32816 Federal Register / Vol. 76, No. 108 / Monday, June 6, 2011 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 434, 438, and 447 

[CMS–2400–F] 

RIN 0938–AQ34 

Medicaid Program; Payment 

Adjustment for Provider-Preventable 

Conditions Including Health CareAcquired Conditions 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: This final rule will implement 

section 2702 of the Patient Protection 

and Affordable Care Act which directs 

the Secretary of Health and Human 

Services to issue Medicaid regulations 

effective as of July 1, 2011 prohibiting 

Federal payments to States under 

section 1903 of the Social Security Act 

for any amounts expended for providing 

medical assistance for health careacquired conditions specified in the 

regulation. It will also authorize States 

to identify other provider-preventable 

conditions for which Medicaid payment 

will be prohibited. 

DATES: These regulations are effective 

on July 1, 2011. 

FOR FURTHER INFORMATION CONTACT: 

Venesa Day, (410) 786–8281, or Marsha 

Lillie-Blanton, (410) 786–8856. 

SUPPLEMENTARY INFORMATION: 

Acronyms 

To assist the reader, the following list of 

the acronyms are used in this final rule: 

AHRQ Agency for Healthcare Research and 

Quality 

BPM Benefit Policy Manual 

CABG Coronary artery bypass graft 

CBO Congressional Budget Office 

CDC Centers for Disease Control and 

Prevention 

DVT Deep vein thrombosis 

ESRD End-stage renal disease 

DRA Deficit Reduction Act of 2005 (Pub. L. 

109–171, enacted on February 8, 2006) 

FFP Federal financial participation 

FY Fiscal year 

HAC Hospital-acquired condition 

HCAC Health care-acquired condition 

ICR Information collection requirement 

IH Inpatient Hospital 

IPPS Inpatient prospective payment system 

MS–DRG Diagnosis-related group 

NCA National coverage analysis 

NDC National coverage determination 

NQF National Quality Forum 

OACT [CMS] Office of the Actuary 

OIG Office of Inspector General 

OMB Office of Management and Budget 

OPPC Other provider-preventable condition 

PE Pulmonary embolism 

POA Present on admission 

PPC Provider-preventable condition 

PRA Paperwork Reduction Act 

RFA Regulatory Flexibility Act (September 

19, 1980, Pub. L. 96–354) 

RIA Regulatory impact analysis 

SMDL State Medicaid Director Letter 

SPA State plan amendment 

UMRA Unfunded Mandates Reform Act of 

1995 (Pub. L. 104–04, enacted on March 

22, 1995) 

UTI Urinary tract infection 

I. Background 

Title XIX of the Social Security Act 

(the Act) authorizes Federal grants to 

the States for Medicaid programs to 

provide medical assistance to persons 

with limited income and resources. 

While Medicaid programs are 

administered by the States, they are 

jointly financed by the Federal and State 

governments. Each State establishes its 

own eligibility standards, benefits 

packages, payment rates, and program 

administration for Medicaid in 

accordance with Federal statutory and 

regulatory requirements. Operating 

within broad Federal parameters, States 

select eligibility groups, types, and 

range of services, payment levels for 

services, and administrative and 

operating procedures. Each State 

Medicaid program must be described 

and administered in accordance with a 

Federally-approved ‘‘State plan.’’ This 

comprehensive document describes the 

nature and scope of the State’s Medicaid 

program, and provides assurances that it 

will be administered in conformity with 

all Federal requirements. 

The Federal government pays its 

share of medical assistance 

expenditures to the State on a quarterly 

basis according to a formula described 

in sections 1903 and 1905(b) of the Act. 

Specifically, section 1903 of the Act 

requires that the Secretary (except as 

otherwise provided) pay to each State 

which has a plan approved under title 

XIX, for each quarter, an amount equal 

to the Federal medical assistance 

percentage of the total amount 

expended during such quarter as 

medical assistance under the State plan. 

Among the statutory requirements for 

Medicaid State plans, section 1902(a)(4) 

of the Act requires that State plans 

provide for methods of administration 

as are found to be necessary by the 

Secretary for the proper and efficient 

operation of the plan. Section 1902(a)(6) 

of the Act requires that a State plan for 

medical assistance provide that the 

State agency will make such reports, in 

such form and containing such 

information, as the Secretary may from 

time-to-time require, and comply with 

such provisions as the Secretary may 

from time-to-time find necessary to 

assure the correctness and verification 

of such reports. In addition, section 

1902(a)(19) of the Act requires that a 

State plan for medical assistance 

provide such safeguards as may be 

necessary to assure that eligibility for 

care and services under the plan will be 

determined, and such care and services 

will be provided, in a manner consistent 

with simplicity of administration and 

the best interests of the recipients. 

A. The Medicare Program and Quality 

Improvements Made in the Deficit 

Reduction Act of 2005 (DRA) (Pub. L. 

109–171) 

Title XVIII of the Act provides 

authority for the Secretary to operate the 

Medicare program, which provides 

payment for certain medical expenses 

for persons 65 years of age or older, 

certain disabled individuals, and 

persons with end-stage renal disease 

(ESRD). Medicare benefits include 

inpatient care, a wide range of medical 

services, and outpatient prescription 

drugs. 

The Medicare statute authorizes the 

Secretary, in the course of operating the 

Medicare program, to develop, 

implement, and monitor quality 

measures, as well as take other actions, 

to ensure the quality of the care and 

services received by Medicare 

beneficiaries. 

Payment under the Medicare program 

for inpatient hospital services is 

generally based on the ‘‘inpatient 

prospective payment system’’ (IPPS) 

described in section 1886(d) of the Act. 

Hospitals receive a payment for each 

inpatient discharge based in part on 

diagnosis codes that identify a 

‘‘diagnosis-related group’’ (MS–DRG). 

Assignment of an MS–DRG can take into 

account the presence of secondary 

diagnoses, and payment levels are also 

adjusted to account for a number of 

hospital-specific factors. 

Section 5001(a) of the Deficit 

Reduction Act of 2005 (Pub. L. 109–171, 

enacted on February 8, 2006) (DRA) 

amended section 1886(b)(3)(B) of the 

Act to expand the set of hospital quality 

measures collected by Medicare. In 

particular, this provision directed the 

Secretary to start collecting baseline 

measures set forth by the Institute of 

Medicine in its November 2005 report. 

In FY 2008 and subsequent years, the 

Secretary was required to add other 

measures that reflect consensus among 

affected parties. The provision also 

allowed the Secretary to replace and 

update existing quality measures. The 

statute mandates that the Secretary 

establish a process for hospitals to 

review data that will be made public 

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and, after that process is complete, 

requires the Secretary to post measures 

on the Hospital Compare Internet Web 

site. 

Section 5001(c) of the DRA amended 

section 1886(d)(4) of the Act to adjust 

payment to hospitals for certain 

preventable hospital-acquired 

conditions (HACs) identified by the 

Secretary. Specifically, under section 

1886(d)(4)(D)(iv) of the Act, the 

Secretary is required to select codes 

associated with at least two conditions 

to be identified as HACs. These 

conditions are required to have the 

following characteristics: (a) High cost 

or high volume or both; (b) result in the 

assignment of a case to a MS–DRG that 

has a higher payment when present as 

a secondary diagnosis; and (c) could 

reasonably have been prevented through 

the application of evidence-based 

guidelines. Section 5001(c) of the DRA 

provides for revision of the list of 

conditions from time to time, as long as 

it contains at least two conditions. 

B. Previously Specified Medicare HACs 

Under the provisions of section 

1886(d)(4)(D)(ii) of the Act, when a HAC 

is not present on admission (POA), but 

is reported as a secondary diagnosis 

associated with the hospitalization, the 

Medicare payment under IPPS to the 

hospital may be reduced to reflect that 

the condition was hospital-acquired. 

More specifically, the hospital discharge 

cannot be assigned to a higher paying 

MS–DRG if the secondary diagnosis 

associated with the HAC was the only 

reason for this assignment. 

Since October 1, 2007, hospitals 

subject to the IPPS have been required 

to submit information on Medicare 

claims specifying whether diagnoses 

were POA. The POA indicator reporting 

requirement and the HAC payment 

provision apply to IPPS hospitals only. 

This requirement does not apply to 

hospitals exempt from the IPPS. 

The following is a list of the Medicare 

HACs for FY 2011 (75 FR 50084 through 

50085): 

• Foreign Object Retained After 

Surgery. 

• Air Embolism. 

• Blood Incompatibility. 

• Stage III and IV Pressure Ulcers. 

• Falls and Trauma. 

+ Fractures. 

+ Dislocations. 

+ Intracranial Injuries. 

+ Crushing Injuries. 

+ Burns. 

+ Electric Shock. 

• Manifestations of Poor Glycemic 

Control. 

+ Diabetic Ketoacidosis. 

+ Nonketotic Hyperosmolar Coma. 

+ Hypoglycemic Coma. 

+ Secondary Diabetes with 

Ketoacidosis. 

+ Secondary Diabetes with 

Hyperosmolarity. 

• Catheter-Associated Urinary Tract 

Infection (UTI). 

• Vascular Catheter-Associated 

Infection. 

• Surgical Site Infection Following: 

+ Coronary Artery Bypass Graft 

(CABG)—Mediastinitis. 

+ Bariatric Surgery. 

—Laparoscopic Gastric Bypass. 

—Gastroenterostomy. 

—Laparoscopic Gastric Restrictive 

Surgery. 

+ Orthopedic Procedures. 

—Spine. 

—Neck. 

—Shoulder. 

—Elbow. 

• Deep Vein Thrombosis (DVT)/ 

Pulmonary Embolism (PE). 

+ Total Knee Replacement. 

+ Hip Replacement. 

The Secretary may revise this list 

upon review and does so through notice 

and comment rulemaking. 

C. Previously Specified Medicare 

National Coverage Determinations 

(NCD) 

In 2002, the National Quality Forum 

(NQF) published ‘‘Serious Reportable 

Events in Healthcare: A Consensus 

Report’’, which listed 27 adverse events 

that were ‘‘serious, largely preventable 

and of concern to both the public and 

health care providers.’’ These events and 

subsequent revisions to the list became 

known as ‘‘never events.’’ This concept 

and need for the proposed reporting led 

to NQF’s ‘‘Consensus Standards 

Maintenance Committee on Serious 

Reportable Events,’’ which maintains 

and updates the list which currently 

contains 29 items. 

The Medicare program has addressed 

certain ‘‘never events’’ through national 

coverage determinations (NCDs). 

Similar to any other patient population, 

Medicare beneficiaries may experience 

serious injury and/or death if they 

undergo erroneous surgical or other 

invasive procedures and may require 

additional healthcare to correct adverse 

outcomes that may result from such 

errors. To address and reduce the 

occurrence of these surgeries, CMS 

issued three NCDs. Under these NCDs, 

CMS does not cover a particular surgical 

or other invasive procedure to treat a 

particular medical condition when the 

practitioner erroneously performs: (1) A 

different procedure altogether; (2) the 

correct procedure but on the wrong 

body part; or (3) the correct procedure 

but on the wrong patient. Medicare will 

also not cover hospitalizations and other 

services related to these non-covered 

procedures. 

D. Prior Guidance on Medicaid HACs 

and NCDs in Response to Medicare’s 

Policy 

Section 5001(c) of the DRA addressed 

only payment under the Medicare IPPS 

and did not require that Medicaid 

implement nonpayment policies for 

HACs. However, in light of the Medicare 

requirements, we encouraged States to 

adopt payment prohibitions on provider 

claims for HACs to coordinate with the 

Medicare prohibitions under section 

1886(d)(4)(D) of the Act. To accomplish 

this task, we issued State Medicaid 

Director Letter (SMDL) #08–004 on July 

31, 2008. In the July 31, 2008 SMDL, we 

noted that there was variation in how 

State Medicaid programs had addressed 

such claims in the past. The letter noted 

that nearly 20 States already had, or 

were considering, eliminating payment 

for some or all of the 28 conditions on 

the NQF’s list of Serious Reported 

Events. Other States had more limited 

efforts to deny payment for services 

related to such conditions because the 

services were ‘‘medically unnecessary’’ 

in light of the primary diagnosis. 

Recognizing this variation and 

addressing the immediate concern of the 

States over Federal cost-shifting that 

could result from the Medicare HAC 

policy as applied to those who are 

dually-eligible for Medicare and 

Medicaid, we took a flexible position in 

the July 31, 2008 SMDL guidance on 

State Medicaid handling of the issue. 

The SMDL indicated that States seeking 

to implement HAC nonpayment policies 

could do so by amending their Medicaid 

State plans to specify the extent to 

which they would deny payment for an 

HAC. Those interested only in avoiding 

secondary liability for Federal Medicare 

denials of HACs and NCDs in the case 

of dual-eligibles could do so by 

amending their State Plan to indicate 

that payment would not be available for 

HACs and the procedures described in 

the three NCDs that are not paid by 

Medicare. States that wanted broader 

payment prohibitions could indicate 

that payment would not be available for 

conditions specified in the State plan 

amendment (SPA), or that meet criteria 

identified in the SPA. 

