 -0.2 -0.1 0.2 0 0.1 0 0.2 -0.3 -1 -0.3 -0.8Rural hospitals 846 1.7 -0.6 0.1 -0.5 1.8 -0.3 0.1 0 0.2 -0.4 -0.7 -0.2 -0.2Bed 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 -0.6 -0.2 -0.5100-199 beds 788 1.3 -0.1 -0.1 -0.2 0.1 0.2 0 0 0.1 -0.5 -1 -0.2 -0.8200-299 beds 469 1.3 0 0 0 0.1 0 0.1 0 0.1 -0.4 -0.9 -0.3 -0.5300-499 beds 417 1.3 0.1 -0.1 0.1 -0.3 0.1 0 0 0.1 -0.3 -1.1 -0.3 -0.9500 or more beds 213 1.3 0.2 0 0.3 -0.2 -0.2 0 0 0 -0.3 -1.1 -0.4 -1.2Bed Size (Rural):0-49 beds 325 1.8 -1 0 -1 0.7 -0.4 0 0.1 0.3 -0.5 -0.5 -0.2 -0.850-99 beds 298 1.7 -0.8 0.2 -0.7 1 -0.3 0 0.1 0.2 -0.4 -0.7 -0.2 -1100-149 beds 136 1.6 -0.6 0 -0.6 2 -0.3 0 0 0.2 -0.6 -0.6 -0.2 0.3150-199 beds 50 1.5 -0.3 0.3 -0.2 2.2 -0.3 0 -0.1 0.3 -0.4 -0.9 -0.1 -0.1200 or more beds 37 1.7 -0.2 0.1 -0.1 3.1 -0.3 0.1 -0.1 0 -0.3 -0.6 -0.3 0.6Urban by Region:New England 120 1.3 0.1 0.9 0.9 1.3 2.7 0.1 -0.1 0 -0.5 -0.7 -0.4 -0.8Middle Atlantic 324 1.3 0 0.3 0.3 -0.1 -0.5 -0.4 0.4 0.1 -0.5 -0.9 -0.3 -0.6South Atlantic 406 1.3 0 -0.3 -0.3 -0.3-0.4 0.1 -0.1 0 -0.4 -1 -0.3 -1.1East North Central 397 1.3 0.1 -0.2 0 -0.2 -0.6 0.1 -0.1 0 -0.5 -0.9 -0.3 -1East South Central 153 1.3 0.1 -0.6 -0.5 -0.3 -0.4 0 0 0 -0.5 -1.1 -0.4 -1.51553No. ofHospitals1ProposedHospital RateUpdate andDocumentation andCoding Adjustment2Proposed FY2015 Weightsand DRGChanges withAppli-cationof RecalibrationBudget Neutrality3Proposed FY2015 WageData withAppli-cation ofWage BudgetNeu-trality4Proposed FY2015 DRG, Rel.Wts., WageIndex Changeswith Wage andRecali-brationBudgetNeutrality5ProposedFY 2015MGCRBReclassifications6ProposedRural Floorand ImputedFloor withApplica-tionof NationalRural FloorBudget Neutrality7ProposedImpact of theNew OMBCBSA Designations8ProposedApplicationof the CBSATransitionWage IndexwithBudgetNeutra-lity9(9)ProposedApplication oftheFrontierWage Indexand OutMigra-tionAdjustment10(10)ProposedHospitalReadmissionsReductionProgram11ProposedChangestoMedicareDSH12ProposedImplementation ofthe HACReductionProgram13AllProposedFY 2015Changes14(14)(1) (2) (3) (4) (5) (6) (7) (8) (11) (12) (13)West North Central 162 1.3 0.1 0 0.1 -0.7 -0.5 0.1 -0.1 0.8 -0.2 -0.9 -0.2 -0.5West South Central 385 1.3 0.2 -0.3 -0.1 -0.4 -0.5 0.1 -0.1 0 -0.3 -1.5 -0.2 -1.4Mountain 159 1.4 0.1 -0.1 0 0 0 0.1 -0.1 0.3 -0.2 -1.3 -0.4 -0.8Pacific 384 1.3 0.1 0.4 0.5 -0.2 1.5 0.1 -0.1 0 -0.2 -1.1 -0.3 -0.2Puerto Rico 52 1.5 -0.4 0.2 -0.2 -0.7 0 0 0 0 0 -6.8 0 -7.2Rural by Region:New England 22 1.5 -0.3 0.7 0.3 2.4 -0.5 0.4 -0.1 0 -0.1 -0.3 -0.1 -0.2Middle Atlantic 57 1.7 -0.8 0.8 -0.2 1.3 0 -0.3 0.1 0.2 -0.4 -0.5 -0.2 -0.6South Atlantic 132 1.8 -0.7 0.1 -0.9 2.5 -0.4 0 0 0.1 -0.4 -0.8 -0.2 -0.6East North Central 115 1.7 -0.5 0 -0.5 1.6 -0.3 0.2 0 0 -0.5 -0.4 -0.2 0.6East South Central 165 1.4 -0.3 -0.2 -0.5 2.8 -0.5 0 -0.1 0.1 -0.7 -1 -0.2 -1.1West North Central 102 1.8 -0.8 0.1 -0.7 0.6 -0.1 0.2 0 0.7 -0.2 -0.3 -0.2 1.2West South Central 168 1.5 -0.5 0.2 -0.3 1.7 -0.4 -0.1 0.1 0.1 -0.8 -1.2 -0.1 -1.9Mountain 61 1.8 -0.7 -0.3 -1 0.4 -0.2 0 0 0.9 -0.1 -0.4 -0.2 1.5Pacific 24 2 -1.1 0.9 -0.2 1.2 -0.3 0.1 0 0 -0.1 0 -0.1 2.4By PaymentClassification:Large urban areas1408 1.3 0.1 0.1 0.2 -0.3 0 0 0 0 -0.4 -1.1 -0.4 -0.9Other urban areas1150 1.3 0 -0.2 -0.1 0.2 0 0.1 0 0.1 -0.3 -1 -0.3 -0.8Other urban areas 1,764 1.3 0 0 0 0 0.1 0 0 0.1 -0.4 -1 -0.3 -0.8Rural areas 830 1.7 -0.6 0.1 -0.6 1.4 -0.3 0 0 0.4 -0.4 -0.6 -0.2 0Teaching Status:Nonteaching 2,352 1.4 -0.2 -0.1 -0.2 0.2 0.1 0.1 0 0.1 -0.5 -0.8 -0.2 -0.5Fewer than 100 residents 792 1.4 0 0 0 -0.1 0 0 0 0.2 -0.3 -1 -0.3 -0.7100 or more residents 244 1.3 0.3 0.2 0.5 -0.2 -0.2 -0.1 0 0 -0.3 -1.2 -0.5 -1.3Urban DSH:Non-DSH 682 1.3 -0.1 0 0 0 0 0.1 0.1 0.2 -0.4 -0.2 -0.2 0.31554No. ofHospitals1ProposedHospital RateUpdate andDocumentation andCoding Adjustment2Proposed FY2015 Weightsand DRGChanges withAppli-cationof RecalibrationBudget Neutrality3Proposed FY2015 WageData withAppli-cation ofWage BudgetNeu-trality4Proposed FY2015 DRG, Rel.Wts., WageIndex Changeswith Wage andRecali-brationBudgetNeutrality5ProposedFY 2015MGCRBReclassifications6ProposedRural Floorand ImputedFloor withApplica-tionof NationalRural FloorBudget Neutrality7ProposedImpact of theNew OMBCBSA Designations8ProposedApplicationof the CBSATransitionWage IndexwithBudgetNeutra-lity9(9)ProposedApplication oftheFrontierWage Indexand OutMigra-tionAdjustment10(10)ProposedHospitalReadmissionsReductionProgram11ProposedChangestoMedicareDSH12ProposedImplementation ofthe HACReductionProgram13AllProposedFY 2015Changes14(14)(1) (2) (3) (4) (5) (6) (7) (8) (11) (12) (13)100 or more beds 1,591 1.3 0.1 0 0.1 -0.1 0 0 0 0.1 -0.4 -1.2 -0.3 -1.1Less than 100 beds 366 1.4 -0.3 0.1 -0.2 0.2 0.1 0.3 0 0.3 -0.4 -1 -0.2 -1.3Rural DSH:SCH 388 1.9 -1 0.1 -1 0.1 -0.1 0 0 0.1 -0.4 -0.4 -0.2 0.1RRC 212 1.6 -0.4 0.1 -0.3 2.2 -0.3 0 0 0.5 -0.4 -0.7 -0.2 0.2100 or more beds 24 1.3 -0.3 -0.2 -0.5 2.5 -0.6 0.1 0 0.2 -0.6 -1.4 -0.1 -1.3Less than 100 beds 125 1.3 -0.5 -0.1 -0.6 1.2 -0.6 -0.2 0.1 0.7 -0.5 -1.2 -0.2 -1.2Urban 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 -1.2 -0.4 -1.2Teaching and no DSH 133 1.3 0 0.2 0.2 0.1 0.2 -0.1 0.1 0.1 -0.4 -0.2 -0.2 0.5No teaching and DSH 1,115 1.3 -0.1 -0.1 -0.1 0.1 0.3 0.1 0 0.1 -0.5 -1 -0.2 -0.8No teaching and no DSH 468 1.3 -0.1 -0.1 -0.2 -0.1 -0.2 0.2 0 0.1 -0.4 -0.2 -0.2 0.2Special Hospital Types:RRC 208 1.3 -0.1 0.1 0 2.6 -0.5 0.1 -0.1 0.6 -0.4 -1 -0.2 -1SCH 324 1.9 -0.8 0 -0.9 -0.1 -0.1 0 0 0.1 -0.2 -0.2 -0.2 2MDH 154 1.7 -0.9 0.1 -1 0.4 -0.1 0 0 0.2 -0.8 -0.6 -0.1 -4.6SCH and RRC 124 1.9 -0.6 0.1 -0.6 0.8 -0.1 0.1 0 0.1 -0.2 -0.2 -0.2 2.2MDH and RRC 11 1.8 -0.8 -0.1 -0.91 -0.3 0 0 0 -0.9 -0.2 -0.2 -5.9Type of Ownership:Voluntary 1,925 1.3 0 0 0.1 0 0 0 0 0.1 -0.4 -0.9 -0.3 -0.7Proprietary 883 1.3 0 -0.1 0 0.2 0.1 0.1 -0.1 0.1 -0.5 -1.1 -0.2 -0.8Government 540 1.4 0 -0.2 -0.2 0 0 0 0 0 -0.3 -1.5 -0.5 -1.6Medicare Utilization as aPercent of InpatientDays:0-25 445 1.3 0.2 0.1 0.3 -0.3 0 0 0 0 -0.2 -2.3 -0.5 -2.525-50 2,004 1.3 0 0 0.1 -0.1 0 0 0 0.1 -0.4 -0.9 -0.3 -0.71555No. ofHospitals1ProposedHospital RateUpdate andDocumentation andCoding Adjustment2Proposed FY2015 Weightsand DRGChanges withAppli-cationof RecalibrationBudget Neutrality3Proposed FY2015 WageData withAppli-cation ofWage BudgetNeu-trality4Proposed FY2015 DRG, Rel.Wts., WageIndex Changeswith Wage andRecali-brationBudgetNeutrality5ProposedFY 2015MGCRBReclassifications6ProposedRural Floorand ImputedFloor withApplica-tionof NationalRural FloorBudget Neutrality7ProposedImpact of theNew OMBCBSA Designations8ProposedApplicationof the CBSATransitionWage IndexwithBudgetNeutra-lity9(9)ProposedApplication oftheFrontierWage Indexand OutMigra-tionAdjustment10(10)ProposedHospitalReadmissionsReductionProgram11ProposedChangestoMedicareDSH12ProposedImplementation ofthe HACReductionProgram13AllProposedFY 2015Changes14(14)(1) (2) (3) (4) (5) (6) (7) (8) (11) (12) (13)50-65 718 1.4 -0.2 0 -0.2 0.7 0 0.2 0 0.1 -0.6 -0.5 -0.2 -0.1Over 65 131 1.5 -0.6 0.1 -0.8 0.4 0 0 0 0.1 -0.7 -0.5 -0.2 -1.4Proposed FY 2015Reclassifications by theMedicare GeographicClassification ReviewBoard:All Reclassified Hospitals 804 1.4 -0.1 0.1 0.1 1.8 0 0 0 0 -0.5 -0.8 -0.3 -0.6Non-ReclassifiedHospitals 2,584 1.3 0 0 0 -0.6 0 0.1 0 0.1 -0.4 -1.1 -0.3 -0.9Urban HospitalsReclassified 533 1.3 0 0.1 0.2 1.6 0.1 -0.1 0 0 -0.5 -0.9 -0.3 -0.7Urban NonreclassifiedHospitals, FY 2015 1,965 1.3 0.1 -0.1 0.1 -0.7 0 0.1 0 0.1 -0.4 -1.1 -0.3 -0.9All Rural HospitalsReclassified FY 2015 271 1.7 -0.5 0.1 -0.4 2.9 -0.3 0 0 0 -0.5 -0.6 -0.2 0.2Rural NonreclassifiedHospitals FY 2015 511 1.7 -0.8 0.1 -0.7 -0.1 -0.3 0 0 0.4 -0.4 -0.7 -0.2 -0.4All Section 401Reclassified Hospitals 48 1.7 -0.6 -0.1 -0.6 -0.9 -0.1 0 0 2.2 -0.3 -0.7 -0.1 0.2Other ReclassifiedHospitals (Section1886(d)(8)(B)) 66 1.4 -0.5 0.3 -0.1 3.5 -0.5 0.6 0.1 0.1 -0.5 -1.2 -0.1 -2.3Specialty HospitalsCardiac specialtyHospitals 15 1.3 0.9 0.3 1.2 -0.8 -0.1 0.1 -0.1 0.7 -0.1 -0.1 -0.1 1.715561Because data necessary to classifysome hospitals by category were missing, the total numberof hospitals in each category may not equal the nationaltotal. Discharge data are from FY 2013, and hospital cost report data are from reporting periods beginning in FY 2011 and FY 2010.2This column displays the payment impact of the proposed hospital rate update and the proposed documentation and coding adjustment including the 2.1 percentadjustment to the national standardized amount (the estimated 2.7percent market basket update reduced by the proposed 0.4 percentage point for the multifactorproductivity adjustment and the 0.2 percentage point reduction under the Affordable Care Act) and the proposed 0.8 percent documentation and codingadjustment to the national standardized amount.3This column displays the payment impact of the proposed changes to the Version 32.0 GROUPER,the changes to the relative weights and the proposedrecalibration of the MS-DRG weights based onFY 2013 MedPAR data in accordance with section1886(d)(4)(C)(iii) of the Act. This column displays theapplication of the proposed recalibration budget neutrality factorof 0.992938 in accordance withsection 1886(d)(4)(C)(iii) ofthe Act.4This column displays the payment impact of the proposed update to wage index data using FY 2011 cost report data and the proposed new OMB labor marketarea delineations. This column displays the payment impact of the proposed application of the wage budget neutrality factor, which is calculated separately fromthe recalibration budget neutrality factor,and is calculated in accordance with section 1886(d)(3)(E)(i) of the Act. The proposed wage budget neutrality factor is1.000578.5This column displays the combined payment impact of the proposed changes in Columns 3 through 4 and the proposed cumulative budget neutrality factor forMS-DRG and wage changes in accordance with section 1886(d)(4)(C)(iii) of the Act and section 1886(d)(3)(E) of the Act. The proposed cumulative wage andrecalibration budget neutrality factor of 0.993512 is the productof the proposed wage budget neutrality factor and the proposed recalibration budget neutralityfactor.6Shown here are the effects of geographic reclassifications bythe Medicare Geographic Classification Review Board (MGCRB) along with the effects of theproposed adoption of the new OMB labor market area delineations on these reclassifications. The effects demonstrate the proposed FY 2015 payment impact ofgoing from no reclassifications to the reclassifications scheduled to be in effect for FY 2015. Reclassification for prior years has no bearing on the paymentimpacts shown here. This column reflects the proposed geographic budget neutrality factor of 0.991412.7This column displays the effects of the proposed rural floor and imputed floor based onthe proposed adoption of new OMB labor market area delineations. TheAffordable Care Act requires the rural floor budget neutrality adjustment to be 100 percent national level adjustment. The proposed rural floor budget neutralityfactor (which includes the imputed floor) applied to the wage index is 0.989455.8This column displays the effects of the proposed adoption of the new OMB labor market area delineations. It does not reflect the proposed 3-year transition forhospitals that are currently located in urban counties that would become rural under the proposed new OMB delineations and theone-year transition to the newOMB delineations where the proposed 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. Rather, it shows the proposed impact if the new OMB delineations were to be fullyimplemented in FY 2015.9. This column shows the effects of the proposal to apply boththe 3-year transition for hospitals that are currently located inurban counties that would becomerural under the proposed new OMB delineations, and the 50/50 blended wage index adjustments in a budget neutral manner.For FY 2015, we are proposing toapply both the 3-year transition and 50/50 blended wage index adjustments in a budget neutral manner, with a proposed budget neutrality factor of 0.998856applied to the standardized amount.10This column shows the combined impact of the policy required under section 10324 of the Affordable Care Act that hospitals located in frontier States have awage 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 increase in a hospital's1557wage index if a threshold percentage of residents of the countywhere the hospital is located commute to work at hospitals in counties with higher wage indexes.These are nonbudget neutral policies.11This column displays the impact of the implementation of theHospital Readmissions Reduction Program, section 3025 of the Affordable Care Act, anonbudget neutral provision that adjustsa hospital’s payment for excess readmissions.12This column displays the impact of the implementation of section 3133 of the Affordable CareAct that reduces Medicare DSH payments by 75 percent andestablishes an additional uncompensated care payment.13This column displays the impact of the implementation of theHAC Reduction Program, section 3008 of the Affordable Care Act, anonbudget neutralprovision that reduces total IPPS payments by 1 percent to hospitals ranked in the lowest quartile of performance on HAC rates.14This column shows the proposed changes in payments from FY 2014 to FY 2015. It reflects the impact of the proposed FY 2015 hospital update and theproposed adjustment for documentation and coding. It also reflects proposed changes in hospitals' reclassification status in FY 2015 compared to FY 2014, andthe extension of MDH payment status for the first half of FY 2015, under Pub. L. 113-93 enacted on April1, 2014. It incorporates all of the proposed changesdisplayed 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). The sum of theseimpacts may be different from the percentage changesshown here due to rounding and interactive effects.1558 a. Effects of the Proposed Hospital Upda te and Proposed Documentation and Coding Adjustment (Column 2) As discussed in section II.D. of the pr eamble of this propose d rule, this column includes the proposed hospital update, including the proposed 2.7 percent market basket update, the proposed reduction of 0.4 percenta ge point for the multifactor productivity adjustment, and the 0.2 percentage point reduction in accordance with the Affordable Care Act. In addition, this column in cludes the proposed FY 2015 documentation and coding recoupment adjustment of -0.8 percen t 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 nationa l standardized amount. This column also includes the proposed 2.1 percent update to the hospital-specifi c rates which also includes the proposed 2.7 percent market ba sket update, the propos ed reduction of 0.4 percentage point for the multifactor productiv ity adjustment, and the 0.2 percentage point