E. Section 2702 of the Affordable Care 

Act 

Section 2702 of the Affordable Care 

Act requires that the Secretary 

implement Medicaid payment 

adjustments for health care-acquired 

conditions (HCACs). Section 2702 of the 

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Affordable Care Act did not grant the 

Secretary new authorities, indicating 

that existing statutory authorities are 

sufficient to fulfill the obligation. 

Section 2702(a) of the Affordable Care 

Act sets out a general framework for 

application of Medicare prohibitions on 

payment for HCACs to the Medicaid 

program. Section 2702(a) of the 

Affordable Care Act first directs the 

Secretary to identify current State 

practices that prohibit payment for 

HCACs and to incorporate the practices 

identified, or elements of such practices, 

which the Secretary determines 

appropriate for application to the 

Medicaid program in regulations. 

Section 2702(a) of the Affordable Care 

Act then requires that, effective as of 

July 1, 2011, the Secretary prohibit 

payments to States under section 1903 

of the Act for any amounts expended for 

providing medical assistance for HCACs 

specified in regulations. Such 

regulations must ensure that the 

prohibition on payment for HCACs shall 

not result in a loss of access to care or 

services for Medicaid beneficiaries. 

Section 2702(b) of the Affordable Care 

Act defines the term ‘‘health careacquired condition’’ as ‘‘a medical 

condition for which an individual was 

diagnosed that could be identified by a 

secondary diagnostic code described in 

section 1886(d)(4)(D)(iv) of the Act.’’ 

Section 2702(c) of the Affordable Care 

Act specifically requires that the 

Secretary, in carrying out section 2702 

of the Affordable Care Act, apply the 

regulations issued under section 

1886(d)(4)(D) of the Act relating to the 

prohibition of payments based on the 

presence of a secondary diagnosis code 

specified by the Secretary in such 

regulations, as appropriate for the 

Medicaid program. The Secretary may 

exclude certain conditions identified 

under title XVIII of the Act for 

nonpayment under title XIX of the Act 

when the Secretary finds the inclusion 

of such conditions to be inapplicable to 

beneficiaries under title XIX of the Act. 

We believe, and confirmed through 

public comment, that incorporating 

Medicare’s HACs in Medicaid’s policy 

is inherently complex because of 

population differences across programs. 

We fully understand that the HACs 

developed for Medicare’s population 

will not directly apply to various 

subsets of Medicaid’s population. While 

we have established Medicare as a 

baseline, we understand that States will, 

through their payment policies, 

appropriately address these differences. 

F. Requirement To Review Existing State 

Practices Prohibiting Nonpayment 

Policies for HCACs 

Section 2702 of the Affordable Care 

Act requires that the Secretary identify 

current State practices that prohibit 

payment for HCACs and incorporate 

those practices, as appropriate, into 

Medicaid regulations. 

To fulfill the statutory direction, we 

reviewed existing SPAs originally 

submitted in response to the July 31, 

2008 SMDL (#08–004). We also 

researched State HCAC-related 

nonpayment policies that had been 

implemented outside of Medicaid State 

plans. We reviewed State quality 

assurance programs, pay-forperformance programs, reporting 

requirements and procedures, and 

payment systems. 

We reviewed various articles, reports, 

summaries, and data bases pertaining to 

States’ existing practices concerning 

hospital and HCACs and infections. For 

a list of the items considered, see the 

February 17, 2011 proposed rule (76 FR 

9283, 9286 through 9287). 

We discussed internally within CMS, 

as well as with interagency partners at 

the Agency for Healthcare Research and 

Quality (AHRQ) and the CDC to ensure 

that the proposed regulations were 

consistent with other regulations, 

policies, and procedures currently in 

existence surrounding this issue. We 

also met with them to gain information 

on areas where we could mirror existing 

processes to eliminate undue burdens 

on States or providers. 

We issued a State survey to capture 

data from all related payment policies 

regardless of whether they were 

implemented as a result of the July 31, 

2008 SMDL or whether such practices 

are currently detailed in the State plan. 

We have received helpful information 

from a few States through the survey 

and have reviewed other information 

that has been helpful in explaining 

current State processes for making 

payment adjustments for HCACs. 

Subsequent to the publication of the 

survey, we held all-State calls where we 

answered questions in response to the 

survey, had States with existing policies 

talk about their experiences, and 

listened to discussion regarding the 

implementation of the HCAC policy. 

We met with nongovernmental 

partners including the NQF, the 

National Academy for State Health 

Policy, the National Association of 

Children’s Hospitals, the Joint 

Commission, and State Medicaid 

Medical Directors. Most of these 

organizations are primarily focused on 

State program development and/or 

quality issues. We reached out to them 

to ensure that the proposed policies 

were consistent with current industry 

understanding of both State payment 

and quality improvement goals. In our 

discussions with these organizations, 

we were able to discuss State 

experiences on a broad, national level 

that had been gained from working with 

States. During these meetings, we 

discussed a number of issues related to 

the proposed rule and State concerns in 

implementing this provision. For 

instance, it was clear from many of our 

discussions that States hoped to be able 

to look to this provision to provide 

additional definition regarding the types 

of conditions to identify for 

nonpayment, as well as to provide some 

support in working with provider 

communities to which these policies 

would be applied. 

G. Current State Practices Prohibiting 

Payment for HACs, HCACs, and Other 

Similar Events 

We found that 29 States do not have 

existing HCAC-related nonpayment 

policies. Most of the 21 States that 

currently have HCAC-related 

nonpayment policies identify at least 

Medicare’s HACs for nonpayment in 

hospitals. However, it is important to 

note that at least half of the existing 

policies we reviewed exceeded 

Medicare’s current HAC requirements 

and policies, either in the conditions 

identified, the systems used to indicate 

the conditions, or the settings to which 

the nonpayment policies applied. These 

policies vary tremendously from State to 

State in the authority used to enact the 

policies, the terminology used, the 

conditions identified, State’s utilization 

of the current Medicare HAC list, the 

service settings to which nonpayment 

policies are applied, reporting 

requirements, and the claims processing 

of the nonpayment policies. 

All of the States with HCAC-related 

nonpayment policies have implemented 

provisions that would protect the State 

from dual-eligible liability either by 

directly prohibiting payment for 

Medicare crossover claims or by relying 

on existing State plan authority to deny 

payment for claims previously denied 

by Medicare. 

We found that 17 of the States 

implemented Medicaid specific policies 

that reduce payment for services 

provided to Medicaid beneficiaries. 

Most of the States implementing 

Medicaid specific policies identify at 

least Medicare’s current list of HACs, 

and nearly half of those States defined 

a list that was different from Medicare’s 

current list of HACs for nonpayment. 

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Federal Register / Vol. 76, No. 108 / Monday, June 6, 2011 / Rules and Regulations 32819 

Similar variation exists in States’ plan 

language identifying Medicare’s NCD for 

nonpayment ranging from mirroring 

Medicare to completely breaking from 

Medicare. We do note, however, that the 

nature of the NQF serious reportable 

events, like surgery on the wrong body 

part, proper surgery wrong patient, and 

wrong surgery, is so severe that States 

were likely to have relied on State 

coverage provisions and appropriate 

care requirements to deny payment for 

these events. 

We also found that States use 

different general terminology for HCACrelated nonpayment policies even 

though many of the conditions 

identified overlap, are from the same 

sources, and do not generally vary in 

medical definition from one list to the 

other. For example, 3 States identify ‘‘air 

embolism’’ as a condition for 

nonpayment under its plans with the 

condition understood to be consistently 

defined for medical purposes. However, 

one State includes air embolisms on its 

list of ‘‘HACs’’; another includes the 

same condition as a ‘‘Serious Adverse 

Event’’; and the third includes it on a list 

of ‘‘Medical Errors.’’ 

We also found that at least 7 of the 

States with HCAC-related nonpayment 

policies apply those policies to settings 

other than the inpatient hospital setting 

required by Medicare, including both 

physicians and ambulatory surgical 

centers. 

Variation across States is not 

surprising given the States have been 

permitted broad flexibility in defining 

their HCAC policies and programs. 

However, we attribute some of the 

variety on this issue to the wealth of 

information and evidence-based 

guidelines available to States, either 

through their own experiences and 

resources or through industry 

researched and developed resources 

related to health system quality. Data 

gathered on the conditions identified, 

reporting strategies, and implementation 

guidelines indicate that States have 

relied heavily on existing health system 

quality improvement research to define 

requirements while tailoring policies 

appropriate to their own systems. In 

addition, our research indicates that 

States’ HCAC-related nonpayment 

policies are mainly intended to drive 

broader health system agendas to 

promote quality outcomes. We believe 

the use of evidence-based measures and 

the push for health system quality are 

an appropriate foundation for the 

proposed regulation. We proposed to 

implement Medicaid HCAC regulations 

that would provide some consistency 

across health care payers (Medicare and 

Medicaid). At the same time, we also 

proposed to accommodate State 

flexibility to design individual HCAC 

policies for nonpayment, quality-related 

programs suitable for their own 

Medicaid program and health 

marketplace to the extent such policies 

go beyond Federally-established 

minimum standards. The July 31, 2008 

SMDL (#08–004) instructed States to 

submit SPAs to enact nonpayment 

provisions. Thirteen States submitted 

SPAs to include PPC related 

nonpayment provisions in their 

Medicaid State plans. Other States that 

implemented these policies through 

some other authority like State law or 

administrative procedures will be 

required to submit new SPAs for review 

and work with CMS to ensure their 

policies, effective July 1, 2011, are in 

line with the final provisions of this 

rule. 

H. Provider Preventable Conditions 

The final rule includes the umbrella 

term, ‘‘Provider-Preventable Conditions 

(PPC)’’ which is defined as two distinct 

categories, Health Care-Acquired 

Conditions (HCAC) and Other ProviderPreventable Conditions (OPPC). 

Health Care Acquired Conditions: 

• Apply to Medicaid inpatient 

hospital settings; and 

• Are defined as the full list of 

Medicare’s HAC, with the exception of 

Deep Vein Thrombosis/Pulmonary 

Embolism following total knee 

replacement or hip replacement in 

pediatric and obstetric patients, as the 

minimum requirements for States’ PPC 

non-payment programs. 

Other Provider-Preventable 

Conditions include the following: 

• Apply broadly to Medicaid 

inpatient and outpatient health care 

settings where these events may occur; 

• Are defined to include at a 

minimum, the three Medicare National 

Coverage Determinations (surgery on the 

wrong patient, wrong surgery on a 

patient, and wrong site surgery); 

• Would allow States to expand to 

settings other than IH with CMS 

approval by nature of identifying events 

that occur in other settings; and 

• Would allow States to expand the 

conditions identified for non-payment 

with CMS approval, based on criteria set 

forth in the regulation. 

The final rule requires that States 

revise Medicaid plans to comply with 

this provision and mandates that States 

implement provider self reporting 

through claims systems. The final rule 

protects beneficiary access to care by 

eliminating States’ ability to unduly 

impact providers for the occurrence of 

conditions identified. The final rule 

requires that: 

• No reduction in payment for a 

provider preventable condition will be 

imposed on a provider when the 

condition defined as a PPC for a 

particular patient existed prior to the 

initiation of treatment for that patient by 

that provider. 

• Reductions in provider payment 

may be limited to the extent that the 

identified provider-preventable 

conditions would otherwise result in an 

increase in payment; and the State can 

reasonably isolate for nonpayment the 

portion of the payment directly related 

to treatment for, and related to, the 

provider-preventable conditions. 

While the Statutory effective date is 

July 1, 2011, CMS intends to delay 

compliance action on these provisions 

until July 1, 2012. 

We proposed to exercise our authority 

under sections 1902(a)(4), 1902(a)(19), 

and 1902(a)(30)(A) of the Act to provide 

for identification of provider 

preventable conditions (PPCs) as an 

umbrella term for hospital and 

nonhospital acquired conditions 

identified by the State for nonpayment 

to ensure the high quality of Medicaid 

services. These statutory provisions 

authorize requirements that States use 

methods and procedures determined by 

the Secretary to be necessary for the 

proper and efficient administration of 

the State plan, to provide care and 

services in the best interests of 

beneficiaries, and to provide for 

payment that is consistent with quality 

of care, efficiency, and economy. 

With the introduction of this term, we 

proposed to include two categories of 

PPCs—HCACs and other providerpreventable conditions (OPPCs). HCACs 

would apply as required under the 

statute. OPPCs would be applicable to 

other conditions that States identify and 

have approved through their Medicaid 

State plans. 

The inclusion of the new terms, PPCs 

and OPPCs, is consistent with the 

implementation of a broader application 

of this policy which allows us to 

appropriately incorporate existing State 

practices. The adoption of a new term 

is necessary because the term, ‘‘health 

care-acquired condition’’ is very 

narrowly defined in the Statute and 

does not provide for the inclusion of 

conditions other than those identified as 

HACs for Medicare, even excludes the 

three Medicare NCDs. Additionally, the 

Affordable Care Act definition of 

HCACs only applies to the inpatient 

hospital setting. 

We considered a broader definition of 

the term, ‘‘health care-acquired 

conditions,’’ attempting to isolate the 

idea of the actual condition from the 

setting in which it occurred. Section 

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32820 Federal Register / Vol. 76, No. 108 / Monday, June 6, 2011 / Rules and Regulations 

1886(d)(4)(D)(iv) of the Act applies 

specifically to conditions applicable to 

inpatient hospital patients and 

reimbursed under the IPPS. We did look 

to the Affordable Care Act in creating 

the terms PPCs and OPPCs. 