reduction in accordance with th e Affordable Care Act. Overall, hospitals would experience a 1.3 percent increase in payments primarily

due to the effects of the hos pital update and documentation and coding adjustment on the

national standardized amount. Hospitals that are paid unde r the hospital-specific rate, namely SCHs, would experience a 2.1 percent increase in payments; therefore, hospital categories with SCHs paid under the hospital-sp ecific rate would e xperience increases in payments of more than 1.3 percent.1559 b. Effects of the Proposed Changes to th e MS-DRG Reclassifi cations and Relative Cost-Based Weights with Recalibra tion Budget Neutrality (Column 3)

Column 3 shows the effects of the proposed changes to the MS-DRGs and relative weights with th e application of the proposed recali bration budget neut rality factor to the standardized amounts. Section 1886(d )(4)(C)(i) of the Act re quires us annually to make appropriate classification changes in orde r to reflect changes in treatment patterns, technology, and any other factors th at 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 pr oposed 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 per cent cost-based and 100 percent MS-DRGs. For FY 2015, the MS-DRGs are calculated usi ng the FY 2013 MedPAR data grouped to the Version 32.0 (FY 2015) MS-DRGs. Th e 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 indi cates that changes due to the MS-DRGs and relative weights would re sult in a 0.0 percent change in payments with the application of the proposed recalibration budget ne utrality factor of 0.992938 on to the standardized amount. Hospital ca tegories that generally treat more surgical cases than medical cases would experience increases in their payments due to the changes to the relative weight methodology. Ru ral hospitals would experien ce a 0.6 percent decrease in1560 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 wa ge 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 wa ge index is calculated and assigned to hospitals on the basis of the labor market ar ea 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 Statis tical 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 Metr opolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical Areas, and provided guidance on the use of

the delineations of these stat istical 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, becau se the bulletin was not issued until February 28, 2013, with supporting data not ava ilable until later, and because the changes made by the bulletin and their ramifications needed to be extens ively reviewed and1561 verified, we were unable to undertake such a lengthy process before publication of the FY 2014 IPPS/LTCH PPS proposed rule and, th us, 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 stat ed that we intended to propose changes to the wage index based on the new OMB delin eations 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 requ ires that, beginning October 1, 1993, we annually update the wage data used to calcula te 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 imp act of the updated wage data using the FY 2011 cost report data and the proposed ne w 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 pe rcent, under the new OMB delineations and having a 100-percent occupational mix adjustme nt applied, to a model using the proposed FY 2015 pre-reclassification wage index base d on FY 2011 wage data with the proposed labor-related share of 69.6 percent, unde r the new OMB delineations, also having a 100-percent occupational mix adjustment applied, while holding other payment1562 parameters such as use of the Versio n 32.0 MS-DRG GROUPER constant). The FY 2015 occupational mix adjustment is ba sed 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 update s made under that subparagraph must be made without regard to the 62 percent labo r-related share guaran teed 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 wa ge 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 hi gher labor-related share of the standardized amount. The proposed wage budget neutrali ty factor is 1.000578, and the overall payment change is zero percent. Column 4 shows the impacts of updati ng 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, th e national average hourly wage increased 1.9 percent compared to FY 2014. Therefore, the only manner in which to maintain or1563 exceed the previous year’s wage index was to match or exceed the national 1.9 percent increase in average hourly wage. Of th e 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 e xperience 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 experi ence an increase or d ecrease 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 ru ral hospitals would experience an increase of greater than 5 per cent but less than or equal to10 percent. However, 803 rural hospitals would experience increases or decrease s of less than or equal to 5 percent, while 2,325 urban hospitals would experience incr eases or decreases of less than or equal to 5 percent. One hundr ed eight urban and rura l hospitals would not experience a change in their wage index. Th ese figures reflect proposed changes in the “pre-reclassified, occupational mix-adjusted wage index,” th at is, the proposed wage index before the proposed application of ge ographic reclassificati on, the proposed rural and imputed floors, the proposed out-migrati on adjustment, and other proposed wage index exceptions and adjustments. We note th at 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 I II.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 i ndex” or “payment wage index,” the proposed wage index that includes all such exceptions and adjustments (as refl ected 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 ad just 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 wa ge 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 im pact 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 th an 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 321565 d. Combined Effects of the Proposed MS-D RG and Wage Index Changes (Column 5) Section 1886(d)(4)(C )(iii) of the Act requires that changes to MS-DRG

reclassifications and the relativ e 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 budge t neutrality factors is the proposed cumulative wage and recalibration budget neutrality f actor. The proposed cumulative wage and recalibration budget neutrality adjustment is 0.993512, or approximately 0.65 percent, which is applie d to the national standardized amounts. Because the wage budget neutrality and the re calibration 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 ar e estimating that the proposed changes in the MS-DRG relative we ights 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 a ssumed 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 ch anges in Column 6 reflect th e per case payment impact of1566 moving from this baseline to a simulati on 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 wh ich 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 reclassifi cation request for the purpose of using another area’s wage index value. Hospitals may appeal de nials of MGCRB decisions to the CMS Administrator. Further, hos pitals have 45 days from publication of the IPPS proposed

rule in the Federal Register to decide whether to withdr aw or terminate an approved geographic reclassification for the following year. The overall effect of geographi c 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 secti on 1886(d)(10) of the Act are budget neutral (section II.A. of the Addendum to this pr oposed rule). Geographic reclassification generally benefits hospitals in rural areas. We estimate that the geographic reclassification would increase pa yments to rural hospitals by an average of 1.8 percent. By region, all the rural hospital categories w ould experience increases in payments due to

MGCRB reclassifications.

Table 9A listed in sect ion VI. of the Addendum to this proposed rule and

available via the Internet on the CMS Web site reflects the reclassi fications for FY 2015.1567 f. Effects of the Proposed Rural and Imput ed Floor, Including A pplication 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 propos ed rule, section 4410 of Pub. L. 105-33 established the rural floor by requiring that the wage inde x 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 y ears. 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 or iginal 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 Delawa re 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 nati onally, and the imputed floor is part of the rural floor budget1568 neutrality factor app lied to the wage index nationall y. 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 nationa l 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-r eclassification FY 2015 wage index of providers with the proposed rural floor a nd 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 hospita ls 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 a pplied nationally to their wage index. We estimate that 441 hospitals benefit fr om the proposed rural and imputed floors while the remaining 2,947 IPPS hospitals in ou r model have their wage index reduced by the proposed rural floor budget neutrality ad justment of 0.989455 (or 1.1 percent). We project that, in aggregate, rural hospitals would experien ce 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 fr om 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 ar eas would experience no change1569 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 e xpect a 2.7 percent increase in payments primarily due to the appli cation of the proposed rural floor in Massachusetts and Connecticut. Fifty-one urban providers in Massachusetts are exp ected to receive the proposed rural floor wage index value, incl uding proposed rural fl oor budget neutrality, of 1.3383, increasing payments overall to Ma ssachusetts by an estimated $158 million. During most past years, there have been no IPPS hospitals locate d in rural areas in

Massachusetts. There was one urban IPPS hos pital that was reclassified to rural Massachusetts (under secti on 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 th at is geographically located in rural

Massachusetts. The rural floor in Massachusetts continues to be set by the wage index of the hospital in rural Massachuset ts 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 applicati on 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 rura l floor budget neutrality adjustment. We are1570 proposing to apply a rural floor budget neutrality factor to th e Puerto Rico-specific wage index of 0.991359 or -0.86 percent. The Puer to Rico-specific wage index adjusts the Puerto Rico-specific standardized amount, whic h represents 25 percent of payments to Puerto Rico hospitals. The increases in pa yments experienced by the urban Puerto Rico hospitals that benefit from a rural floor ar e 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 ne utrality adjustment. As a result, overall, urban Puerto Rico hospitals would experien ce a 0.0 percent change in payments due to the application of the proposed rural fl oor 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 a nd 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 th e rural floor budget neutrality adjustment). Four Rhode Island hospitals would benef it from the proposed imputed rural floor calculated under the alternative methodology an d 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 ne w OMB labor market area delineations, and1571 would receive an additional $25,00 0 (the State, overall, woul d experience a decrease in payments of $2.3 million). In response to a public comment addr essed in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51593), we are providing the paym ent impact of the proposed rural floor and imputed floor with budget neutra lity at the State level. Column 1 of the table below displays the number of IPPS hospitals locate d in each State. Column 2 displays the number of hospitals in each State that would receive the pr oposed rural floor or imputed floor wage index for FY 2015 based on th e proposed new OMB labor market area delineations. Column 3 displays the percen tage of total payments each State would

receive or contribute to f und 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-reclassi fication FY 2015 wage index of providers before the proposed rural floor and imput ed floor adjustment and the proposed post-reclassification FY 2015 wage index of pr oviders 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 Na tional 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 -$17.61573 FY 2015 IPPS Proposed Estimated Payments Due to Proposed Rural Floor and Imputed Floor with Na tional 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 Ne w 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 budge t neutrality calculated under the new OMB delineations and the payments under the propos ed 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 th at are currently located in urban counties

that would become rural under the new OMB de lineations and the 1-year transition to the new OMB delineations where the wage indexes are blended such that hospitals receive1574 50 percent of their wage index based on th e 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 ha ve their wage index imp acted due to the new OMB

delineations. Urban and rural Middle Atlant ic 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 a nd 0.3 percent, respec tively. Rural New England hospitals and Lugar hospitals w ould experience the largest increases in payments if the new OMB delineations we re fully implemented for FY 2015 with payment increases of 0.4 percen t and 0.6 percent, respectively. h. Proposed Application of the CBSA Transi tion 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 delin eations 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 lo cated in an urban count y that would become

rural under the new OMB labor market area delineations under which such hospitals would be assigned the urban wage index valu e 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-y ear blended wage index for all hospitals that would experience any decrease in thei r actual payment wage index (that is, a hospital’s actual wage index used for payment, which accounts fo r all applicable effects of reclassification1575 and redesignation) exclusively due to th e proposed implementation of the new OMB labor market area delineations. We are propos ing that a post-reclas sified 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 th an the proposed FY 2015 wage index with FY 2014 CBSAs, we are proposing that a bl ended wage index would be computed, consisting of 50 percent of each of the tw o 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. Ho spitals that benefit from the new OMB

labor market area delineations would receive their new wa ge 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 ar e proposing to make an adjustment to the

standardized amount to ensure that the to tal payments, including the effect of the transition provisions, would equal what paymen ts would have been if we would not be providing for these transi tional 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 locate d in an urban county that w ould become rural under the new OMB delineations and the proposed 1-year tr ansition to the new OMB delineations where the wage indexes are blended such that hospi tals receive 50 percent of their wage index based on the new OMB delineations and 50 perc ent of their wage index based on their current labor market area. For FY 2015, we are proposing to a pply both the 3-year transition and 50/50 blended wage index adjust ments 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 to tal payments, including the effect of the transition provisions, would equal what paymen ts would have been if we would not be providing for these transitional wa ge 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 calculat ed 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 th is year now would have those decreases

alleviated due to the transition. Urban Mi ddle 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 Ce ntral, Mountain and Pacific hospitals would1577 experience a -0.1 percent change in paymen ts due to the proposed transitional budget neutrality adjustment of -0.1 percent applied to th e standard Federal rate. i. Effects of the Application of th e 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 th e effects of section 1886(d)(13) of the Act, as added by secti on 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 hos pital 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 pe rcent 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 populat ion density less than 6 persons per square mile. Based on these criteria, four States (Montana, No rth Dakota, South Dakota, and Wyoming) are considered frontier States and 46 hospitals lo cated in those States will receive a frontier wage index of 1.0000. Nevada is also, by de finition, a frontier State and was assigned a frontier floor value of 1.0000 for FY 2012, but si nce 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 provisi on is not budget neutral and is estimated to increase IPPS operating payments by appr oximately $65 million or approximately 0.11578 percent. Rural hospitals located in the Mountain region and urban hospitals located in the West North Central region would experien ce 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 percenta ge 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-reclassi fication and the higher wage index work area(s), weighted by the overall percentage of workers who ar e employed in an area with a higher wage index. There are an estimated 244 provi ders that would receive the proposed out-migration wage adjustment in FY 2015. Rural hospitals genera lly qualify for the adjustment, resulting in a 0.2 percent increas e 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-migra tion 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 th e 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 hos pital’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-ye ar period for five applicable conditions: acute myocardial infarction, heart failure, pneum onia, total hip and tota l knee arthroplasty and chronic obstructive pulmonary disease. This provision is not budget neutral. A hospital’s readmission adjustment is the highe r of a ratio of the hospital’s aggregate payments for excess readmissions to their a ggregate payments for all discharges, or a floor, which has been defined in the statut e as 0.97 (or a 3.0 per cent 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 paymen ts 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 pe rcent decrease, or approximately $4221580 million, in payments to hospitals overall for FY 2015 relative to no provision. We estimate that the Hospital Readmissions Re duction 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 a nd 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 rece ived under the former statutory formula for Medicare DSH payments. The remainder, eq ual 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 unins ured and additional statutory adjustments, is avai lable to make additional payments to each hospital that qualifies for Medicare DSH payments. E ach Medicare DSH hospital will receive an additional payment based on its estimated sh are of the total amount of uncompensated care for all Medicare DSH hospitals. The re duction to Medicare DSH payments is not budget neutral. For FY 2015, we are proposing that the am ount to be distributed on the basis of uncompensated care, which is 75 percent of our estimate of what otherwise would have1581 been paid in Medicare DSH pa yments (that is, Factor 1), be adjusted to 80.36 percent of that amount to reflect changes in the per centage 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 po ints 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 unde r 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 hos pital’s low income insured patient days (sum of Medicaid pa tient days and Medicare SSI patient days) relative to the Medicaid patient days and Me dicare SSI patient days for Medicare DSH hospitals, and the payment amount is not tied to a hospital’s discharges. Urban Pacific hospitals would experien ce no change in DSH and uncompensated care payments relative to last year. Hospitals with low Medicare utilization (Medicare days are less than 25 percen t 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 unde r the HAC Reduction Pr ogram (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 th e Act, as added under section 3008(a) of the Affordable Care Act, establishes an adjust ment 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 ra te of HAC rate as compared to the national average will have their IPPS payments reduc ed 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-percen t 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 paymen ts under the HAC Reduction Program of -0.5 percent. Twenty-six percent of the government hospitals ar e estimated to be subject to the HAC reduction, while 53 percent of teachi ng hospitals with more than 100 residents are estimated to be subject to the HAC reduc tion 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 propos ed changes reflected in this proposed

rule for FY 2015. It includes combined effect s of the previous columns in the table.1583 The proposed average decrease in paymen ts 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 adjust ment 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 incl udes the proposed annual hospita l 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 adjustme nt, 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 es timated 0.4 percent decrease in payments due to the proposed reductions in paymen ts 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 per cent decrease in paymen ts under the Hospital Readmissions Reduction Program relative to FY 2014. Column 12 shows the estimated 1.0 percent decrease in Medica re DSH payments due to th e changes made under section 3133 of the Affordable Care Act, which re duces 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 pa yments, reduced to reflect changes in the1584 percentage of individuals under age 65 who ar e 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 am ount of uncompensated care. Column 13 shows the impact of the implementation of the HAC Reducti on Program which would reduce payments by 0.3 percent overall. The impact of movi ng 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 pe rcent 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 u nder 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 Medica re 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 es timated 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 cat egories of hospitals s hown in Table I. It compares the estimated average payments per discharge for FY 2014 with the average payments per discharge for FY 2015, as calcu lated under our models. Therefore, this table presents, in terms of the average dolla r 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 PR OPOSED 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 0.61587