We did look to the Affordable Care 

Act in creating the terms PPC and 

OPPC. Section 3008(b) of the Affordable 

Care Act, ‘‘Study And Report On 

Expansion Of Healthcare Acquired 

Conditions Policy To Other Providers,’’ 

requires that Medicare study the effects 

of expanding its existing policy to other 

providers. We adopted the ‘‘Other 

Providers’’ term to remain consistent 

with Medicare in the potential 

expansion of its policy. 

In looking to expand the overall 

policy, we considered a number of other 

terms but determined that many of them 

like ‘‘adverse events’’ or ‘‘serious 

reportable events’’ would generate 

confusion because they had existing 

industry definitions that did not 

necessarily overlap with our policy 

aims. We adopted the term ‘‘Provider 

Preventable Condition’’ for use in 

Medicaid because it appropriately 

identified the scope of the conditions 

and could act as a ‘‘catch-all.’’ Also, the 

term had not been narrowly defined by 

use in Medicare, Medicaid, or in the 

industry at-large. 

I. Reporting of Results 

After researching State, industry, and 

Federal information related to the 

importance of reporting of quality data 

in driving improved health outcomes, 

we proposed that a simplified level of 

reporting is essential to creating a 

successful nonpayment policy both 

from the payment and quality 

perspectives. We believe that any 

requirements for provider reporting 

should provide a consistent format for 

States to report State-specific measures; 

require that providers report conditions 

identified for nonpayment when they 

occur regardless of a provider’s 

intention to bill; and not cause undue 

burden on States or providers. 

Quality reporting related to PPCs 

across States is inconsistent. There are 

27 States that require reporting of either 

hospital-acquired infections, conditions, 

or some combination of both. Some of 

those States require quality reporting 

but have not implemented associated 

HCAC-related nonpayment policies. 

Others have HCAC-related nonpayment 

policies, but have not implemented 

quality reporting requirements. 

Existing national quality reporting 

formats do not support the collection of 

data on HCACs and OPPCs for Medicaid 

beneficiaries. Providers, mainly 

hospitals, are subject to reporting 

requirements in addition to those 

imposed by States. For instance, most 

hospitals report some quality measures 

to CMS, the Joint Commission, or the 

CDC. We considered requiring hospitals 

to report to CMS or the National Health 

Safety Network, but decided against this 

because of concerns about the capacity 

within these systems to accommodate 

State specific reporting of varied 

measures and the fact that this might 

not be consistent with what most States 

are currently requiring providers to 

report. 

HACs, HCACs, and related policies 

represent liabilities for providers 

beyond nonpayment provisions. In fact, 

Medicare and the industry-at-large, have 

experienced nonclaiming or nonbilling 

on the part of providers seeking to 

escape the liability that could come 

with any type of notification of a 

particular event or to avoid negative 

health outcome indicators. 

In consideration of our research, we 

proposed a requirement that existing 

claims systems be used as a platform for 

provider self-reporting. We also 

proposed to include reporting 

provisions that would require provider 

reporting in instances when there is no 

associated bill. For instance, States 

could employ the widely used POA 

system in combination with including 

edits in their Medicaid claims systems 

that would indicate an associated claim 

and flag it for medical review. 

J. States’ Use of Payment Systems Other 

Than MS–DRG 

We also found that States’ payment 

systems will dictate the manner in 

which States are able to operationalize 

PPCs related nonpayment policies. For 

instance, some States reimburse using 

MS–DRG or some other type of grouper 

software to price claims. As with 

Medicare, these States may use the POA 

indicator system to identify claims and 

reduce payments by programming the 

grouper to reduce payment through the 

grouper. We note that a considerable 

number of States do not use grouper 

systems to reimburse providers. These 

States may identify and reduce payment 

for HCACs using methods appropriate to 

the specific reimbursement system used 

within that State. We believe that the 

proposed provision allows States this 

type of flexibility in designing 

methodologies that would isolate 

amounts for nonpayment and allow 

provider payment to be reduced based 

on a CMS-approved State plan 

methodology that is prospective in 

nature. 

II. Summary of the Provisions of the 

Proposed Rule and Analysis of and 

Responses to Public Comments 

A. General Discussion 

We proposed to codify provisions that 

would allow States flexibility in 

identifying PPCs that include, at a 

minimum, the HACs identified by 

Medicare, but may also include other 

State-identified conditions. This 

flexibility will extend to applying 

nonpayment provisions to service 

settings beyond the inpatient hospital 

setting. We believe that establishing 

Medicare as the minimum for the 

application of this policy is appropriate 

at this point. 

We encouraged States to consider the 

benefits and quality implications of 

expanding HCAC quality and 

nonpayment policies as more 

information becomes available from 

Medicare and State Medicaid programs. 

We proposed that PPCs are defined 

under two categories: HCACs and 

OPPCs. We proposed to define the 

category of PPCs that would be referred 

to using the term ‘‘health care-acquired 

conditions’’ (HCACs) based on the 

definition of that term in section 2702(b) 

of the Affordable Care Act. We also 

noted that the Secretary has authority to 

update the Medicare HAC list as 

appropriate. As such, States are required 

to comply with subsequent updates or 

revisions in accordance with section 

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

We proposed to require that States 

implement requirements for provider 

self-reporting of HCACs in the Medicaid 

claims payment process. We also 

proposed to provide that States may 

identify similar OPPCs related to 

services furnished in settings other than 

inpatient hospitals, which would also 

be subject to a payment prohibition. 

We further proposed that the 

treatment of these OPPCs will be similar 

to the treatment of HCACs. State plans 

must provide for nonpayment for care 

and services related to these OPPCs, and 

Federal financial participation (FFP) 

will not be available in State 

expenditures for such care and services 

related to OPPCs. 

We received the following comments 

in response to our general discussion. 

1. General Comments 

Comment: One commenter expressed 

the view that the original Medicare HAC 

policy adopted by CMS in FY 2008 for 

hospitals subject to the Medicare 

Inpatient Prospective Payment System 

(IPPS hospitals), in response to the 

requirements of the DRA, was flawed 

policy and that many physicians 

disagreed with the notion that some of 

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the identified Medicare HACs are 

reasonably preventable. The commenter 

was opposed to extending these 

provisions to Medicaid and suggested 

that CMS abandon the notion of a 

nonpayment policy for HACs in both 

Medicare and Medicaid and replace it 

with a policy encouraging compliance 

with evidence-based guidelines. 

Response: We disagree. The Medicare 

HAC payment policy was established 

under the authority of section 5001(c) of 

the DRA and has been in place since FY 

2008. Section 2702 of the Affordable 

Care Act requires that CMS adopt 

similar regulations for the Medicaid 

program taking into consideration 

existing State practices and the 

appropriate application to the Medicaid 

program. This regulation, like the 

Medicare HAC rule that preceded it, 

was developed in direct response to the 

enactment of that provision. While we 

recognize that some of the PPCs are not 

entirely preventable and should 

therefore be excluded from the program. 

However, most of these PPCs are never 

events, which means they should never 

happen, in the first place, and they are 

entirely preventable if providers follow 

best medical practices. This is true 

regardless of whether a patient is a 

senior citizen on Medicare or a child on 

Medicaid. PPCs that used to be regarded 

as not entirely preventable, like CLABSI 

(or CAUTI), have been shown to be 

preventable by providers. We believe 

that the provisions of this rule will 

provide a strong incentive for the 

provider to apply best medical practice 

and seek innovative methods to prevent 

adverse outcomes. The HACs were 

adopted by Medicare through an 

evidence-based process. In addition, the 

definition used for OPPC in new 

§ 447.26 provides that States must 

consider evidence-based guidelines in 

adopting optional PPCs. 

Comment: Some commenters 

supported the policy of payment 

adjustment when conditions were 

demonstrated to be reasonably 

preventable based on the evidence, but 

thought that the population differences 

between Medicare and Medicaid may 

present distinct issues and 

considerations in considering events for 

nonpayment. Some commenters 

questioned the appropriateness of the 

application of Medicare HACs to 

Medicaid populations, specifically 

children and pregnant women. 

Response: We agree that Medicare’s 

population is generally different than 

Medicaid’s and that those differences 

may present distinct issues and 

considerations. We realize that some 

categories of Medicare’s HACs, like 

Surgical Site Infection following CABG 

or Bariatric surgery, are not typically 

applicable to pediatric or obstetric 

populations because the underlying 

conditions associated with each of 

Medicare’s HACs will not typically 

occur in those populations, thus 

limiting the frequency and relevance of 

the HAC. We reviewed each of 

Medicare’s HACs and the related 

evidence-based prevention protocols to 

determine whether the final rule should 

specifically exclude any of the 

conditions identified by Medicare, with 

respect to populations more 

characteristic of Medicaid, particularly 

children and pregnant women. We 

considered each in relation to the 

following: 

(1) Clinical applicability. That is, does 

this condition occur in pediatric and 

obstetric populations enough to 

significantly impact the populations or 

provider reimbursement? 

(2) Availability of evidence based 

guidelines appropriate to prevention for 

the pediatric and obstetric populations. 

Are there bundles specific to preventing 

these conditions and infections in the 

pediatric and obstetric populations? If 

bundles do not exist, are there other 

bundles that can be appropriately 

applied to these populations? 

(3) Reasonable preventability. Can the 

conditions or infections be reasonably 

prevented through the use of evidence 

based guidelines to warrant financial 

penalties? Our research determined that 

certain Medicare HACs, such as Foreign 

Objects Retained After Surgery, Air 

Embolism, Blood Incompatibility, Stage 

3 and 4 Pressure Ulcers, Falls and 

Trauma, and Manifestations of Poor 

Glycemic Control, Catheter Associated 

Urinary Tract Infections, and VascularCatheter Associated Blood Stream 

Infections, are clinically applicable to 

all Medicaid populations, including 

children and pregnant women. We 

determined that there are evidencebased guidelines to support the 

reasonable preventability of these 

conditions in pediatric and obstetric 

populations, and that there is no 

indication that these prevention 

guidelines would cause harm if 

appropriately applied. There was no 

evidence to indicate that a provider 

adhering to these evidence based 

guidelines could not reasonably 

prevent, though not absolutely prevent 

these infections in every case in 

Medicaid populations. 

Our research determined that Surgical 

Site Infection following CABG, Bariatric 

Surgery, or Orthopedic procedures is 

not typically applicable to children and 

pregnant women because it is not likely 

that these populations would be subject 

to some of the primary surgical 

procedures. However, we determined 

that there are evidence-based guidelines 

to support the reasonable preventability 

of Surgical Site Infection following the 

specified procedures when they do 

occur in these populations. 

Furthermore, there is no indication that 

these prevention guidelines would 

cause harm when appropriately applied. 

There is no evidence to indicate that a 

provider adhering to these evidence 

based guidelines could not reasonably 

prevent, though not absolutely prevent, 

these infections in every case in 

Medicaid populations. 

Our research also determined that the 

Medicare HAC Deep Vein Thrombosis/ 

Pulmonary Embolism (DVT/PE) as 

related to a total knee replacement or 

hip replacement is not a common 

occurrence for children or pregnant 

women because it is not likely that these 

populations would be subject to the 

primary surgical procedures of total 

knee replacement or hip replacement. 

We determined that evidence-based 

guidelines available support the 

reasonable preventability of DVT/PE in 

most cases, however, the related 

prevention protocols have not been 

proven appropriate for application in 

children and pregnant women. 

Therefore, we are not identifying the 

Medicare HAC, DVT/PE as related to 

total knee replacement, or hip 

replacement for pediatric or obstetric 

populations under Medicaid’s PPC 

policy. We have revised the final rule to 

reflect this determination. 

We remind commenters that the 

Medicare HACs serve as a baseline, and 

that States electing to expand their 

policies to consider other conditions 

associated with children and pediatric 

quality measures may do so through the 

SPA process. We encourage States to 

collaborate both with CMS and other 

States, as well as their provider 

communities and stakeholders like CDC 

and AHRQ to implement informed 

policies appropriate to their Medicaid 

populations. We will support State 

efforts and cross-educate, through the 

State plan amendment process and by 

providing information that we gather 

from States and other programs. 

Comment: One commenter believed 

that the expansion of PPCs for Medicaid 

under the proposed rule goes beyond 

any previous guidance shared by CMS 

with the State during Affordable Care 

Act-related conference calls. 

Response: Discussions held with the 

States, stakeholder groups and various 

provider communities regarding this 

policy were necessary to determine 

existing State practices regarding nonpayment for health care-acquired 

conditions. They were informational for 

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CMS and did not in any way commit the 

Secretary to a particular policy 

direction. They were also a first effort in 

allowing States without existing policies 

to gather some general information from 

and network with States with existing 

policies. 

The final regulation incorporates 

conditions identified as Medicare’s 

HACs, with the exception of DVT/PE as 

related to total knee replacement and 

total hip replacement for pediatric and 

obstetric populations, and 3 NCDs as the 

minimum requirement for State PPC 

nonpayment policies. The rule allows 

States the flexibility, if desired, but does 

not require, States to identify additional 

conditions as PPCs under their 

Medicaid programs. Additionally, States 

have already begun to develop PPCrelated non-payment policies and this 

rule would allow that work to continue. 