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 -1.61588

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 Classificati on 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 cha nges 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 thes e proposed changes. Our estimates of the likely impacts associated with these othe r proposed changes are discussed below.1589 1. Effects of Proposed Policy on MS-DRGs fo r 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 disc harges 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 wh ether a condition is present. That is, the case will be paid as though the secondary di agnosis were not pres ent. However, the statute also requires the Secr etary 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 a nd recalibration. Therefore, we will perform our budget neutrality calculations as t hough 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 al so will generate higher payment. Only a1590 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 propos ed 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 ther e 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 th is proposed rule, we are proposing changes to the HAC Reduction Program for FY 2015. We refer readers to sec tion 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 Payments1591 In section II.I. of the preamble to this proposed rule, we discuss the six applications for add-on payments for ne w medical services and technologies for FY 2015, as well as the status of the new tec hnologies that were approved to receive new technology add-on payments in FY 2014. As expl ained 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 ye t determined whether any of the six applications we received for cons ideration 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 a pplications 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 paymen ts 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®, th e Zenith® F.Graft, KcentraTM, the Argus ® II Retinal Prosthesis System, and Zilver ® PTX ® Drug Eluting Peripheral Stent in FY 2015 because these technologies are stil l 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 percen t of the amount by which the costs of the

case exceed the standard MS-DRG payment for the case. Because it is difficult to predict1592 the actual new technology add-on payment fo r 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 receiv e 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 t echnology 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 estim ate that new technology add-on payments for KcentraTM w ill 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 tec hnology 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, base d 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 in crease 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 th e postacute care transfer and DRG special payment policies. As reflected in Table 5 li sted in section VI. of the Addendum to this1593 proposed rule and available via the Internet on the CMS Web site, usi ng criteria set forth in regulation at § 412.4, we ev aluated MS-DRG charge, discha rge, and transfer data to determine which MS-DRGs qualify for the posta cute care transfer and DRG special pay policies. We note that we are making no pr oposal 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 re vise the MS-DRGs for FY 2015. We are proposing to change the status of five MS-DRGs to qualify for th e 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 afte r 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 th e effects of the proposed changes to the MS-DRGs and relative payment weights with the application of th e recalibration budget neutrality factor to the standardized am ounts. Section 1886(d)(4 )(C)(i) of the Act requires us annually to make a ppropriate 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 me thods determining the proposed changes due to the MS-DRGs and relative payment weight s accounts for and in cludes 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 de tailed discussion of payment impacts due to MS-DRG reclassification policies. 4. Effects of the Proposed Payment Adjust ment for Low-Volume Hospitals for FY 20151594 In section V.D. of the preamble to this proposed rule, we discuss the provisions of the Protecting Access to Me dicare Act of 2014 (Pub. L.113-93) that extends for an additional year, through Marc h 31, 2015, the temporary ch anges to the low-volume hospital definition and the methodology for dete rmining 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 fo r SGR Reform Act (Pub. L. 113-67. Therefore, to qualify for the lo w-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 pa yment adjustment for eligible low-volume hospital FY 2015 discharges occu rring 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 discharg es to no additional payment to hospitals with 1,600 or more Medicare discharges. Beginning with FY 2015 discharges occu rring on or after April 1, 2015, in accordance with section 1886(d)(1 2) of the Act, the low-volume hospital definition and payment adjustment methodology revert back to the statutory require ments that were in effect prior to the amendments made by the Affordable Care Act as amended by subsequent legislation. Ther efore, effective for FY 2015 di scharges occurring on or after April 1, 2015 and subsequent years, in orde r to qualify as a low-volume hospital, a subsection (d) hospital must be more than 25 road miles from a nother subsection (d)1595 hospital and have less than 200 discharges (t hat is, less than 200 discharges total, including both Medicare a nd non-Medicare discharges) du ring the fiscal year. Based on FY 2013 claims data (December 2013 update of the MedPAR file), we estimate that approximately 600 hospitals wi ll qualify as a lo w-volume hospital in FY 2014 and in FY 2015 for discharges occurring before April 1, 2015. With the statutory changes to the low-volume hos pital 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 fo r FY 2015 discharges occurring on or after April 1, 2015.1596 5. Effects of Proposal Related to IME Medica re Part C Add-On Payments to SCHs Paid According to Their Hospital-Specific Rates In section IV.E.2. of the preamble of th is 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 th e 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 pati ents. 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 th eir hospital-specific rate to receive the IME add-on payment for Medicare Part C pa tients. 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 hospi tal-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 secti on 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 M DH Program for the First Half of FY 2015 In section V.G. of the preamble of th is 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 s ection 106 of the Protecting A ccess to Medicare Act of 2014 (Pub. L. 113-93). Hospitals that qualify as MDHs receive the higher of operating IPPS payments made under the Fede ral 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 st andardized amount plus 75 percent of the amount by which the hospital-specific rate ex ceeds the Federal standardized amount) for the first half of FY 2015 (tha t is, for discharges occurr ing through March 31, 2015). We estimate that those hospitals will experien ce 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 ex tension 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 Secret ary to make value-based incentive payments under the Hospital VBP Progr am to hospitals that meet performance standards during the performance period for discharges occurring on or after October 1, 2012. These incentive paymen ts will be funded for FY 2015 through a1598 reduction to the FY 2015 base operating DRG payment for each discharge of 1.50 percent, as required by sect ion 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 paymen ts for all hospitals for the fiscal year, as estimated by the Secretary. We refer readers to the Hospital Inpa tient 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 pe riod (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 sec tion 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 histor ical pool of hospitals that were eligible to participate in the FY 2014 Hospital VBP Program and the payment information from1599 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, ar e based on historical TPSs. We used the FY 2014 Hospital VBP Program TPSs to calcula te the proxy adjustment factors used for this impact analysis. These are the most re cently 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 adju stment factors can be found in Table 16 associated with this proposed rule (ava ilable 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 w ould 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 woul d have a change in base operating DRG payment amount that is between -0.2 percen t and +0.2 percent. Among urban hospitals, those in the New England, Sout h Atlantic, East North Centra l, West North Central, and West South Central regions would have an increase, on average, in base operating DRG payment amount, and among rural hospitals, th ose 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 hosp itals in the Middle Atlantic, East South Central, Mountain, and Pacific regions and rural hosp itals in the South A tlantic region would receive an average decrease in base operat ing DRG payment amount. As the percent of DSH payments increases, we see a decreas e in base operating DRG payment amount,

while as the Medicare utiliza tion (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, actua l 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 ba se 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 th is proposed rule, we are establishing measures, scoring, and a risk adjustment methodology to implement the FY 2015 payment reduction under the HAC Reduction Prog ram. 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 Oc tober 1, 2014 and for subsequent program years. We note that hospitals will have a paymen t 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 provi sion 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 ru le (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 a nd 65 percent, respec tively. 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 deri ved 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 th e 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 hospita ls included in this analysis, 3,298 hospita ls were included for ge ographic 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 sour ce of the hospital

characteristic data. This analysis does not include Maryland hospitals as Maryland hospitals are exem pt by waiver fr om the HAC Reduction Program in

FY 2015.

The percentage of hospitals for each ch aracteristic (column 3) indicates the percent of hospitals in each level of characteristic. For example, with regard to geographic region, 39.4 per cent of hospitals (or 1,301 hospitals) are characterized as large urban; 32.7 per cent 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 pe rcentage 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 hospita ls (or 346 hospitals) characte rized as large urban would be subject to a payment adjustment; 2 2.8 percent of hospita ls (or 246 hospitals) characterized as other urban would be subj ect to a payment adju stment; and 17.6 percent of hospitals (or 161 hospitals) characterized as rural woul d 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 ur ban hospitals with bed size of 0 – 99 beds would be subject to a payment adjustmen t; 21.1 percent of hospita ls (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 woul d be subject to a payment adjustment; 27.1 percent of hospitals (o r 71 hospitals) characteriz ed 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 si ze 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 beds1605 would be subject to a payment adjustmen t; 20.6 percent of hospita ls (or 66 hospitals) characterized as rural hospitals with bed si ze of 50 – 99 beds would be subject to a payment adjustment; 13.9 percent of hospitals (or 21 hospitals) char acterized as rural hospitals with bed size of 100 – 149 beds woul d be subject to a payment adjustment; 15.3 percent of hospitals (o r 9 hospitals) characteri zed as rural hospitals with bed size of 150 – 199 beds would be subject to a payment adju stment; and 26.7 percent of hospitals (or 12 hospitals) characterized as ru ral hospitals with bed size of 200 or more beds would be subject to a payment adjustment. With regard to region of urban hos pitals, 26.1 percent of hospitals (or 31 hospitals) characterized as urban in the New England re gion would be subject to a payment adjustment; 28.2 percent of hospitals (or 87 hospitals) charac terized as urban in the Mid-Atlantic region woul d be subject to a payment adjustment; 24.0 percent of hospitals (or 89 hospitals) char acterized as urban in the S outh Atlantic region would be subject to a payment adjustment; 23.4 percent of hospitals (or 90 hos pitals) characterized as urban in the East North Central region w ould be subject to a payment adjustment; 22.4 percent of hospitals (o r 32 hospitals) characterized as ur ban in the West South Central region would be subject to a payment ad justment; 20.5 percent of hospitals (or 33 hospitals) characterized as urba n in the East North Central region would be subject to a payment adjustment; 19.6 percent of hospitals (or 71 hospitals) charac terized as urban in the West South Central region would be subj ect to a payment adjustment; 35.8 percent of hospitals (or 57 hospitals) ch aracterized as urban in the Mountain region would be1606 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 hospital s, 13.0 percent of hospi tals (or 3 hospitals) characterized as rural in the New Engla nd region would be subject to a payment adjustment; 25.8 percent of hospitals (or 17 hos pitals) characterized as rural in the MidAtlantic region would be subject to a paym ent adjustment; 15.1 per cent of hospitals (or 24 hospitals) characterized as rural in the S outh Atlantic region would be subject to a payment adjustment; 21.2 percent of hospitals (or 25 hospitals) charac terized as rural in the East North Central region would be subjec t to a payment adjust ment; 13.9 percent of hospitals (or 23 hospitals) char acterized as rural in the We st South Central region would be subject to a payment adjustment; 19.2 percen t 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 Centra l region would be subject to a payment adjustment; 24.7 percent of hospitals (or 18 hospitals) in the Mount ain region would be subject to a payment adjustment; and 16.1 perc ent of hospitals (or 5 hospitals) in the Pacific region would be subj ect to a payment adjustment. With regard to the DSH percent charact eristic, 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 ad justment; 37.6 percent of hospitals (or 68 hospitals) characterized in the 50 – 64 DS H percent would be subject to a payment1607 adjustment; and 27.2 percent of hospitals (o r 43 hospitals) character ized in the 65 and over DSH percent would be subj ect to a payment adjustment. With regard to the teaching status char acteristic, 19.0 percent of hospitals (or 437 hospitals) characterized as nonteaching would be subject to a payment adjustment; 25.0 percent of hospitals (o r 191 hospitals) characterized as fe wer 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 w ould 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) charact erized as teaching and no DSH would be subject to a payment adjustment; 20.4 percent of hospitals (or 206 hospitals) characterized as no teaching a nd 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 adju stment; 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 (o r 167 hospitals) characterized as pr oprietary would be subject to a payment adjustment; and 26.8 percent of hosp itals (or 141 hospitals ) characterized as government would be subject to a payment adjustment. With regard to the MCR percent charact eristic, 37.7 percent of hospitals (or 147 hospitals) characterized in the 0 – 24 MCR percent would be subject to a payment1608 adjustment; 23.2 percent of hospitals (or 458 hospitals) characterized in the 25 – 49 MCR percent would be subject to a payment ad justment; 15.9 percent of hospitals (or 113 hospitals) characterized in the 50 – 64 M CR percent would be subject to a payment adjustment; and 10.8 percent of hospitals (o r 14 hospitals) character ized in the 65 and over MCR percent would be subj ect to a payment adjustment.

PROPORTION OF HOSPITALS IN THE WORST PER FORMING 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 27.41609

PROPORTION OF HOSPITALS IN THE WORST PER FORMING 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 th e FTE resident caps, rolling average, and IRB ratio cap would be effective simultaneousl y, beginning with the applicable hospital’s cost reporting period that precedes the start of the 6 th program year of the first new program started. We are proposing that this policy regarding the e ffective dates of the FTE residency caps, rolling average, and IRB ratio cap for FTE residents in new programs would be consistent with the me thodology for calculation of the FTE resident caps as described in the FY 2013 IPPS/LTCH P PS 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 ru ral 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 re sident 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 duri ng 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 possibl e 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 rura l 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 adjustment s even after the initial 5-year cap-building period ends if it trains reside nts 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 incr ease their caps again afte r their initial 5-year cap-building period. If a rural hospital had st arted training resident s 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 eff ective 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 t eaching hospital that has been redesignated as urban will no longer be able to receive any addi tional permanent cap adjustments. In section IV.K.3.b. of the preamble of this proposed rule, we discuss our proposal related to a redesignate d hospital’s participation in a rural track program. Under existing regulations, if an urban hospital rota tes residents to a separately accredited rural track program at a rural site(s) for more than one-half of the durat ion 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 propos ing 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 a nd 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 rura l hospital for purposes of the rural track for up to 2 years. However, within those 2 year s, 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 discu ssed 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 onl y 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 applic ation 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 proposing1613 an alternative interpretati on of the statutory provision at section 5506(d) of the Affordable Care Act, which provides that the Secretary give considerat ion to the effect of the permanent awarding of slot s under section 5506 of the Affordable Care Act to any temporary cap adjustments to a hospital rece ived under § 413.79(h) of the regulations to ensure that there be no dup lication of FTE cap slots. Currently, when applying this statutory provision for no duplica tion 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 aw arded to hospitals under Ranking Criterion One and Ranking Criteria Three through Eight. In this proposed rule, we are proposing to interpret the statutory langua ge at section 5506(d) in a ma nner that would permit us to apply the concept of ensuring no duplic ation of FTE resident slots on a hospital-by-hospital basis, su ch that if a hospital is both receiving a temporary cap adjustment under § 413.79(h) and is applying un der 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 applyi ng under section 5506 fo r permanent cap slots and did not receive a temporary cap adjustme nt 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 sec tion 5506. We estimate that this proposal

could result in a sli ght increase in Medicare expenditure s in a rare event a section 5506 cap adjustment may be provided to one hos pital before a temporary cap adjustment expires at another hospital. However, we are unable to estimate whether this will occur1614 with any future hospital closures where se ction 5506 is applied because we do not know how many, if any, residents w ill 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 in stance the hospital would only be able to receive the permanent cap adjustment once the temporary cap adju stment expires in which case there would be no duplic ation 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 relie f, 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 progr am, expanding or starti ng a new geriatrics program, expanding or starting a new primar y care or general surgery program, and expanding or starting a new nonprimary care or nongeneral surger y program. Second, Ranking Criterion One currently applies to hosp itals that are assuming (or have assumed) an entire program from the hospital that close d. We are proposing to revise this Ranking Criterion to provide priority to a hospital whose FTE resi dent caps were erroneously reduced by CMS under section 5503 of the Affordab le 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 pr ior to the posting of this proposed rule. We do not believe1615 there is any cost associated with these propos als because we would be assigning all of the closed hospital’s slots, only the specifi c hospital awarded the slots may change. 10. Effects of Implementation of Rural Co mmunity 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 demons tration 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 demons tration 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 fis cal 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 pr oposing to apply budget neutrality across the payment system as a whole rather than across th e participants of this demonstration. The language of the statutory budget neutrality re quirement permits the agency to implement the budget neutrality provision in this manne r. The statutory language requires that “aggregate payments made by the Secretary do not exceed the amount which the Secretary would have paid if the demonstr ation . . . was not implemented” but does not identify the range across which aggreg ate payments must be held equal.1616 We are proposing to adjust the natio nal IPPS rates according to the methodology set forth elsewhere in this proposed rule. Th e proposed adjustment to the national IPPS

rates to account for estimated demonstrati on cost for FY 2014 for the 7 “pre-expansion” participating hospitals that are currently pa rticipating in the de monstration and the 15 additional hospitals participating as a result of the expansion of th e 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 demonstra tion for FY 2008 (as shown in th e finalized cost reports for cost reporting periods beginning in FY 2008 fo r 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 pa rticipated in the applicable fiscal year (FY 2009, 2010, or 2011), are made available pr ior to the FY 2015 IPPS/LTCH PPS final rule, we would incorporat e into the FY 2015 budget neutrality offset amount any additional amounts by which the final settled co sts of the demonstration for the year (FY 2009, 2010, or 2011) exceeded the budget neutralit y offset amount applicable to such year as finalized in the resp ective 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 th is proposed rule, we discuss our proposals relating to reclassifications of CAHs as a result of the proposed adoption of the new1617 OMB labor market area delineations. A facility is eligible for designation as a CAH only if it is either physically locat ed 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 particip ating 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 th e FY 2005 IPPS final rule and the FY 2010 IPPS/LTCH PPS final rule, we revised the regu lations to give curre ntly participating CAHs 2 years, from the effective date of th e earlier OMB designations, to reclassify as rural facilities. However, these regulati on changes were specific to a particular timeframe. As we are proposing implementa tion of the latest OMB labor market area delineations in this proposed rule, we are proposing that, e ffective 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 ag ain be treated as rural for 2 years from the date the new OMB delineations are impl emented. An affected CAH would have 2 years from the date the re designation becomes effective to reclassify as rural and thereby retain its CAH status. If a CAH fails to reclassify within t hose 2 years, it can no longer participate in Medicare as a CAH. Ho wever, unlike in previous years when the regulation changes were specific to a partic ular 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 beca use 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 recla ssification as rural under § 412.103 in order to

retain their CAH status. 12. Effects of Proposed Revision of the Re quirements for Physicia n 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 CA H 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 i ndividual may reasonably be expected to be discharged or transferred to a hospital with in 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 certifica tion 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 i npatient CAH service is submitted. We also are proposing to revise § 424.11(d)(5) to rem ove the phrase “or critical access hospital inpatient”. We do not believe there is any significant im pact on Medicare expenditures associated with these proposed changes b ecause we are simply proposing to provide

CAHs with additional flexibi lity 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 Reports1619 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 be ing the preclusion of pa yment for the item in the notice of program reimbursement (NPR) issu ed by the fiscal intermediary and in any decision or order issued by a reviewing entity in an admi nistrative appeal filed by the provider. The proposal also would revise the Medicare provi der appeals regulations by eliminating the requirement that a provider mu st include an appropriate claim for an item in its Medicare cost report in order to meet the dissatis faction requirement for Provider Reimbursement Review Board ju risdiction and would make t echnical corrections to the provider reimbursement appeals regulations to conform the regulations to the statute. There is no impact to the provider resu lting from these proposed provisions. I. Effects of Proposed Upda te to the Reasonable Compensa tion Equivalent (RCE) Limits for Compensation for Physician Se rvices 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 ph ysician 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 hospi tals would be subject to the

RCE limits. We estimate the costs associ ated 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 ent ities; 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 cap ital 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 categori ze hospitals. Our an alysis has several qualifications. We use the best data availa ble and make assumptions about case-mix and beneficiary enrollment as described below. Due to the interdependent nature of th e 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 thes e variables with the be st available sources overall. However, it is possible that some individual hospitals are placed in the wrong category. Using cases from the December 2013 upda te 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, acu te care hospitals not pa id 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 capit al 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 Adjustme nt Factor + IME adjustment factor, if applicable). In addition to the other adjustments, hos pitals may also receive outlier payments for those cases that qualify under the threshol d established for each fiscal year. We modeled payments for each hospital by multip lying 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-m ix index will increase by 0.5 percent in

both FYs 2014 and 2015.

● We estimate that Medicare discharg es 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 change s 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 pr oposed 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 base d 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 an d coding adjustment to the capital IPPS

Federal rates for FY 2015.