Comment: A few commenters 

believed that there was not sufficient 

time to implement these provisions for 

providers that had not already been 

subject to Medicare’s policy, and were 

particularly concerned with the 

implementation timeframes for 

reporting. 

Response: We anticipate that States 

and providers, especially those groups 

of providers that have not been subject 

to Medicare’s HAC policy, will need to 

work collaboratively to develop policies 

and implement reporting systems that 

would complement existing payment 

structures. We believe given the 

timeframes involved and the need for 

States to provide guidance to providers, 

it would be appropriate to delay 

compliance action on the provisions of 

the rule until July 1, 2012. 

Comment: One commenter requested 

that we strike § 447.26(c)(4) because 

they believed the access requirements 

proposed there were already reflected in 

447.204 which requires that payment be 

sufficient to assure beneficiary access. 

The commenter thought that any dual 

interpretations could lead to 

unwarranted litigation risks. 

Response: We thank the commenter 

for this comment. We have revised the 

language at 447.26(c)(4) to clarify that, 

‘‘A State plan must ensure that nonpayment for provider-preventable 

conditions does not prevent access to 

services for Medicaid beneficiaries.’’ 

2. Conditions Identified and Providers 

Affected 

Comment: Some commenters pointed 

out that Medicare’s HAC policy applies 

only to Medicare IPPS hospitals. These 

commenters believed that CMS should 

limit Medicaid PPC payment 

restrictions to Medicaid participating 

hospitals that are similar to Medicare 

IPPS hospitals. Other commenters asked 

for clarification on this same point. 

Most of these commenters also believed 

that we should limit States ability to 

identify other PPCs, proposing that the 

set of Medicare’s HACs and 3 NCDs be 

used as a ceiling instead of as a floor for 

Medicaid’s PPC policy. 

Response: The Affordable Care Act 

requires that HACs identified under the 

Medicare IPPS are applicable to all 

entities that operate as Medicaid 

inpatient hospitals. We do not have the 

authority to exempt any Medicaid 

inpatient hospital providers from these 

requirements. States currently have the 

authority to extend PPC-related nonpayment policies to other conditions. 

Comment: Some commenters objected 

to the entire category of OPPC (affecting 

providers other than hospitals) included 

in the proposed regulation. Commenters 

recommended that CMS consider and 

impose a number of parameters related 

to States’ implementation and selection 

of the OPPC category. 

Response: In preparing this 

regulation, the Statute required that 

CMS consider existing State practices 

and determine whether, as a matter of 

policy, it was appropriate to include 

those established practices in these final 

regulations. We determined that, in 

some instances, States had implemented 

provisions that applied to providers in 

settings other than inpatient hospital 

settings, including outpatient hospital 

settings. We did not believe that it was 

prudent to require of all States what had 

been done in a few, but we wanted to 

provide States the flexibility to do so. 

Accordingly, we designed the PPC 

provisions to allow the expansion of 

State policies to other care settings, and 

other conditions. In light of the 

differences between the types of 

participating providers and the enrollee 

populations in Medicare and Medicaid, 

we provided flexibility for States in the 

identification and application of OPPCs. 

We anticipate that States will consider 

arguments made by particular providers 

that these OPPCs should be defined so 

that they do not apply to them. We 

believe this is the appropriate forum for 

consideration of the unique 

circumstances of particular providers. 

Comment: Some commenters 

recommended that we consider the 

benefits of and establish a nationally 

consistent set of conditions identifiable 

as PPCs for Medicaid. 

Response: We determined that the 

conditions identified as Medicare’s 

HACs, with the exception of DVT/PE as 

related to total knee replacement and 

total hip replacement for pediatric and 

obstetric populations, and 3 NCDs are 

appropriate to serve as the baseline for 

Medicaid’s PPC policy. We are strongly 

committed to permitting State flexibility 

to innovate in this area. State innovation 

has been a significant driver of Federal 

policy, and States have direct 

experience with utilization and claims 

review with respect to Medicaid 

services. 

Comment: Some commenters 

suggested that the initial set of 

conditions be more limited and targeted, 

and that they be expanded 

incrementally over time. 

Response: Section 2702(b) of the 

Affordable Care Act defines the term 

‘‘health care-acquired condition’’ as ‘‘a 

medical condition for which an 

individual was diagnosed that could be 

identified by a secondary diagnostic 

code described in section 

1886(d)(4)(D)(iv) of the Act.’’ The 

provision also allows the Secretary to 

exclude conditions not appropriate for 

application in Medicaid. As such, the 

final regulation incorporates conditions 

identified as Medicare’s HACs, with the 

exception of DVT/PE as related to total 

knee replacement and total hip 

replacement for pediatric and obstetric 

populations, and 3 NCDs. Additionally, 

we believe that the flexibility provided 

States in developing additional PPCs, 

beyond those established as the floor in 

the final rule, allow for the type of 

incremental expansion of this policy 

that the commenters suggest. 

Comment: Other commenters 

recommended that Medicaid PPCs focus 

on conditions specific to the Medicaid 

population. A few commenters offered 

that it would be ideal for CMS to 

evaluate other Medicaid specific 

conditions that would apply specifically 

to pregnant women or children. 

Response: We believe that the 

flexibility provided States in the final 

rule will facilitate the development of 

additional Medicaid specific conditions 

to be identified for nonpayment. Some 

State Medicaid programs with existing 

policies have identified conditions 

specific to certain populations like 

Obstetrical Hemorrhage with 

Transfusion, which is a condition 

specific to pregnant women. We 

encourage States to follow CMS’s 

example in identifying conditions by 

working with provider communities and 

industry partners. 

Comment: A few commenters 

suggested that CMS coordinate Federal 

PPCs policies across agencies and with 

other organizations developing quality 

measures specific to Medicaid 

populations. 

Response: We are actively working to 

coordinate with other health reform 

initiatives such as the pediatric core 

quality measures, accountable care 

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organizations, and health insurance 

exchanges to develop coordinated 

Federal policy in the area of Health 

System Quality. We continue to 

collaborate with States, providers, and 

other stakeholders to inform policy 

decisions related to this area. 

Comment: Some commenters stated 

that any extension of PPC beyond the 

hospital setting was premature, and 

emphasized that application of PPC to 

other providers was not feasible because 

of the different patient populations, 

payment structures and conditions that 

applied in different environments. 

These commenters stated unique issues 

in various provider settings including 

long-term care settings, dialysis clinics, 

and skilled nursing facilities. 

Response: We disagree with the point 

that the PPC provisions should be 

limited to the hospital environment. 

This rule requires that States adopt 

minimum requirements for each 

category of PPC. States have the 

flexibility to identify additional OPPCs 

if desired, but there is no requirement 

to do so. Many States have already 

identified conditions beyond the 

minimum requirements in this final 

rule. We understand clearly that the 

category of OPPCs would allow 

expansion beyond the hospital 

environment and must be done in close 

consultation with affected providers and 

limited to situations where a State has 

made a finding that the condition could 

reasonably have been prevented in 

ordinary cases. We have revised 

regulatory text to make clear that these 

are State determinations that must be 

made based on State findings that the 

condition is reasonably preventable 

using procedures supported by 

evidence-based guidelines. The 

identification of PPCs in settings other 

than the hospital setting makes sense 

because, from the perspective of the 

patient, it matters very little whether a 

wrong site surgery occurred in a 

hospital, an ambulatory surgery center, 

or in a minor surgery done in the 

physician’s office. Moreover, States 

have already gone beyond the hospital 

setting in their individual PPC policies. 

All that this Federal regulation adds is 

the HCAC category which requires 

nonpayment for the full list of 

Medicare’s HACs, with the exception of 

Deep Vein Thrombosis/Pulmonary 

Embolism following total knee 

replacement or hip replacement in 

pediatric and obstetric patients and the 

OPPC category which requires the 

minimum mandatory inclusion of what 

are now the three Medicare NCDs: 

Surgery on the wrong patient, wrong 

surgery on a patient, and wrong site 

surgery. We are simply replicating the 

mandatory provisions in the Medicare 

program, and adding these to the 

existing State flexibility under Medicaid 

to establish payment and quality 

standards. 

We encourage States to collaborate 

both with CMS and other States, as well 

as their provider communities and 

stakeholders like CDC and AHRQ to 

implement informed policies 

appropriate to their Medicaid 

populations. We will support State 

efforts and cross-educate, through the 

SPA process and by providing 

information that we gather from States 

and other programs. 

Comment: A number of commenters 

requested that CMS clarify that the 

HCAC category applies only to inpatient 

hospitals. 

Response: This final rule has revised 

regulatory language to clarify that the 

HCAC category applies to all inpatient 

hospital settings under Medicaid. The 

OPPC category minimum requirements 

(Medicare’s 3 NCDs) are applicable in 

any healthcare service setting where 

these events may occur. 

Comment: One commenter expressed 

concern that expansion of PPC to 

nonhospital providers threatened the 

access of Medicaid beneficiaries to care. 

In particular, the commenter asked CMS 

to clarify that Medicaid payment 

disallowance for PPC would not apply 

when the PPC was present at the time 

the provider commenced treatment of 

the patient. 

Response: The language in the 

proposed regulation was intended to 

cover only situations where payment 

reduction was being applied to 

treatment for a condition not present on 

admission or commencement of 

treatment by that provider. However, we 

understand that clarifying the language 

of the regulation to emphasize this point 

would be helpful and have done so in 

this final regulation. New § 447.26 (c)(2) 

explicitly states that ‘‘* * * no 

reduction in payment for a PPC will be 

imposed on a provider when the 

condition defined as a PPC for a 

particular patient existed prior to the 

initiation of treatment for that patient by 

that provider.’’ This was implied in the 

previous language, but has now been 

made explicit. CMS agrees with the 

comment and is providing this 

clarification. 

CMS disagrees with the commenter’s 

point that the expansion of State PPC 

policies beyond the hospital 

environment will limit access. We 

understand clearly that expansion 

beyond the hospital environment must 

be done in close consultation with 

affected providers and limited to 

situations where a provider could 

reasonably have prevented the PPC. 

However, from the perspective of the 

patient, it matters very little whether a 

wrong site surgery occurred in a 

hospital, an ambulatory surgery center, 

or in a minor surgery done in the 

physician’s office. Moreover, as the 

commenter notes, States have already 

gone beyond the hospital setting in their 

individual PPC policies. 

Comment: One commenter requested 

that CMS provide States additional 

guidance on applying the Medicare 

HAC criteria to Medicaid providers and 

conditions. This commenter believed 

that we should partner with States to 

have continued dialogue on evidencebased guidelines. 

Response: As stated throughout the 

rule, we intend to continue dialogue 

with States and other Agencies related 

to this issue. 

3. PPC Terminology 

Comment: A few commenters 

believed that the distinctions among the 

terms in the proposed rule were 

confusing and made it difficult to 

understand which term applied to 

which criteria. 

Response: We have revised the 

regulatory text to clarify that PPCs are 

clearly defined into two separate 

categories, HCACs (conditions 

identified as Medicare’s HACs (with the 

exception of DVT/PE following total 

knee replacement or hip replacement in 

pediatric and obstetric patients) for IPPS 

purposes, applied broadly to Medicaid 

inpatient hospitals) and OPPCs 

(conditions applicable in any healthcare 

service setting minimally defined as 

Medicare’s 3 NCDs). 

Comment: A few commenters 

objected to the use of the term PPC. One 

proposed the use of the alternative term 

‘‘Preventable Healthcare Related 

Conditions.’’ The commenters noted that 

one proprietary organization is currently 

utilizing the acronym PPC for 

‘‘Potentially Preventable Conditions.’’ 

The commenters also questioned our 

use of the term other provider 

preventable condition and stated their 

biggest concern was with creating a new 

term that encompassed 3 NCDs so 

closely related with the NQF’s ‘‘Serious 

Reportable Events in Healthcare.’’ The 

commenters recommended that CMS 

not create explicit category titles under 

the PPC umbrella term. 

Response: As stated in the preamble, 

the designation of these terms is 

necessary to a policy that meets 

statutory requirements in setting 

Medicare’s policy as the minimum and 

allowing States the flexibility to expand 

beyond that minimum. We do not 

believe that the term PPC has been 

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narrowly defined across the industry to 

include a specific set of policy 

provisions as would be required by this 

final rule. In addition, we do not believe 

that the use of the PPC acronym will 

infringe on any proprietary 

organizations’ ability to continue to use 

that acronym. We have not made any 

revisions to this final rule to reflect this 

comment. 

Comment: One commenter had 

questions regarding the definition of 

OPPC. The commenter questioned 

which evidence-based guidelines would 

be used and recommended that the 

regulation be expanded to include exact 

definitions of the guidelines. 

Response: It would be difficult to 

determine a singular set of guidelines to 

be identified for the various conditions 

that States may identify under these 

provisions. The rule provides States 

flexibility in determining the conditions 

identified for nonpayment under their 

individual State plans. As States submit 

plans for approval, we will evaluate the 

conditions proposed by States and 

determine their appropriateness for the 

Medicaid program. Additionally, we 

would remind commenters that the 

Secretary has the authority to revisit 

these provisions and may do so as this 

policy area develops. We reject the 

commenters recommendation and have 

made no changes to the final provisions 

regarding this issue. 

Comment: Many commenters 

recommended that more research be 

done by Medicare and Medicaid on 

applying PPC nonpayment policies to 

outpatient settings before conditions 

that occur in those settings are 

incorporated into PPC nonpayment 

policies or expanded. Some commenters 

objected to the designation of the 3 

NCDs as a baseline for the Medicaid 

policy. 

Response: Medicare is conducting 

additional research to inform its policy 

on applying its HAC provisions beyond 

its IPPS hospitals. In preparing this 

regulation, CMS was required to 

consider existing State practices and 

determine whether, as a matter of 

policy, it was appropriate to include 

those established practices in these final 

regulations. We determined that, in 

some instances, States had implemented 

provisions that applied to providers in 

settings other than inpatient hospital 

settings, including outpatient hospital 

settings. We did not believe that it was 

prudent to require of all States what had 

been done in a few, but we wanted to 

provide States the flexibility to do so. 

Accordingly, we designed the PPC 

provisions to allow the expansion of 

State policies to other care settings, and 

other conditions. We agree that States 

should do additional research to 

evaluate the impact of applying 

nonpayment policies in outpatient 

settings before adopting such policies. It 

should also be noted that States with 

existing policies that do not meet the 

minimum provisions of this final rule 

and those without existing policies will 

need to submit for CMS approval SPAs 

implementing these policies. 

The three events that we are requiring 

that States include in their OPPC are 

those events which already trigger 

payment reductions in the Medicare 

program as national coverage 

determinations (NCDs). In the Medicare 

program, NCDs are already applied to 

all providers, not just to specified 

hospitals. Medicare NCDs are detailed, 

evidence-based determinations that are 

supported by substantial data. 

Therefore, inclusion of these three 

events merely replicates evidence-based 

determinations that are already in effect 

in the Medicare program. 

Comment: One commenter stated that 

the expansion of State PPC policies into 

non-inpatient settings will be extremely 

difficult to implement due to the very 

characteristics that are inherent to the 

outpatient setting, such as: The types of 

care and services provided; numerous 

providers and provider-types involved 

in care; periodic episodes of care 

provided by numerous providers over 

lengthy periods of time; and lack of 

systems and infrastructure to adequately 

coordinate care between visits and 

providers, among others. The wide 

variety of payment systems create 

enormous challenges for provider 

reporting, according to this commenter. 

Response: We are encouraging States 

to work with provider communities and 

other stakeholders to carefully examine 

nonpayment policies in non-inpatient 

settings. Additionally, we are requiring 

that States submit for approval 

Medicaid State plan amendments that 

would implement PPC nonpayment 

policies. To support these Medicaid 

State plan amendments, we are 

clarifying that the State must have made 

findings that the proposed PPC is 

reasonably preventable through the 

application of evidence-based 

guidelines. The SPA review process will 

give CMS and providers the opportunity 

to consider State policy before it is 

implemented and to provide guidance 

and input based on our knowledge of 

the issues. 

4. POA and Coding Systems 

Comment: Several commenters 

objected to the burden of creating a POA 

system and the potential for variation in 

the different State PPC policies. 

Commenters are concerned that the 

POA requirement and its impact on 

reimbursement may result in extraneous 

testing, delayed care, and further access 

issues for Medicaid patients. In 

emergency situations, it is often 

impossible to provide optimal patient 

care and simultaneously determine POA 

status, it was noted. One commenter 

also noted that many hospitals were not 

familiar with the intricacies of POA 

coding and would require CMS 

guidance and time to implement it. 

Response: The POA system is not 

required by this final regulation, but 

obviously providers will need to 

carefully document the physical status 

of their patients on admission. That 

documentation is not simply done for 

legal purposes, but serves the legitimate 

medical purpose of allowing for careful 

evaluation the patient’s condition prior 

to treatment and communicating that 

information to members of the treatment 

team. Ultimately, the provider will selfreport PPCs to the State. The State may 

choose to verify this by a POA system 

or by other methods. 

Comment: One commenter disagreed 

that relying on record review with the 

‘‘Global Trigger Tool’’ to detect what is 

present on admission will be effective in 

detecting POA. The commenter 

requested clarification on the method 

and asserted that it is not CMS’s 

responsibility to determine POA 

retrospectively. The commenter opined 

that since CMS is not the patient’s care 

provider, this would be bureaucratic 

over-reach into the patient-provider 

relationship. 

Response: We agree with the 

commenter that it is not CMS’s 

responsibility to determine the POA 

status of a patient. The ‘‘Global Trigger 

Tool’’ is a tool by which providers 

would use a series of ‘‘triggers’’ to 

determine the possible occurrence of an 

adverse event and indicate further 

review of a particular case. Neither the 

proposed rule, nor this final rule 

include any requirement that a provider 

implement the use of the ‘‘Global Trigger 

Tool.’’ We do suggest that our research 

indicates that this tool may be useful in 

identifying the occurrence of PPCs, as 

well as others like nursing reviews or 

concurrent utilization reviews. 

Comment: One State commented that 

the POA indicator is a very useful 

resource to identify the specific hospital 

where an adverse event occurred. 

Response: We thank the commenter 

for this information. 

Comment: One commenter was 

concerned with the use of the POA 

indicator being applied to pediatric 

populations because it may be hard to 

determine whether a child entered an 

emergency department with an 

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asymptomatic yet incubating infection. 

This commenter recommended a study 

be done to determine whether the 

incubation period in a child is different 

from an adult because the information 

would influence the determination of 

POA in certain cases. 

Response: The POA system is not 

required by this final regulation, but 

obviously providers will need to 

carefully document the physical status 

of their patients on admission. That 

documentation is not simply done for 

legal purposes, but serves the legitimate 

medical purpose of allowing for careful 

evaluation the patient’s condition prior 

to treatment and communicating that 

information to members of the treatment 

team. Ultimately, the provider will selfreport PPCs to the State. The State may 

choose to verify this by a POA system 

or by other methods. 

In regard to the study of the 

incubation period of infections in 

children versus adults, the purpose of 

this rule is to deny Medicaid payment 

for PPCs. States will be required to 

submit SPAs to implement these 

policies, however, aside from the 

minimum requirements in the rule 

States have flexibility in determining 

how to implement the related 

provisions, including the conditions 

identified for nonpayment. That being 

said, we recognize the inherent 

differences between the Medicare and 

Medicaid populations and would note 

that a major consideration for allowing 

States such flexibility in the OPPC 

category is the idea that States will be 

able to work with their provider 

communities and industry partners to 

further consider the unique situation of 

Medicaid beneficiaries within each 

State. We realize that for children’s 

hospitals and pediatric populations 

there are a number of conditions that 

could be otherwise identified. We 

believe that States, working with their 

provider communities, are in a better 

position to develop additional 

conditions specific to their Medicaid 

populations and programs. We continue 

to believe that innovations should be 

shared across programs and States. As 

information becomes available, we will 

share implementation examples with 

States. We also encourage States to 

collaborate in this policy area. 

Comment: One commenter 

recommends that States consistently 

adopt the ICD–9–CM and ICD–10–CM 

codes as the only diagnostic standard 

for identifying conditions for purposes 

of Medicaid payment. According to this 

commenter, it would be 

administratively burdensome for 

providers, as well as result in lack of 

data comparability across Medicare and 

Medicaid programs, to allow Medicaid 

programs to use alternative coding 

systems or their own method for 

identifying each PPC. 

Response: We agree that the ICD–9– 

CM and ICD–10–CM codes present a 

reasonable alternative to developing and 

implementing unique diagnostic codes 

for the purposes of this provision. We 

encourage States to explore the use of 

the ICD–9–CM and ICD–10–CM codes 

for purposes of identifying PPCs under 

their existing programs. 

Comment: One commenter expressed 

concern over identifying additional 

costs associated with an adverse event 

that occurs in a same day surgery center, 

a skilled nursing facility or a clinic. The 

commenter reported that it would be 

very difficult to identify the clinic or 

facility as the cause of the adverse event 

because they are not reimbursed 

through a DRG payment system. The 

commenter notes that its claims system 

would not isolate claim lines related to 

the adverse event to distinguish them 

from appropriate services. 

Response: We appreciate the 

response. We understand the difficulty 

that States may face in applying this 

policy in settings other than inpatient 

hospital settings, but note that some 

States have managed to apply these 

policies quite broadly and successful 

quality outcomes have resulted. We 

encourage States to evaluate their 

populations and work with their 

provider communities to explore the 

possibilities of expanding PPC policies 

to non-inpatient hospital settings to 

support States efforts to improve the 

quality of care in their overall health 

systems. 

Comment: One State with hospitals 

exempt from Medicare IPPS payment 

under 1814(b)(3) of the Act noted that 

its existing PPC policy, which started in 

2008, has resulted in a 12 percent 

decrease in measured hospital 

complication rates with associated cost 

reductions of $62 million which were 

subsequently redistributed within 

hospitals in that State. The State praised 

CMS for allowing State flexibility in 

developing PPC policy and outlined 

planned State initiatives in reducing 

preventable readmissions. This State 

also noted that since its policy is 

considerably expansive, it should be 

exempted from this final rule. 

Response: We do not have legal 

authority to exempt any State from the 

statutorily required provisions. We 

disagree with the suggestion that a 

States existing policy should exempt a 

State from the requirements of this final 

rule. The provisions of the final rule are 

drafted to allow States flexibility in 

developing individual PPC policies, 

while adhering to the minimum 

requirements set forth. While we 

appreciate the innovative nature of State 

programs, we believe that it is necessary 

for all States to appropriately amend 

their Medicaid State plans to comply 

with Federal law. This will also enable 

other States to learn and be better 

informed. 

We also believe that this comment 

illustrates the value of the Federal-State 

partnership in Medicaid. Many of the 

ideas used in this regulation were 

originally developed by State Medicaid 

programs interested in improving the 

quality of care received by their 

Medicaid beneficiaries. States, like other 

stakeholders in the Medicaid system, 

share a common interest in the 

development of safe, efficient Medicaid 

systems which serve their beneficiaries. 

A common goal for CMS, States, 

providers and patients is the pursuit of 

better outcomes for individuals and 

populations, while reducing 

unsustainable costs through improved 

quality of care. The pursuit of this 

common goal strengthens not only 

Medicaid, but the entire American 

health care system. 

Comment: Some commenters were 

strongly supportive of the approach 

taken by the proposed regulation. The 

commenters endorsed the use of the 

Medicare HAC as Medicaid HCAC and 

the provision of flexibility to States 

through the SPA process. In particular, 

one group favored the preservation of 

State ability to define PPC which 

occurred outside of hospitals and the 

three federally required OPPC. This 

commenter stressed the value of 

required State reporting systems and 

suggested public posting of such data 

after appropriate risk-adjustment and 

data validation. The comment also 

noted the importance of CMS 

monitoring to assure that the PPC policy 

had no adverse effects on beneficiary 

access to care. 

Response: We appreciate the 

commenters’ support. We will monitor 

the implementation of the final rule to 

assure that beneficiary access to care is 

not impaired. 

5. General Comments 

Comment: One commenter believes 

that the proposed rule is inconsistent 

because it states that hospitals will need 

additional infection control staff to 

prevent or reduce PPCs and that 

hospitals already have programs in 

place. The commenter also asks for 

clarification on whether the 

implementation cost estimates are 

academic or provided by hospitals. 

Response: The commenter is taking 

these two points out of context. In the 

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preamble to the proposed rule in 

discussing options considered for 

reporting requirements we say, ‘‘We 

considered requiring reporting to 

Hospital Compare and the National 

Health Safety Network, but decided 

against these formats because: We do 

not believe they currently have the 

capacity to allow State specific 

reporting of varied measures; their 

existing collections may not be 

consistent with what most States are 

currently requiring providers report; 

and the reporting formats may impose 

undue significant burden for 

providers—particularly those that do 

not have full-time quality staffs or 

resources.’’ Later in the proposed rule 

where we discuss the regulatory impact 

analysis we state, ‘‘The Joint 

Commission requires hospitals to have 

established programs for Quality 

Improvement, Risk Management, Safety, 

and Infection Control. As a result, a 

majority of hospitals already have in 

place programs to avert Medicare HACs 

and thus would not incur new costs to 

implement parallel programs to avert 

Medicaid HACs.’’ There are hospitals 

that have existing programs. There are 

also hospitals that will need to use 

additional resources to meet State 

requirements. This will be determined 

by each individual hospital depending 

upon its existing resources. The 

estimates are based on our experience 

with the implementation of like 

provisions through the SPA process, as 

well as Medicare’s experience 

implementing its HAC policy. 

Comment: Commenters were 

concerned that States would be too 

expansive in defining outpatient PPCs 

and noted that, in the outpatient area, 

there is limited provider control and 

patient compliance issues are essential. 

Another commenter expressed 

concern that the provisions would allow 

States to identify conditions not based 

on accepted medical standards. It noted 

that, in its State, the automated 

Medicaid claims system used by 

Medicaid health plans had limited 

ability to report out or adjust for PPCs. 

The commenter was critical of the short 

timeline for compliance and expressed 

concern that, in the dual eligible 

category, there was a possibility of 

double payment reduction. 