2. Results

We used the actuarial model described a bove to estimate the potential impact of our proposed changes for FY 2015 on total capita l payments per case, using a universe of 3,388 hospitals. As described above, the in dividual hospital payment parameters are taken from the best available data, incl uding the December 2013 upda te 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 fo r 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 percen t update to the capital Fede ral rate and other proposed changes in the adjustments to the capital Fede ral rate. The comparis ons are provided by: (1) geographic location; (2) region; and (3) payment classification.1623 The simulation results show that, on av erage, capital payments per case in FY 2015 are expected to increa se 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 hosp itals, the proposed changes to th e GAFs are expected to have no net effect on capital payments. Howeve r, 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 capita l payments per case due to the effects of proposed changes to the MS-DRG reclassifications and recalibr ations, with more of this increase expected for urban hospitals. Howe ver, 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 change s 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 pr imarily due to the proposed increase in the capital Federal rate. Capital IPPS payments pe r 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 pe rcent increase in capital payments per case from FY 2014 to FY 2015. Capital IPPS paymen ts per case for “other urban hospitals” are estimated to increase 1.2 percent. The prim ary factor contributing to the difference in the proposed projected increase in capital I PPS 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 ar eas range from a 2.0 percent increase for the Pacific urban region to a 0.8 percent increas e 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 la rgest increase in capital IPPS payments per case of 1.9 percent, while the M ountain 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 decr ease in capital payments, th e 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 d ecrease in capital payments per case for the

Mountain rural area due to the proposed change in outliers of fset 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 hosp itals) are estimated to experience an increase in capital1625 payments per case from FY 2014 to FY 2015. Th e proposed increase in capital payments for proprietary hospitals is estimated at 1.2 percent; for voluntary hospitals, at 1.3 percent. Government hospitals are estimat ed 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 establis hed the MGCRB. Hospitals may apply for reclassification for purposes of the wage i ndex for FY 2015. Reclassification for wage index purposes also affects the GAFs because th at factor is constr ucted from the hospital wage index. To present the effects of the hospi tals 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 paymen ts 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 re classified hospitals (that is, hospitals re classified under secti on 1886(d)(8)(B) of the Ac t) are expected to experience the largest increas e (2.2 percent) in capital payments from FY 2014 to

FY 2015.1626

T ABLE III.—C OMPARISON OF T OTAL P AYMENTS P ER C ASE [FY 2014 P AYMENTS C OMPARED T O FY 2015 P AYMENTS ]

Number of hospitals Average FY 2014 payments/

case Average FY 2015 payments/

case Change

By Geographic Location: A ll hospitals ............................................................................................................. 3,38 8 848 859 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 8 82 893 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 57 7 581 0.7 0-49 beds ................................................................................................................ 325 470 473 0.6 50-99 beds .............................................................................................................. 298 5 34 537 0.5 100-149 beds .......................................................................................................... 136 575 579 0.7 150-199 beds .......................................................................................................... 50 640 645 0.8 200 or more beds .................................................................................................... 37 704 71 1 0.9 By Region: Urban by Region ..................................................................................................... 2,542 882 893 1.3 New England ........................................................................................................... 120 974 985 1.2 Middle Atlantic ......................................................................................................... 324 9 46 963 1.7 South Atlantic .......................................................................................................... 406 7 96 805 1.1 East North Central ................................................................................................... 397 848 856 0.9 East South Central .................................................................................................. 153 758 7 64 0.8 West North Central .................................................................................................. 162 876 8 87 1.3 West South Central ................................................................................................. 385 816 82 4 0.9 Mountain.................................................................................................................. 159 906 916 1.1 Pacific ...................................................................................................................... 384 1,111 1,133 2.0 Puerto Rico ............................................................................................................. 52 40 6 408 0.6 Rural by Region ...................................................................................................... 846 577 581 0.7 New England ........................................................................................................... 22 802 812 1.2 Middle Atlantic ......................................................................................................... 57 56 2 569 1.3 South Atlantic .......................................................................................................... 132 5 50 551 0.2 East North Central ................................................................................................... 115 601 606 0.8 East South Central .................................................................................................. 165 530 5 34 0.7 West North Central .................................................................................................. 102 613 6 17 0.6 West South Central ................................................................................................. 168 511 51 3 0.5 Mountain.................................................................................................................. 61 6 51 650 -0.1 Pacific ...................................................................................................................... 24 742 756 1.9 Puerto Rico ............................................................................................................. 0 0 0 0.0 By Payment Classification: A ll hospitals ............................................................................................................. 3,38 8 848 859 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 63 9 0.8 Rural DSH: Sole Community (SCH/EACH) ................................................................................ 388 521 524 0.6 Referral Center (RRC/EACH) ................................................................................. 212 649 653 0.61627

T ABLE III.—C OMPARISON OF T OTAL P AYMENTS P ER C ASE [FY 2014 P AYMENTS C OMPARED T O FY 2015 P AYMENTS ]

Number of hospitals Average FY 2014 payments/

case Average FY 2015 payments/

case Change

Other Rural: 100 or more beds .................................................................................................... 24 548 54 6 -0.3 Less than 100 beds ................................................................................................. 125 459 46 1 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: A ll Urban Reclassified ............................................................................................. 533 883 896 1.5 A ll Urban Non-Reclassified ..................................................................................... 1,858 890 901 1 .2 A ll Rural Reclassified .............................................................................................. 271 615 62 0 0.7 A ll Rural Non-Reclassified ...................................................................................... 379 541 543 0. 3 Other Reclassified Hospitals (S ection 1886(d)(8)(B)) ............................................. 60 574 587 2.2 Type of Ownership: Voluntary ................................................................................................................. 1,9 25 861 872 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 ....................................................................................................................... 7 18 704 713 1.2 Over 65.................................................................................................................... 131 560 565 0.91628 K. Effects of Proposed Payment Rate Ch anges and Policy Changes under the LTCH PPS

1. Introduction and General Considerations In section VII. of the preamble of th is proposed rule and section V. of the Addendum to this proposed rule, we set fort h the proposed annual update to the payment rates for the LTCH PPS for FY 2015. In the pr eamble of this proposed rule, we specify the statutory authority for the proposed pr ovisions that are presented, identify those proposed policies, and present rationales for our proposed decisions as well as

alternatives that were consider ed. In this secti on 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 co ntrol) LTCHs, 288 proprietary LTCHs, and 43 LTCHs that are government-owned and ope rated. (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 se ction 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 pr oposed rule, including the pr oposed 2.1 percent annual update for LTCHs that submit quality data in accord ance with section 1886(m)(5)(C) of the Act,1629

which is based on the full estimated increas e 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 pros pective adjustment factor of 0.98734 (approximately -1.3 percent), the proposed update to the MS-LTC-DRG classifications and relative weights, the pr oposed update to the wage index values, including the proposed implementation of the new OMB delin eations, and labor-related share, and the

best available claims and CCR data to estimat e 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 Ac t, for LTCHs that fail to submit quality data, the proposed annual update to the LTCH PPS sta ndard 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 w ith the requirements of secti on 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 acco rdance 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 th at fail to submit data for the LTCHQR Program, in accordance with section 1886(m )(5)(C) of the Act, we are proposing to1630 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 determ ine the proposed FY 2015 standard Federal rate are applied to the FY 2014 Fede ral standard rate set forth under § 412.523(c)(3)(ix)(A) (that is, $40,607.31).

Based on the best available data for th e 422 LTCHs in our database, we estimate that the proposed annual update to the standard Federal ra te for FY 2015, including the reduced updated for LTCHs that fail to s ubmit 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 resu lt 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 pa yments would be approximately $5.594 billion, as compared to estimated FY 2014 LTCH PPS payments of approximately $5.550

billion. Because the combined distributio nal effects and estimated changes to the Medicare program payments are over approxi mately $100 million, this proposed rule is considered a major economic rule, as defi ned in this section. We note that the approximate $44 million for the projected in crease in estimated aggregate proposed LTCH PPS payments from FY 2014 to FY 2015 does not reflect changes in LTCH1631 admissions or case-mix intensity in estim ated LTCH PPS payments, which also will affect overall payment changes. The projected 0.8 percent in crease 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 th e 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 th e approximate -1.3 percent proposed one-time prospective adjustment fact or 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 pr oposed annual update to the standa rd Federal rate (2.1 percent for LTCHs that submit quality data under th e requirements of the LTCHQR Program and 0.1 percent for LTCHs that failed submit qua lity 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 (a pproximately 1.3 percen t), is projected to

result in an increase of 0.7 percent in payments per disc harge 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 a ggregate LTCH PPS payments of 0.7 percent

shown in column 6 of Table IV also include s estimated payments for SSO cases that are1632 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 (o r 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-relat ed 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 th e new OMB labor market area delineations. Under our proposal to adopt the new OMB de lineations, we are proposing a transitional blended wage index for FY 2015 for LTCH’s th at would have a lower wage index value under those delineations, as discussed in se ction VII.D.2. of th e preamble of this proposed rule. Therefore, this column reflect s the proposed blended wage index that is calculated as a 50/50 blend of the wage i ndex 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 unde r 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 Fe deral 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 es timated 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 standa rd Federal rate (0.7 percent in Column 6) and the effect of the estimated slight decr ease in proposed payments for HCO cases (0.1 percent) and an estimated increase in paymen ts for SSO cases (0.2 percent). We currently estimate total HCO payments ar e projected to decrease slight ly 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 clai ms data from the December 2013 update of the MedPAR file) indicates that the FY 2014 HCO threshol d 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 pe rcent of the estimat ed total LTCH PPS payments in FY 2014. We estimate that th e impact of the slight decrease in HCO payments would result in approximately a 0.1 percent decrease in estimated payments1634 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 projecte d changes in HCO and SSO payments in FY 2015 is an estimated cha nge 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 imp act of certain other proposed LTCH PPS policy change s (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-s ite discharges and readmissions policy; and the proposed payment adjustment for “subclause (II)” LTCHs) would result in a $14 million decrease in aggregate LTCH PP S payments in FY 2015. The individual1635 impact of these proposed policy changes are di scussed 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 provisi ons 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 urba n area and has fewer than 100 beds. As shown in Table IV, we are projecting a 0.7 percent in crease 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 pa yments 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 paymen ts from FY 2014 to FY 2015 for rural LTCHs is primarily due to the proposed increas e 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 require s 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 impl ementation of the LTCH PPS (that is, FY 2003). Therefore, in calculating the FY 2003 standa rd 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 disc harge in FY 2015 rela tive 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 Appe ndix, 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 Mora torium on the Full Implementation of the “25-Percent Policy” Payment Adjust ment (§ 412.534 and § 412.536) and Proposed

Reinstatement of the Moratorium on th e 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 provide s 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 (referr ed to as the “25-percent policy” payment adjustment) established unde r 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 retr oactively 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 sa tellite 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 satell ites. We are proposing to implement this policy under the regulations at § 412.23(e) a nd §§ 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 approxi mately a $120 million increase in aggregate LTCH PPS payments in FY 2015. In addition, ou r Office of the Actuar y projects that the portion of the moratoria on the establishment of new LTCHs a nd LTCH satellite facilities

and additional LTCH beds that would occu r 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 implementa tion 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 dur ing the course of an LTCH hospitalization, a patient is discharged to an i npatient 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 po licy, 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,” th at 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 are1639 proposing to revise the fixed-da y thresholds under the “greater than 3-day interruption of stay policy” to apply a uniform 30-day th reshold as an “acceptable standard” for determining a linkage between an index discharge and a readmission.

As also discussed in section VII.F. of th e 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 acu te 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 f acility” 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 estim ate 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 es timated 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 require s the Secretary to evaluate payments and regulations governing “hospitals which are classified unde r 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 sect ion 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 w ould result in payments to this type of LTCH resembling those under the reasonable co st TEFRA payment system model. Our Office of the Actuary projects that, if the proposed payment adjustment for “subclause (II)” LTCHs is finalized, it would increas e 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 wa ge levels, a COLA for LTCHs located in Alaska and Hawaii, and SSOs. Furthermor e, LTCHs may also receive HCO payments for those cases that qualify based on the threshold established each year. To understand the impact of the pro posed changes to the LTCH PPS payments presented in this proposed rule on differe nt categories of LTC Hs for FY 2015, it is1641 necessary to estimate paymen ts per discharge for FY 2014 using the rates, factors (including the FY 2014 GROUPE R (Version 31.0), and relativ e 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 di scharge that would be made under the proposed LTCH PPS rates and factor s, 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 in flation factors to estimate costs for SSO and HCO cases in each year. We also evaluate d 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 es tablish 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 propos ed area wage budget neutrality factor of 1.0002304, and a proposed on e-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 Qua lity 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 annua l update under the requirements of section 1886(m)(5)(C) of the Act in addition to th e other proposed adjustments noted above.1642 Hospital groups were based on charac teristics 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 provider s, 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 discha rges based on the FY 2013 MedPAR data for the 422 LTCHs in our database, which in cludes 288 proprietary LTCHs, provide sufficient representation in the MS-LTC-DRG s 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 estim ated 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 requirement s of the LTCHQR Program and $ 39,808.74 for LTCHs that failed to submit quality data under th e requirements of the LTCHQR Program) used1643 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 LTCH QR 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 Reporti ng Program, we used the proposed FY 2015 standard Federal rate of $40,141.47, which refl ects 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 nonla bor-related share (37.463 percent) for1644

LTCHs located in Alaska and Hawaii. Simila rly, 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 percen t 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 availabl e via the Internet). We also applied the proposed FY 2015 COLA factors shown in the ta ble 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 re flects an estimated change in payments for SSO cases, as well as an estimated increas e in payments for HCO cases (as described in section V.D. of the Addendum to this propos ed rule). In modeling proposed payments for SSO and HCO cases in FY 2015, we app lied 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. Furthe rmore, 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 Classifica tion, identifies the type of LTCH.