Response: We note that an OPPC must 

be supported by a finding by the State 

that it ‘‘could have reasonably been 

prevented through the application of 

evidence-based guidelines.’’ To address 

this comment, we have strengthened 

this language to require that the finding 

be based on a review of medical 

literature by qualified professionals. As 

a result, States PPCs will not be able to 

identify a PPC without a strong basis to 

do so, and we do not anticipate great 

variation between States over time. 

We are requiring that the providers 

self-report PPCs, at which time the 

health plan or State can, upon receipt of 

the self-report, make an appropriate 

payment correction. We believe that, 

once providers have put in place 

systems to track and report PPCs, they 

will be able to use this information to 

reasonably reduce the incidence of these 

defined events in their facilities. For 

dual eligibles, the intent of this rule is 

that no payment would be available 

under either Medicare’s IPPS or 

Medicaid for an identified HAC. We do 

not view this as a ‘‘double payment 

reduction’’ but as a consistent 

nonpayment policy. State Medicaid 

agencies have repeatedly expressed to 

CMS their concern that, with dual 

eligibles, the impact of a Medicare HAC 

denial was often that the provider 

would simply bill Medicaid as a 

secondary payer. This would result in 

no denial of payment even when a 

Medicare HAC occurred. Indeed, that 

complaint from State Medicaid agencies 

is one of the reasons that, in this 

regulation, we are attempting to 

coordinate Medicare and Medicaid 

policies. 

Comment: Several commenters 

suggested that we develop a set of 

standard definitions that account for 

provider setting and other evidencebased factors that can be applied across 

health care settings and across State 

lines. Some also suggested that we 

remove the option providing States the 

ability to include any HCACs or OPPCs 

beyond those required by Medicare to 

encourage State-to-State uniformity. 

Response: Medicaid is a Stateadministered program. By setting 

Medicare’s hospital IPPS HAC policy as 

the base policy, we are encouraging 

uniformity across the two programs 

while simultaneously allowing States to 

retain the flexibility that is statutorilyafforded to them under title XIX of the 

Act. 

Comment: One commenter questioned 

what would prevent hospitals from 

spreading the cost of nonpayment for 

PPCs out among all health care 

consumers. The commenter suggested 

that CMS institute an incentive system 

by implementing a pre-paid provider 

incentive pool rather than a 

nonpayment system. 

Response: The purpose of this 

regulation is to establish rules that 

would prevent Medicaid from paying 

for HCACs resulting from provider error 

and to encourage quality-based 

reimbursement. Hospitals will continue 

to be paid for the services provided. If 

a patient enters the facility for a surgical 

procedure and in the process of that 

procedure a HCAC occurs, the hospital 

will receive payment for the initial 

surgical procedure but will not receive 

payment for services provided in 

addressing the HCAC. That being said, 

this final rule sets out broad parameters 

for allowing States to design PPC 

policies that complement their current 

systems. If a State is able to develop a 

system that complies with the 

requirements of this final rule through 

an incentive based program, we 

welcome the opportunity to review it as 

part of a SPA and share it with other 

States as appropriate. 

Comment: Some commenters asked 

CMS to provide in the final rules 

specific guidance to States regarding the 

inclusion of additional preventable 

conditions; for example, issue specific, 

evidence-based parameters for defining 

‘‘preventable’’ with consideration for 

issues like patient noncompliance. 

Other commenters provided specific 

conditions that they did not believe 

States should identify for nonpayment 

in their PPC policies. The commenters 

had various reasons for objecting to 

States’ inclusion of these conditions 

based on patient population, facility 

type, and administrative burden. 

Response: The final rule does not 

require that States include other 

provider preventable conditions, but 

provides States with the option to do so. 

By allowing States to develop these 

programs through State plan 

amendments with the participation of 

the provider community, we believe 

that concerns such as this will be 

addressed at the State level. 

Comment: One commenter highlights 

the fact the PPCs program’s impact on 

States includes the administrative and 

financial burden of building and 

maintaining data collection systems, not 

to mention the reality that State 

Medicaid programs are run by public 

administrators who may not have 

training or experience in clinical issues, 

comparative effectiveness research, and 

other factors that are critical when 

making payment restriction decisions. 

Response: We agree that States may 

need to employ additional resources to 

implement a PPC policy, just as with 

any other payment policy implemented 

by States. The minimum requirements 

under this final rule are designed to 

minimize the administrative burden on 

all stakeholders. The PPC policy is 

designed to use existing data systems to 

identify conditions as they occur. We 

encourage States and providers to work 

together to craft comprehensive PPC 

nonpayment and reporting policies that 

are reasonable and effective. 

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Comment: One commenter noted that 

payment reductions for those hospitals 

that have a high burden of Medicaid and 

Medicare patients will challenge their 

ability to stay open at current capacity 

if they suffer significant payment 

reductions due to the new rule. Critical 

access hospitals may be the most 

vulnerable due to the lack of 

infrastructure to analyze their own data 

and develop corrective actions prior to 

the actual payment reductions, 

according to the commenter. 

Response: Hospitals will continue to 

be paid for the provision of high quality 

care under the final rule. The Affordable 

Care Act requires that HACs identified 

under Medicare IPPS rules are 

applicable to all entities that operate as 

Medicaid inpatient hospitals. We do not 

have the authority to exempt any 

Medicaid inpatient hospital providers 

from these requirements. 

Comment: One commenter noted that 

under Medicare, the cost savings seems 

relatively low as it pertains to all of the 

HACs, which is the baseline for this 

policy under Medicaid. According to 

this commenter, there is very little data 

to suggest that the savings under 

Medicaid would be greater even if the 

OPPCs are included. The commenter 

recommend that CMS take a slower 

approach to broadening the HCAC 

policy by expanding from the Medicare 

HACs over a longer period of time to 

evaluate the savings from nonpayment 

for HCACs under the Medicaid program. 

Response: The purpose of this 

regulation is to drive quality care, it is 

not a cost savings exercise. We 

recognize there may be some cost 

savings and that it may take some time 

to realize the full extent of the cost 

savings, but this measure is important 

for the long-term benefit of the Medicaid 

program, Medicaid beneficiaries, and 

the health care industry as a whole. We 

intend for these provisions to be a 

catalyst for change where the 

infrastructure for quality measurement, 

as well as the methods for improvement 

that should be built into our system, are 

not currently in place. 

Comment: One commenter wrote to 

share its success in quality 

improvement within a particular State. 

The commenter reported various 

collaborations that it has undertaken 

with its State and other stakeholder 

organizations resulting in delivery 

system innovations have proven 

valuable and efficient. 

Response: We appreciate this 

comment and commend the commenter 

for taking the necessary steps to 

improve care to its beneficiaries. We 

encourage other States and 

organizations to innovate in the same 

way. 

Comment: One commenter 

recommended that national clinical 

consensus should be a component of the 

criterion as to whether a condition is 

‘‘reasonably preventable.’’ 

Response: We agree that a finding as 

to whether a condition is ‘‘reasonably 

preventable.’’ must be based on a solid 

basis in national medical literature, as 

determined by qualified professionals. 

Therefore, we are retaining and 

strengthening the portion of the OPPC 

definition from the proposed rule that 

requires that conditions identified by 

States must be supported by a finding 

that the conditions, ‘‘could have 

reasonably been prevented through 

evidence-based guidelines.’’ We are 

adding that this State finding must be 

based upon a review of medical 

literature by qualified professionals. We 

believe that this stronger language will 

ensure a level of integrity and 

consistency in these determinations. 

Comment: One commenter believed 

that Medicare has determined and will 

continue to determine, with the help of 

evidence-based guidelines, what is 

reasonably preventable and what are 

‘‘never events,’’ and that this should be 

the standard across all regions of the 

country because there would not be any 

benefit to the population of beneficiaries 

for one state to have different quality 

health standards including for payment 

consideration. 

Response: The work that Medicare 

has done in the process of developing 

its IPPS HAC policy is valuable and 

consistent. Adopting this work on a 

national level will benefit States and 

beneficiaries. This is part of the reason 

the final regulation incorporates 

conditions identified as Medicare’s 

HACs, with the exception of DVT/PE as 

related to total knee replacement and 

total hip replacement for pediatric and 

obstetric populations, and 3 NCDs as the 

foundation of the Medicaid policy to be 

applied in States. 

Comment: One commenter believed, 

in regard to flexibility as to the grouper 

that each State selects to use to process 

HCAC, that to achieve consistency there 

needs to be limits placed on the choice. 

Also, States need to be using the current 

HIPAA administrative code set versions 

that Medicare uses. This commenter 

also supported the standardization of 

public domain groupers to help reduce 

the cost to healthcare providers and 

States. 

Response: States have great flexibility 

in designing their own payment systems 

and working with their provider 

communities in determining how best to 

implement these provisions. We do not 

intend to restrict that flexibility with 

this final rule. We note that not all 

States reimburse providers using 

grouper methodologies. In regard to the 

adoption of the standardization of 

public domain groupers, we appreciate 

this comment, but it is outside the scope 

of this rule. 

Comment: Many commenters 

recommended that we revise Medicare’s 

HAC list to include or eliminate various 

conditions. 

Response: We thank the commenters 

for their input. However, revisions to 

Medicare’s IPPS HAC list are outside 

the scope of this rule. 

Comment: Some commenters wrote 

requesting clarification of or on the 

application of Medicare’s HAC list. 

Response: The commenters’ requests 

are outside the scope of this rule. We 

refer the commenter to the Medicare 

HAC page located at http:// 

www.cms.gov/HospitalAcqCond/02_

Statute_Regulations_Program_

Instructions.asp#TopOfPage. 

6. State Plan Amendments 

Comment: One State noted that the 

preamble (see 76 FR 9289) proposes that 

States would be required to amend their 

Medicaid State plans to match any 

changes to Medicare’s final IPPS rule 

that Medicare publishes 60 days prior to 

the beginning of the next Federal fiscal 

year. The State commented that 60 days 

does not allow enough time to identify 

ways to capture the data and program 

and test changes to the payment system. 

The State suggested that CMS clarify 

that a State could comply by the 

submission of a State plan amendment 

by the end of the Federal quarter in 

which the change takes effect, that is, by 

the end of the first quarter of the next 

Federal fiscal year. 

Response: The Medicaid SPA process 

requires that States submit amendments 

to their Medicaid plans no later than the 

last day of the quarter in which the 

amendment would take effect. We have 

developed a State plan preprint that 

outlines the minimum provisions of this 

final rule and allows States the 

flexibility to identify OPPCs for 

nonpayment in their Medicaid State 

plans. States will define the related 

payment methodologies within the 

appropriate sections of their Medicaid 

State plans. 

7. Reporting Requirements 

Comment: One commenter 

recommended that reporting 

requirements be included in States’ 

provider policies and included in 

provider contracts. 

Response: As discussed in the 

proposed rule, a reporting component is 

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essential to building an effective PPCs 

policy for a number of reasons, 

including State and CMS ability to 

capture data related to these 

occurrences. We believe that States will 

need to work with their provider 

communities to implement an 

appropriate reporting system. 

Comment: One commenter supports 

the requirement that existing claims 

systems be used as a platform for 

provider self-reporting because it is 

essential that their nonpayment policies 

are based on data provided through 

their claims systems. 

Response: We thank the commenter 

for support on this issue. 

Comment: One commenter remarked 

that provider self-reporting procedures 

should require providers to report 

conditions identified for nonpayment 

when they occur, regardless of the 

provider’s intention to bill. Hospitals 

and providers have a clear incentive not 

to report quality errors beyond 

nonpayment provisions, according to 

the commenter. CMS must take a strong 

stance against underreporting and apply 

strict penalties. Another commenter 

requested that CMS clarify that States 

would be required to submit provider 

self-reporting data to CMS. 

Response: In Medicaid, States are 

given a large degree of flexibility under 

title XIX of the Act. As such, providers 

submit Medicaid claims to States and 

not CMS. While we are requiring that 

States implement self-reporting 

requirements, States have the ability 

under the statute to determine how they 

will implement these requirements with 

input from the provider communities. 

Once data is collected at the State level, 

States will submit that data to CMS as 

part of their standard procedure for 

collecting and sharing Medicaid 

provider claims data. 

Comment: Several commenters 

supported provisions in the proposed 

rule that would require States to 

implement provider self-reporting 

requirements through the claims 

submission processes. 

Response: We agree and have retained 

these provisions in the final rule. 

Comment: A few commenters believe 

that providers will be over burdened 

with the reporting requirements under 

this new regulation. Additionally, they 

disagreed with how long it would take 

States to develop and implement 

reporting requirements. 

Response: The provisions of this final 

rule require reporting through State 

claims systems because they are existing 

resources that are routinely and 

regularly modified to accept State 

payment adjustments for other 

provisions. Most providers subject to 

the minimum requirements of the final 

provisions will be familiar with when 

and how to report these conditions. In 

States with existing policies, there are 

already these types of reporting 

requirements for payment purposes. 

And, States electing to go beyond the 

minimum requirements of these 

provisions will need to work with their 

provider communities to ensure that all 

aspects of the provisions can be 

sufficiently implemented. Provider 

reporting is necessary to ensure that the 

payment preclusion is effective in 

eliminating PPCs, or determine whether 

additional measures may be required, or 

whether the measures applied are 

necessary. 