● The second column lists the number of LTCHs of each classification type.

● The third column identifie s 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 estimate d 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 th e 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 pr ospective adjustment factor for FY 2015.

● The seventh column shows the percenta ge change in estimated payments per discharge from FY 2014 to FY 2015 for pr oposed changes to the area wage level adjustment (that is, the proposed wage inde xes, including the propos ed implementation of the new OMB delineations, and proposed labor -related share), including the proposed application of an area wage le vel 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 i ndex 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 percenta ge 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 propos ed 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 ES TIMATED 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 Case 1 (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 Neutrality 3 (7) Percent Change

in Payments Per Discharge from FY 2014 to FY 2015 for All Proposed Changes 4 (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 0.71648

1 Estimated FY 2015 LTCH PPS payments based on the proposed paymen t rate and factor changes pres ented 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 prosp ective adjustment factor for FY 2015 as disc ussed 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 secti on 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 prea mble of and the Addendum to t his 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 disc harge for the proposed annual update to the standard Fed eral 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 estimate d payments to SSO cases that are paid based on estimated costs and aggregate HCO payments (as discussed in this impact analysis), as we ll 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 presente d in this proposed rule. The impact analysis in Table IV shows that estimate d payments per discharge are expected to increase 0.8 percent, on average, for all LTC Hs from FY 2014 to FY 2015 as a result of the proposed payment rate and policy changes presented in this pr oposed rule, including an estimated slight decrease in HCO paymen ts. 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 an d factors discussed in this proposed rule) to estimated FY 2014 LTCH PPS payments (as de scribed above in sec tion 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 da ta under the requirements of the LTCHQR Program) for FY 2015. Specifi cally, we are proposing to update the standard Federal rate for FY 2015 by 2.1 percent, which is based on the latest estimate of1649 the proposed LTCH PPS market ba sket increase (2.7 percent) , the proposed reduction of 0.4 percentage point for the MFP adjustme nt, 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 th e LTCHQR Program, as required by section 1886(m)(5)(C) of the Act, a 2.0 percentage po int reduction is applied to the proposed annual update to the standard Federal rate. In addition, we are pr oposing 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 increas e due to the proposed 2.1 percent annual update to the standard Fede ral rate and the proposed application of a one-time prospective adjustment for FY 2015 of approxi mately -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 fo r 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 upda te to the standard Federal rate. For these reasons, we estimat e 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) Location1650 Based on the most recent available data, the vast majority of LTCHs are located in urban areas. Only approximately 5 pe rcent of the LTCHs are identified as being located in a rural area, and approximately 4 pe rcent of all LTCH cases are treated in these rural hospitals. The impact analysis presente d in Table IV shows th at the average percent increase in estimated payments per discha rge from FY 2014 to FY 2015 for all hospitals is 0.8 percent for all proposed changes. For rural LTCHs, the pe rcent 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 esti mated payments per discharge from FY 2014 to FY 2015, while other urban LTCHs are proj ected to experience an increase of 0.6 percent in estimated payments per discha rge 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 a nd September 1993; (3) between October 1993 and September 2002; and (4) October 2002 and af ter. Based on the most recent available data, the categories of LTCHs with the larg est percentage of LTCH cases (approximately 45 percent) are in hospitals that began pa rticipating in the Medicare program between October 1993 and September 2002, and they are projected to experi ence a 0.7 percent increase in estimated payments per disc harge 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 pr ojected to experience a higher than average percent increase (2.0 pe rcent) in estimated payments per discharge from FY 2014 to FY 2015, as shown in Table IV. A pproximately 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 bega n participating in the Medicare program after October 1, 2002, which treat approxima tely 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 categorie s based on ownership control type: voluntary, proprietary, and government. Ba sed on the most recent available data, approximately 22 percent of LTC Hs 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 experien ce 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 fo r FY 2015 are projected to increase for LTCHs located in all regions in comparis on to FY 2014. Of the 9 census regions, we project that the increase in estimated paym ents per discharge w ould have the largest1652 positive impact on LTCHs in the New England and Middle Atlantic regions (2.2 percent and 1.7 percent, respectively as shown in Tabl e IV). The estimate d percent increase in payments per discharge from FY 2014 to FY 2015 for those regions is largely attributable to the proposed changes in th e area wage level adjustment. In contrast, LTCHs located in the South Atlantic and East So uth Central regions are projected to experience the smallest in crease in estimated payments per discharge

from FY 2014 to FY 2015. The lower than national average es timated 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 ba sed on bed size: 0-24 beds; 25-49 beds; 50-74 beds; 75-124 beds; 125-199 beds; and gr eater than 200 beds. Most bed size categories are projected to receive either a sl ightly higher or slightly lower than average increase in estimated payments per discharg e 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 experi ence 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 pr oject that the provisions of this proposed rule would result in an increase in estimated aggreg ate LTCH PPS payments in FY 2015 relative to1653 FY 2014 of approximately $44 million (or appr oximately 0.8 percent) for the 422 LTCHs

in our database.

5. Effect on Medicare Beneficiaries Under the LTCH PPS, hospitals receiv e 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 th e 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 Ho spital Inpatient Quality Reporting (IQR) Program

In section IX.A. of the preamble of this proposed ru le, we discuss our proposed requirements for hospitals to report quality da ta under the Hospital IQR Program in order to receive the full annual percentage incr ease 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 subseq uent 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 sy stolic dysfunction (NQF #0137); (3) AMI-5 Beta-blocker prescribed at discharge (NQF #0160); (4) SC IP INF-6 Appropriate Hair Removal; and (5) Participation in a systematic database for cardiac surgery (NQF #0113). Of those, the first four measures are cu rrently 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 se t. However, we are proposing to retain the electronic clinical quality measure versi on of 10 of these chart-abstracted measures for Hospital IQR Program reporting as discusse d in section IX.A.7.f. of the preamble of this proposed rule. We also are proposing to add one chart-ab stracted measure in this proposed rule: Severe sepsis and septic shoc k: management bundle (NQF#0500).1655 We are proposing to incorporate refine ments for several measures for the FY 2017 payment determination and subsequent year s 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 includ e the following: (1) refining the planned readmission algorithm for all seven readmissi on measures included in the Hospital IQR Program; (2) modifying the hip/knee readmissi on 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 determ ine the precise number of hospitals that would not meet the requirements to receive the full annual percen tage 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 paymen t determination, the number of hospitals not receiving the full annual percentage in crease 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 the1656 long run, this number will decline as hospita ls 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 a nd 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 w ith 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 qualitymeasures (ECQM) in placeof 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 $-1441657 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 pa rticipates 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 hosp ital will need approximately 2 hours and 40 minutes (10 minutes per measure) to proce ss 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 paym ent 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 20161658 payment determination is an additional 16 hours for a hospital choosing to submit all possible required and optiona l 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 ru le, we discuss our proposed policies for the quality data reporting progr am 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 PCHQ R 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 sampli ng methodology that PCHs can use to report these measures. Furthermore, we are pr oposing 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 pr ocess/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 resu lt, these PCHs are familiar with our IT infrastructure and programmatic operations. In addition to fostering transparency and1659 facilitating public reporting, we believe our proposed requi rements 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 w ill publicly display quality measure data collected under the PCHQR Program as requi red 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-frie ndly and relevant format, include, but are not limited to: (1) allowing the public to compare PCHs in or der to make informed health care decisions regarding care setting; and (2) providing information about curre nt 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 th at, for rate year 2014 and each subsequent year, any LTCH that doe s not submit data to the Secretary in accordance with section 1886(m)(5 )(C) of the Act shall recei ve 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 rule1660 (76 FR 51839 through 51840), we estimated th at 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 th e 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 Me dicare-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 colle ct 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 pa tients receive in the

LTCHs. We believe that the burden associat ed 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 retainin g seven previously finalized measures, proposing revisions to two previously fi nalized 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 affecti ng 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 Hospital1661 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 eith er 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 be ing proposed in any given rule. Because we have access to info rmation 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 associ ated 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 su bmissions 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 in structions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection

of information. MRSA and CDI events are es timated 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 321662 minutes per response. In addition, each LTC H must also complete a Patient Safety Monthly Reporting Plan estimated at 35 mi nutes 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 hour s 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 th e Influenza Vaccination Coverage among Healthcare Personnel (NQF #0431), which th e CDC estimates will take 10 minutes annually per LTCH, or an additional 73.66 hour s for all LTCH annually. In total, the burden we have recalculated for all previ ously 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 mont hly, 4.4 hours per LTCH annually, and 1,944.8 hours for all LTCHs annually. According to th e US Bureau of Labor and Statistics, the mean hourly wage for a registered nurse (RN) is $33.13 191 ; the mean hourly wage for a

medical records and health information t echnician 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 (inc luding CAUTI, CLABSI, MRSA, CDI, HCP, Patient Safety Monthly Reporting plan, and De nominator 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 to tal cost for the newly proposed VAE measure would be $291.54 per LTCH annua lly, 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 Me dicare claims-based measure; because

claims-based measures can be calculated ba sed on data that are al ready 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 w ith 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 Patient s with Pressure Ulcers That Are New or Worsened (NQF #0678); Percent of Residents or Pa tients Who Were Assessed and Appropriately Given the Seasonal Influen za 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 Outc ome Measure: Change in Mobility among1664 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/clinic al 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 Statis tics, the mean hourly wage for a registered nurse (RN) is $33.13 192 . 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 functiona l 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 valid ation 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 es timated 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 Electroni c 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 usi ng a method similar to the 2012 and 2013 EHR Incentive Program electronic reporting pilot fo r eligible hospitals and CAHs, which used QRDA-I (patient-level data). Eligible hospita ls and CAHs that are beyond their first year of meaningful use may continue to report a ggregate CQM results th rough attestation. We also are clarifying our policy on zero denomin ators 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 fo r clinical quality measures with the Hospital IQR Program’s reporting and submissi on timelines and to allow the electronic submission of QRDA-I (patient-level data) for eligible hospitals and CAHs to electronic1667 submit CQMs under the Medicare EHR Incentive Program will have a significant impact. P. Effects of Proposed Revision of Regulatio ns 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 specifie d uses of risk adjustment data in order to strengthen program manage ment and increase transparency in the MA program and to specify the conditions for rele ase of risk adjustment data to entities outside of CMS. We are proposing to revise the regulations to sp ecify 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 s upport public health in itiatives and other health care-related research; (2) for activ ities to support the ad ministration of the Medicare program; (3) for act ivities conducted to support pr ogram 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 langua ge 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, und er 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 discreti on of the requester. Therefore, we have determined that there are not any economi cally significant effects of the proposed1668 provisions. We also have determined that the proposed regulato ry amendments would not impose a burden on the entity requesting data files. Q. Effects of Proposed Changes to Enforcem ent Provisions for Orga n Transplant Centers