Comment: One commenter requested 

clarification on the purpose of provider 

reporting and how CMS expects States 

to use reported information. Another 

commenter noted that there is no clear 

provision on how States are to report 

this data to CMS. One State asks 

whether the SPA will have to specify 

how the reporting will be done, or if 

States will need to assure that they will 

comply with the requirement. 

Response: We are requiring that States 

impose provider self-reporting through 

claims systems because that information 

will be used to determine when a PPC 

occurred and trigger State payment 

action. The data will also be fed by 

States to CMS. CMS and States will use 

this data to inform policy making. 

Comment: One commenter noted that 

the proposed rule requires States to 

establish a provider reporting 

requirement for PPCs. The commenter 

asked what the parameters will be for 

those guidelines and how much latitude 

CMS will give to the States. 

Response: As a requirement of the 

final rule, States will implement the 

provider self-reporting through payment 

claims systems regardless of the 

provider’s intention to bill. We are 

working to ensure that States 

consistently report at least the minimum 

requirements of the rule through the 

Medicaid Management Information 

Systems (MMIS). We anticipate that 

States and providers, especially those 

groups of providers that have not been 

subject to Medicare’s HAC policy, will 

need to work cooperatively to develop 

and implement reporting systems that 

would complement existing payment 

structures. As discussed in the proposed 

rule, a reporting component is essential 

to building an effective PPCs policy for 

a number of reasons, including State 

and CMS ability to capture data related 

to these occurrences. 

8. Medicare and Medicaid Dual Eligibles 

Comment: One commenter supports 

nonpayment for all PPCs as they pertain 

to the dual eligible population. This 

commenter urges CMS to codify 

provisions that prohibit Medicaid claim 

payment for claims that have been 

denied by Medicare based on the 

presence of a HAC. 

Response: We agree. This is a 

significant area of concern, and we have 

revised the final regulation to reflect 

that no FFP is available for a Medicare 

denied claim based on the presence of 

a HAC, ‘‘A State plan must provide that 

no medical assistance will be paid for 

‘provider-preventable conditions’ as 

defined in this section; and as 

applicable for individuals dually 

eligible for both the Medicare and 

Medicaid programs.’’ 

Comment: Some commenters 

requested clarification on how these 

provisions would apply to Medicare 

cross over claims. Commenters wanted 

clarification on how to determine that 

Medicare has rejected a HAC claim for 

an individual dually eligible for 

Medicare and Medicaid. 

Response: We agree that the proposed 

provisions lacked clarity in the 

application to individuals dually 

eligible for Medicare and Medicaid. We 

have revised the final rule to provide 

clarification. States may determine that 

Medicare has reduced payment based 

on the provisions of its HAC policy by 

working with their Medicare Fiscal 

Intermediary to identify the appropriate 

codes related to treatment for dually 

eligible individuals. Reference materials 

regarding POA coding for Medicare 

HACs may be found at https:// 

www.cms.gov/HospitalAcqCond/ 

05_Coding.asp#TopOfPage 

To support State efforts, we will work 

with the Federal Coordinated Health 

Care Office to provide guidance on this 

issue. 

9. Managed Care 

Comment: One commenter wrote in 

support of the provision requiring States 

to modify their managed care contracts 

to reflect the PPCs payment adjustment. 

Response: We agree and are retaining 

requirements that States include PPC 

payment restrictions in managed care 

contracts. All providers should be held 

to these quality standards and the final 

rule retains these requirements. 

Comment: One commenter requested 

clarification of the expectation for 

MCOs to refund money derived from the 

nonpayment of PPCs back to States. 

Response: We anticipate that savings 

gained from the application of State PPC 

policies to their managed care providers 

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will, ultimately, be factored into the 

individual contract rates established 

with those providers. 

Comment: One commenter requested 

clarification that the amendments to 

§ 434.6 do not apply to MCOs, and 

further, that the MCO contracts with 

providers will not have to require 

providers to report PPCs associated with 

claims to the MCOs. 

Response: On its own, the provisions 

of § 434.6 do not apply to MCOs; 

however, by cross-reference, we are 

applying the specific provision in 

§ 434.6(a)(12) regarding PPCs to MCO 

contracts. We do intend that MCO 

contracts with providers, identical to 

Medicaid State agency’s contracts with 

providers, require those providers to 

report PPCs associated with claims to 

the MCO. Further, so that the Medicaid 

State agency will be able to quantify and 

report, if necessary, information on all 

PPCs in the Medicaid program, we 

expect that MCOs will track PPC data 

and make it available to the State upon 

request. Accordingly, we are modifying 

the proposed § 438.6 to clarify both 

intentions. 

Comment: A few commenters 

requested that CMS provide guidance 

for States on how to apply the 

nonpayment requirement for HCACs to 

capitation payments, specifically those 

under § 438.6. Additionally, the 

commenters requested information on 

how these policies would apply to the 

development of actuarially sound rates. 

Response: We believe that the 

implementation of State PPCs policies 

will be consistent with what we 

anticipate in the fee-for-service setting 

and have only minimal impact on 

provider payment and therefore the 

development of actuarially sound rates. 

However, as the MCOs spend less 

money on services, that decrease will be 

reported to the State which will in 

future rate-setting reflect the reduced 

expenditures in the rate setting. States 

will need to work with their MCOs to 

develop appropriate policies within 

their contracts. 

Comment: One commenter 

recommended that CMS reinforce the 

importance of State compliance with the 

requirement that Medicaid managed 

care rate setting must be actuarially 

sound. 

Response: The requirements of this 

final rule do not in any way preempt 

regulatory provisions otherwise in 

effect. We urge States to work with all 

of their provider communities to 

determine the best ways in which to 

implement related nonpayment policies. 

10. Comment Period 

Comment: A few commenters 

objected to the 30-day comment period. 

One commenter proposed that CMS 

issue a final rule with comment period 

to accept additional public comment 

and to provide additional time for States 

to articulate how they might comply 

with the regulations. 

Response: This rule does not present 

a high level of complexity and we 

believe that the 30-day comment period 

provided commenters sufficient time to 

fully evaluate the proposed rule and 

submit comments to CMS. The 30-day 

comment period is consistent with the 

requirements of the Administrative 

Procedure Act codified at 5 U.S.C. 553, 

and a longer period is not warranted in 

light of the significant beneficiary 

protection that this rule would 

implement. For the same reasons, we do 

not agree that issuing a final rule with 

comment period is necessary. 

B. Access to Care 

Section 2702(a) of the Affordable Care 

Act requires that the Secretary ensure 

that adjustments to payment rates under 

this section do not result in a loss of 

access to care for beneficiaries. To this 

end, we proposed that any reduction in 

payment would be limited to the 

amounts directly identifiable as related 

to the PPC and the resulting treatment. 

We received the following comments 

in response to our proposals concerning 

access to care. 

Comment: One commenter stated that 

hospitals should not be penalized 

multiple times for the same occurrence. 

Response: We agree and urge provider 

communities to engage States to ensure 

that methodologies implemented do not 

unduly impact providers. 

Comment: Several commenters 

requested that we include a provider 

appeals process in these provisions. The 

commenters noted that the nature of 

identified conditions and the variation 

in State payment policies warranted the 

inclusion. 

Response: Existing State appeal 

processes may be available for a 

provider to contest whether a State has 

improperly identified the occurrence of 

a condition identified as a PPC. We 

encourage States to develop appeals 

processes that will allow providers to 

object to any payment reduction when 

the provider can show that an identified 

PPC occurred despite all appropriate 

precaution. 

Comment: Some commenters opined 

that allowing States any flexibility in 

defining PPC through the OPPC category 

would be an undue burden on providers 

who operate on a multistate basis. 

Response: The underlying authority 

for this rule is found in provisions of 

title XIX of the Act that predated section 

2702 of the Affordable Care Act. The 

proposed rule was supported by our 

existing authority under sections 1102, 

1902(a)(19), and 1902(a)(30) of the Act. 

Providers that operate on a multistate 

basis must comply with the laws and 

rules of each State in which they 

operate. We see no compelling reason to 

limit State flexibility to identify PPC 

nonpayment rules to ensure high quality 

services for beneficiaries. 

Comment: One commenter opposed 

the idea of States being allowed to 

define potential PPC and opined that 

this task was better left to national 

quality organizations such as NQF or 

IOM. While expressing support for the 

general concept of evidence-based 

quality standards, the commenter 

believed that it was important that these 

standards be national in scope and that 

the use of State Medicaid payment 

systems was not the appropriate vehicle 

for improvement of health care quality. 

Response: The Medicaid program, by 

its very nature, is a partnership between 

the Federal and State governments, and 

is administered by States. While we are 

requiring that States rely on a review of 

medical literature by qualified 

professionals to identify evidence-based 

PPCs, we believe it is essential to allow 

States flexibility to develop payment 

strategies that provide strong incentives 

for high quality services. 

Comment: Several commenters 

recommended that we limit State ability 

to create PPCs to only those which 

strictly met the Medicare criteria in 

section 1886 (d)(4)(D)(iv) of the Act. 

Response: Section 2702 of the 

Affordable Care Act requires that the 

Secretary by rulemaking, establish a 

nonpayment policy for HCACs, the 

underlying authority for this rule is 

found in provisions of title XIX of the 

Act. The proposed rule was supported 

by our existing authority under sections 

1102, 1902(a)(19), and 1902(a)(30) of the 

Act and States, using this authority, 

have already undertaken payment 

policies to drive quality outcomes. We 

see no compelling reason to limit State 

flexibility to identify PPC nonpayment 

rules to ensure high quality services for 

beneficiaries. 

Comment: One commenter was 

supportive of the proposed regulation 

and of the addition of non-hospital 

providers through the OPPC category. 

The commenter suggested careful CMS 

scrutiny of proposed State PPC SPAs to 

assure no adverse impact on beneficiary 

access to care, the addition of a riskadjustment mechanism to the 

regulation, careful monitoring to assure 

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that no access problems develop, and 

some mechanism to publicly report 

provider outcomes. The Maryland 

Medicaid model for PPC payment and 

reporting was offered as an exemplary 

model for national use. 

Response: We reviewed the Maryland 

system in developing this regulation 

and, found it to be a useful State model 

that combined both financial incentives 

with overall quality improvement 

efforts. CMS will review State preprints, 

reimbursement State plan amendments, 

and supplementary information to 

determine final action on State PPC 

policies. 

Comment: Some commenters 

expressed concern that the proposed 

regulation allowed too much discretion 

to individual States to use the SPA 

process to affect payment in areas where 

no national consensus about appropriate 

care existed. 

Response: We are strongly committed 

to permitting State flexibility to 

innovate in this area. State innovation 

has been a significant driver of Federal 

policy, and States have direct 

experience with utilization and claims 

review for Medicaid services. While we 

anticipate that States will review data to 

identify evidence-based PPCs, we 

believe it is essential to allow States 

flexibility to develop payment strategies 

that provide strong incentives for high 

quality services. 

The SPA review process will give 

CMS and providers the opportunity to 

consider State policy before it is 

implemented and to provide guidance 

and input based on our knowledge of 

the issues. 

Comment: Several commenters 

expressed concern that the language of 

the proposed regulation allowed States 

excessive authority to use the PPC 

process to further reduce Medicaid 

compensation during a period when 

States are already under financial 

pressure to reduce Medicaid costs. One 

commenter suggested numerous 

additional limitations of State use of the 

PPC process be added to the final 

regulation. 

Response: This final rule provides for 

nonpayment to the extent that an 

identified PPC would otherwise result 

in an increase in payment for additional 

services, and permits States to identify 

PPCs in addition to the core PPCs that 

are based on Medicare. This is 

consistent with the considerable 

flexibility that States have in setting 

payment rates and methodologies. 

States will need to file SPAs with CMS 

outlining the State’s proposed 

nonpayment methodology, and their 

approach to inclusion of Federal 

minimum standards, as well as any 

additional variations proposed by the 

State. The SPA process will allow the 

State’s providers to file public 

comments on any proposed State 

changes. 

Comment: Several commenters 

expressed concern over how the 

nonpayment policy would be 

implemented in States that do not use 

MS–DRG reimbursement systems. A few 

commenters requested that States that 

have elected to use per-diem, global 

payment, bundled payment or other 

non-MS–DRG systems to reimburse 

hospitals be allowed to continue to do 

so, and not be forced to move to MS– 

DRG. 

Commenters were concerned that 

these States will need to identify 

methods appropriate to their 

reimbursement mechanisms to make 

payment reductions for PPCs and that 

resource-intensive post payment audits 

and payment adjustments are likely to 

be necessary. These commenters noted 

that they are encouraged by our attempt 

to provide flexibility to States, but 

requested that we issue guidance that 

includes best practice recommendations 

for developing efficient payment 

adjustments where reimbursement is 

not based on an MS–DRG system. 

Another commenter requested that we 

provide options for how States may 

identify or estimate the cost of services 

on a systematic basis without a case by 

case review. One commenter requested 

that we develop a crosswalk of HCAC 

conditions to non-DRG payment 

methodologies to assure consistency in 

reporting from States back to CMS. The 

commenter remarks that encouraging 

States and MCOs to create their own 

crosswalks will be counter-productive. 

Response: CMS recognizes that many 

States do not use MS–DRG to reimburse 

hospital providers. As stated in the 

NPRM, we have no intention of 

requiring States to alter their current 

compensation systems to comply with 

this final regulation beyond the 

necessary adjustments needed to 

implement the PPCs non-payment 

provisions. This intention continues 

through the final rule. 