Under section XI. of the preamble of this proposed ru le, 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, a nd potential System Improvement Agreements that may allow a transplant program to impr ove outcomes and avert Medicare termination when outcomes have not met CMS requirement s. Our proposals also would allow for

consideration of factors such as innovative practice in the fi eld of organ transplantation, and for potential mitigating factors consideration of a transplant program’s outcomes using Bayesian methodology for calculating outco mes for patient death and graft failure. These proposals will not have a sign ificant effect on Medicare and Medicaid programs as it will allow organ transplant progr ams to continue to participate in Medicare if approved based on mitigating factors or dur ing 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 tran splant program improves patient and graft survival through completion of a system Impr ovement Agreement. However, sufficient data are not currently available to quantif y 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 Medica id programs would be negligible.1669

Historical data reflect that between the date the transplant re gulation was codified in 2007 and August 2013, CMS rendered a final determination for 129 organ transplant programs that applied for Medicare approva l 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 substa ntial 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 as sociated 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 antici pated 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 re view after being cited by CMS for a conditionlevel deficiency for patient outcomes or cl inical experience, and few hospitals have declined a CMS offer to complete a System Improvement Agreement. Therefore, we1670 conclude that the costs involved in these activities are much lower for the hospital compared with other alternatives, such as fili ng an appeal and incurring the legal costs of that appeal. Our proposals would not have a signifi cant impact on a substantial number of

small businesses or other small entities. No r 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 statut ory provisions that are addr essed, identifies the proposed policies, and presents rationales for our deci sions 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 require ments for the proposed MS-DRG and wage index changes, and for the wage index recl assifications under the MGCRB. Table I also shows an overall decrease of 0.8 percent in ope rating 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 pr ovided by the CMS Office of the Actuary,1671 consistent with our policy discussed in sect ion 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 beginni ng 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 estimat e 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 paym ent determination and subsequent years, as described in the ICRs for the Hospita l IQR Program in section XII.B.6. of the preamble of this proposed rule , will result in a cost saving s 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 Tabl e III of section I.I. of this Appendix. We project that there will be a $126 million in crease in capital payments in FY 2015 compared to FY 2014. The proposed cumula tive operating and capital payments would result in a net decrease of approxima tely $241 million to IPPS providers. The1672 discussions presented in the prev ious pages, in combination w ith 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 th is 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 millio n relative to FY 2014 as a result of the proposed payment rates and fact ors 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 revi sion of the “greater than 3-day interruption of stay” policy as disc ussed 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 pream ble 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 ru le) is estimated to result in a reduction in LTCH PPS1673 payments of approximately $14 million. The impact analysis of the proposed payment rates and factors presented in this propos ed 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 milli on 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 approxi mately $3.11 million more than FY 2014. IV. Accounting Statements and Tables A. Acute Care Hospitals As required by OMB Circ ular 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 a ssociated 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: Cla ssification 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 Govern ment to IPPS Medicare Providers1674

B. LTCHs

As discussed in section I.L. of this A ppendix, the impact analysis of the proposed payment rates and factors presented in th is proposed rule under the LTCH PPS, As discussed in section I.L. of this Appendix, th e impact analysis of the proposed payment rates and factors presented in this propos ed 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 resu lt 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. Ther efore, as required by OMB Circular A-4 (available at http://www.whitehouse.gov/om b/circulars/a004/a-4.pdf ) , in Table VI below, we have prepared an accounting statement s howing 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 be st 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 pr esented in this proposed ru le based on the data for the 423 LTCHs in our database. All expenditures are classified as tr ansfers to Medicare1675 providers (that is, LTCHs). Lastly, we pres ent 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 a ssociated with the proposed policies for LTCHs in this proposed rule is estimated at $30 million. TABLE VI.—Accounting Statement: Cla ssification of Proposed Estimated Expenditures from the FY 2014 LT CH PPS to the FY 2015 LTCH PPS Category Transfers Annualized Monetized Transfers $30 million From Whom to Whom Federal Govern ment 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, sma ll entities include small businesses, nonprofit organizations, and small government jurisdicti ons. We estimate that most hospitals and most other providers and suppliers are small entit ies 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 nonpr ofit organizations or by mee ting 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 sta ndards for health care providers , we refer readers to page 36

of the Table of Small Business Size Sta ndards for NAIC 622 found on the SBA Web site

at: http://www.sba.gov/sites/default/f iles/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 in cluded in the definition of a small entity. We believe that the provisi ons of this proposed rule relating to acute care hospitals would have a si gnificant 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. Theref ore, 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 entiti es. Because we acknowledge that many of the

affected entities are small ent ities, the analysis discussed throughout the preamble of this proposed rule constitutes our regulatory flexibil ity analysis. In this proposed rule, we are soliciting public comments on our estimates a nd analysis of the impact of our proposals on those small entities. Any public comments that we receiv e 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 ru le that may have a significant impact on the operations of a substantial number of small ru ral 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 th e 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 the1677 adjacent urban area. Thus, for purposes of the IPPS and the LTCH PPS, we continue to classify these hospitals as urban hospitals. (W e refer readers to Table I in section I.G. of this Appendix for the quantitative effect s 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 i ssuing any rule whose mandates require spending in any 1 year of $100 million in 1995 dollars, updated annually for inflation. In 2014, that threshol d level is approximately $141 million. This proposed rule will not mandate any requirement s 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 re viewed 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 requ ires that the Secretary, taking into

consideration the recommendations of MedP AC, recommend update factors for inpatient hospital services for each fiscal year that take into account the amounts necessary for the

efficient and effective deliver y of medically appropriate and necessary care of high quality. Under section 1886(e )(5) of the Act, we are requi red to publish update factors recommended by the Secretary in the propos ed and final IPPS rules, respectively. Accordingly, this Appendix provides the re commendations 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 announ ce 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 th e Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act, we are setting the applicable pe rcentage increase by applying the following adjustments in th e 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 applica tion of other statutory adjustments; also referred to as the market basket update or rate-of-increase (with no adjustments)) for hospitals that fail to s ubmit 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 th ree-fourths of the applicable pe rcentage increase (prior to the application of other statutory ad justments; 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 se ction 1886(b)(3)(B)(ix) of the Act, and then subject to an adjustment based on changes in ec onomy-wide productivity (the multifactor productivity (MFP) adjust ment), 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 applicati on of the MFP adjustment and the additional1680 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 availa ble 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 determ ine the applicable pe rcentage 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 hist orical data through fourth quarter 2013, which is estimated to be 2.7 percent. In acco rdance with section 1886(b)(3)(B) of the Act, as amended by secti on 3401(a) of the Afford able 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) adju stment (the 10-year moving average of MFP for the period ending FY 2015 ) of 0.4 perc ent. Therefore, based on IGI’s first quarter 2014 forecast of the FY 2010-based I PPS 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 refe rred to as a hospital that submits quality data) and is a meaningful EHR user under sec tion 1886(b)(3)(B)(ix) of the Act (hereafter referred to as a hospital that is a meaningful EHR user), ther e are four possi ble 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)(x ii) 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-specifi c rate for SCHs and MDHs equals the applicable percentage increase set forth in section 1886(b)(3)(B)(i) of th e Act (that is, the same update factor as for all othe r hospitals subject to the IPPS).

As discussed in section IV.G. of the preamble of this propo sed rule, section 1106 of the Pathway for SGR Reform Ac t of 2013 (Pub. L. 113-67), enacted on1682 December 26, 2013, extended the MDH program from the end of FY 2013 through the first half of FY 2014 (that is, for disc harges occurring before April 1, 2014). Subsequently, section 106 of the Protecti ng 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, fo r 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 fo r discharges beginning on April 1, 2015, under current law. Accordingl y, the proposed update of th e 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 hos pital specific rate for SCHs and MDHs is subject to section 1886(b)(3 )(B)(i) of the Act, as ame nded 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 amende d 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 aver age standardized amount for hos pitals located in any area of Puerto Rico that is equal to the av erage 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 y ear) increased by the a pplicable percentage increase under subsection (b)(3)(B ) for the fiscal year involve d. Therefore, the update to the Puerto Rico-specific operating standardi zed 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 (tha t is, the same update factor as for all other hospitals subject to th e IPPS). Accordingly, we are proposing an applicable percentage increas e to the Puerto Rico-speci fic 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 St ates, 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 Samo a). 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-ex cluded cancer hospitals, RNHCIs, and short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and Am erican Samoa are among the remain ing types of hospitals still paid under the reasonable cost methodology, subj ect to the rate-of-increase limits. We1684 are proposing that the FY 2015 rate-of-increase percentage to be applied to the target amount for children’s hospitals, PPS-excluded ca ncer 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 percenta ge increase is 2.7 percent. E. Proposed Update for LTCHs for FY 2015 Section 123 of Pub. L. 106-113, as ame nded by section 307(b) of Pub. L. 106-554 (and codified at section 1886(m)(1) of the Act), provides the stat utory 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 upda te 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 re quired by sections 1886(m)(3)(A)(ii) and (m)(4)(E) of the Act. In accordance w ith 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 de scribed 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 a ny 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 percen t less an adjustment of 0.4 pe rcentage point for MFP and less 0.2 percentage point). A ccordingly, we are proposing to apply an update factor of 1.021 in determining the LTCH PPS standard Fe deral 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 (t hat is, the proposed annual update for FY 2015 of 2.1 percent less 2.0 percentage points for failu re 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 th e standard Federal rate under § 412.523(d)(3) by applying a factor of 0.98734 (or approximate ly –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 upda te recommendation is described in more detail below. As mentioned above, section 1886(e)(4)(A) of the Act requires that the Secretary, taking into cons ideration the recommendati ons of MedPAC, recommend update factors for inpatient hospital services for each fiscal year that take into account the amounts necessary for the efficient and effec tive delivery of medica lly appropriate and1686 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 per centage increases to the sta ndardized amount listed in the

table under section II. of th is 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 recomme nding an update of 2.1 percent. In addition to making a recommendati on for IPPS hospitals, in accordance with section 1886(e)(4)(A) of the Act, we are recommending upda te 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 Isla nds, and American Sa moa of 2.7 percent. For FY 2015, consistent with policy set fort h in section VII. of the preamble of this proposed rule, we are recommending an update of 2.1 percent (t hat is, the current

FY 2015 estimate of the LTCH PPS market bask et 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 Assess ing Payment Adequacy and Updating Payments in Traditional Medicare In its March 2014 Report to Congress, Me dPAC assessed the adequacy of current payments and costs, and the relationship between payments and an appropriate cost base. MedPAC recommended an update to the hospi tal inpatient rates equal to 3.25 percent concurrent with changes to th e outpatient prospec tive payment system and with initiating change to the LTCH PPS. We refer the read er 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 effi cient 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 per centage increase. Therefore, we are proposing an applicable percentage increas e 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 a nd capital prospective payment systems remain separate, we are continuing to us e separate updates for operating and capital1688 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]