States have flexibility to design their 

own payment systems within the 

guidelines of Federal regulations. The 

final rule allows States the flexibility to 

implement nonpayment policies 

through various mechanisms, but 

requires that States submit Medicaid 

SPAs setting forth their mechanism to 

comply with the required nonpayment 

for PPCs, with public notice for CMS 

approval. States will need to work with 

their provider communities, industry 

partners, and CMS to determine the 

most effective manner in which to 

implement these nonpayment 

provisions. As we noted in the preamble 

to the proposed rule, we intend to 

continue to gather and share 

information related to States’ 

implementation of PPCs nonpayment 

policies. However, we do not intend to 

endorse any particular best practices. 

We do not wish to limit State 

flexibility by dictating methods in 

which PPCs should be translated or 

‘‘cross walked’’ to individual State 

payment systems. However, we do agree 

that there is a need for as much 

consistency as possible in reporting 

from States to CMS. As a requirement of 

the final rule, States will implement the 

provider self-reporting through payment 

claims systems regardless of the 

provider’s intention to bill. We are 

working to ensure that States 

consistently report at least the minimum 

requirements of the rule through the 

Medicaid Management Information 

Systems (MMIS). We anticipate that 

States and providers, especially those 

groups of providers that have not been 

subject to Medicare’s HAC policy, will 

need additional time to develop and 

implement reporting systems that would 

complement existing payment 

structures. As discussed in the proposed 

rule, a reporting component is essential 

to building an effective PPC policy for 

a number of reasons, including State 

and CMS ability to capture data related 

to these occurrences. 

Comment: A few commenters 

believed that it is unjust to penalize 

providers for complications that occur 

despite best evidence-based efforts to 

eliminate or avoid them. Commenters 

noted that some conditions have more 

to do with patient risk factors or patient 

compliance than with quality of care. 

Another commenter stated that not 

covering these conditions would 

encourage denial of care to high risk 

patient or a mass exodus of providers. 

Several commenters suggested that 

appeals processes be included in State 

Medicaid PPCs provisions that would 

allow providers to challenge payment 

denials. 

Response: We agree that not all of the 

identified events will be avoidable in 

100 percent of the cases even with 

appropriate precautions. But current 

Medicaid payment systems are designed 

to provide incentives to providers to 

efficiently provide high quality care and 

result in an aggregate payment that may 

be more or less than actual costs in a 

particular case. For example, payment is 

often based on a fee schedule or 

diagnosis related group methodology 

that considers average or target costs of 

the particular service or services and 

may differ from actual costs in a 

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particular case. Even ‘‘reasonable cost’’ 

rates do not necessarily include all costs 

a provider may incur. It is important to 

remember that the identified conditions 

have been determined through 

evidence-based medicine to be provider 

preventable. For the issue of appeal 

rights, existing State appeal processes 

may be available for a provider to 

contest whether a State has improperly 

identified the occurrence of a condition 

identified as a PPC. We encourage States 

to develop appeals processes that will 

allow providers to object to any 

payment reduction when the provider 

can show that an identified PPC 

occurred despite all appropriate 

precaution. 

Comment: One commenter suggested, 

as an example, that we consider 

permitting Medicaid coordinated care 

plans to adopt inpatient concurrent 

review as a practice for addressing 

PPCs. The commenter noted that, ‘‘most 

Medicaid coordinated care plans utilize 

inpatient concurrent review as a unique 

reimbursement practice for addressing 

PPCs. Most Medicaid coordinated care 

plans utilize inpatient concurrent 

review to identify hospital days that are 

not medically necessary or represent 

delays in care. These days are generally 

not eligible for reimbursement in a nonDRG/per-diem environment. Expanding 

the concurrent review process to 

include identification of hospital days 

required solely for the treatment of PPCs 

would be one way to address this issue.’’ 

Response: This is one example of how 

States may be able to identify amounts 

related to the treatment of PPCs. The 

final rule indicates that States may 

reduce payments to providers when the 

PPC would otherwise result in an 

increase in payment. The rule also 

requires that the State be able to 

reasonably isolate for nonpayment the 

portion of payment directly related to 

treatment for, and related to, the PPC. 

The rule does not limit State flexibility 

in accomplishing these requirements. 

Comment: One commenter asked that 

we clarify that it recognizes that 

different reimbursement methodologies 

may result in no reduction or different 

reductions than the reductions under 

MS–DRGs. Another commenter asked 

that we confirm that, ‘‘if on the same 

inpatient hospital day, both services 

associated with a PPC and services not 

associated with a PPC are rendered and 

if payment is made on a per diem basis 

such that the presence of the PPC 

services would not result in an 

increased per diem payment even 

without this proposed regulation, then 

no adjustment to the payment for that 

day is necessary.’’ 

Response: We agree that given the 

variations in Medicaid payment 

methodologies and systems across 

States, there may be differences in 

amounts identified for nonpayment 

based on the payment system employed 

by the individual State. And there is no 

requirement that State Medicaid 

payment adjustments to providers 

correlate specifically to Medicare’s 

payment adjustments for those same 

conditions. Payment methodologies are 

extremely complex, and we do not 

believe it is productive to address broad 

hypothetical scenarios regarding 

implementation of nonpayment 

policies. We intend to work with each 

State to develop implementation 

strategies that make sense with its 

particular payment methodologies. 

Comment: Some commenters 

recommended that risk-adjustment be 

incorporated into PPCs policies. 

Response: These comments appear to 

refer to payment methodologies that 

provide for case-mix adjustments to give 

higher payments to providers that treat 

sicker populations, to reflect the higher 

cost of treating such populations. Such 

methodologies are not related to the 

policies relating to PPCs that are 

reflected in this rule, and to combine 

the two would significantly weaken the 

incentives for providers to institute 

preventive measures to eliminate PPCs. 

We note that we strongly support the 

incorporation of risk-adjustment in State 

Medicaid programs, which States can 

elect under current law. We are urging 

provider communities to continue to 

work with States to develop successful 

risk-adjustment approaches on the State 

level. 

Comment: One commenter suggested 

that hospitals which serve Medicare and 

Medicaid beneficiaries will decrease in 

quality as a result of the proposed 

policy because the fixed costs associated 

with providing medical services will 

become variable, and instead of 

absorbing the loss, investors will simply 

reduce capital investments. The 

commenter offers that one solution to 

this possible undesired consequence is 

to have the Medicaid and Medicare 

programs absorb such costs, albeit not 

through direct payments. Instead, the 

commenter suggested CMS could pay a 

flat rate at the beginning of the year 

covering all PPCs and require them to be 

fully serviced without charge. This way, 

they will still have the incentive to 

reduce HCACs but will not have to bear 

the costs. 

Response: The policy set forth in this 

rule is designed to improve quality of 

services by providing a strong incentive 

for providers to take steps eliminate the 

incidence of preventable conditions. A 

provider that does so will suffer no 

economic loss. In contrast, the flat rate 

payment approach proposed by the 

commenter would lock in a tolerance 

level for such conditions, instead of 

eliminating them, and would send a 

mixed message to providers about 

whether providers must take steps to 

eliminate preventable conditions. 

C. Effective Date of the Final Provisions 

Consistent with the provisions of 

section 2702(a) of the Affordable Care 

Act, we proposed to make these 

requirements effective July 1, 2011. In 

the proposed rule, we requested that 

States submit conforming SPAs to 

implement these provisions prior to that 

date. To be in compliance with the July 

1, 2011 effective date, under § 430.20, 

we proposed that the last date a SPA 

may be submitted is September 30, 

2011, which is the last day of the 

quarter in which the amendment would 

be effective. 

We received the following comments 

in response to our proposals concerning 

the effective date. 

Comment: Several commenters 

expressed concern that the July 1, 2011 

effective date of the rule does not leave 

sufficient time for discussion of policy, 

implementation of required hospital 

changes, and development of the 

appropriate systems for reporting. 

Additionally, commenters suggested 

that States be permitted up to 60 days 

to incorporate Medicare HACs as 

Medicare updates its list. 

Response: We are statutorily-required 

to implement these regulations effective 

July 1, 2011. We do believe, however, 

that States may need additional time to 

work with providers to implement 

sound policies and reporting 

mechanisms. We intend to delay 

compliance action on these provisions 

until July 1, 2012. 

We disagree that this final rule should 

provide States up to 60 days to 

incorporate additional Medicare HACs 

as Medicare’s list changes. The 

publication of Medicare’s final IPPS rule 

is consistent and published in ample 

time to allow States to incorporate HAC 

changes. The Medicaid SPA process 

allows States sufficient time to propose 

and incorporate any changes that 

Medicare may make to its HAC list 

considering the timeframe in which 

Medicare publishes its final rule. 

Comment: One commenter 

recommended that CMS not penalize 

States that are not prepared to 

implement the proposed Medicaid 

nonpayment policy or any future 

updates in a timely manner due to a 

vender not modifying necessary 

software in a timely manner. 

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Response: States have great flexibility 

in administering their programs. We 

urge States to work with their provider 

communities and vendors to ensure that 

they meet the provisions of these rules 

in a timely fashion. 

D. Specific Revisions to Regulations 

Text 

The provisions of the proposed rule 

would deny FFP for Medicaid 

expenditures made for PPCs, including 

HCACs and OPPCs identified in the 

State plan; and would ensure that 

related payment adjustments do not 

limit beneficiary access to care. These 

provisions, as proposed, would apply to 

payments as specified under States’ 

approved Medicaid State plans, 

effective no later than July 1, 2011. We 

proposed to modify the regulations at 42 

CFR parts 434, 438, and 447 following 

general provider payment rules and 

preceding other provisions concerning 

reductions in provider payments. In 

addition, to ensure that these provisions 

apply to contracts that States use to 

provide Medicaid benefits using a 

managed care delivery system, we 

proposed to modify the regulations at 42 

CFR part 438. 

Currently, the general rules regarding 

Medicaid State plan payments for 

Medicaid are provided at part 447 

subpart A. We proposed to add a new 

§ 447.26 to indicate that FFP will not be 

available for expenditures made for 

PPCs. We have included in § 447.26(a) 

a statement of the basis and purpose for 

the regulation, and in § 447.26(b), the 

definitions for the umbrella term PPCs, 

and the included terms HCACs, and 

other PPCs. We proposed to establish 

Medicare as the floor that all States 

must adopt, but allow flexibility for 

States to move beyond the Medicare 

definitions and settings. As States’ 

programs evolve and they make 

additional requirements, we will require 

that necessary SPAs be submitted for 

implementation purposes. 

In § 447.26(c), we proposed to set 

forth the general rule that State plans 

must preclude payment to providers for 

PPCs, and that FFP is not available for 

State expenditures for PPCs. To ensure 

beneficiary access to care, we specified 

that any reductions may be limited to 

the added cost resulting from the PPC. 

In § 447.26(d), we have included a 

provision that will require States to 

require provider reporting of PPCs 

associated with Medicaid claims, or 

with courses of treatment for Medicaid 

beneficiaries that would otherwise be 

payable under Medicaid. 

In addition to these changes in part 

447, we proposed including a 

requirement in § 434.6(a)(12) for 

contracts for medical or administrative 

services that contractors do not make 

payment for PPCs, and require that 

providers comply with the reporting 

requirements in § 447.26(d) as a 

condition of receiving payment. 

Likewise, to ensure that these 

provisions are included as required 

elements in Medicaid managed care 

contracts, we proposed including a 

requirement in § 438.6(f)(2) that 

contracts must comply with both 

§ 434.6(a)(12) and § 447.26. 

We proposed these particular 

provisions because the information 

gathered in preparation for issuing the 

proposed rule indicated the need for a 

consistent authority under which States 

could implement PPC nonpayment 

policies; a consistent approach to 

identifying conditions for nonpayment; 

a streamlined terminology to indicate 

Medicaid HCAC payment policies; State 

flexibility to implement provisions 

suitable to their own systems; and a 

consistent provider reporting platform. 

We received the following comments 

in response to our proposals to revise 

the regulations text. 

Comment: One commenter believed 

that the language of the proposed 

regulation could be construed to limit 

payments even when the PPC condition 

was present on admission or initiation 

of provider treatment. 

Response: The language in the 

proposed regulation was intended to 

cover only situations where payment 

reduction was being applied to 

treatment for a condition not present on 

admission or commencement of 

treatment by that provider. However, we 

understand that clarifying the language 

of the regulation to emphasize this point 

would be helpful to and we have done 

so in this final rule. New § 447.26(c)(3) 

language explicitly states that ‘‘* * * no 

reduction in payment for a PPC will be 

imposed on a provider when the 

condition defined as a PPC for a 

particular patient existed prior to the 

initiation of treatment for that patient by 

that provider.’’ This was implied in the 

previous language, but has now been 

made explicit. We agree with the 

comment and are providing this 

clarification. 

Comment: A number of commenters 

requested that CMS clarify that the 

HCAC category applies only to inpatient 

hospitals. 

Response: The final rule has revised 

regulatory language to clarify that HCAC 

category applies to all Medicaid 

inpatient hospital settings. 

Comment: One commenter expressed 

concern that expansion of PPC to 

nonhospital providers threatened the 

access of Medicaid beneficiaries to care. 

In particular, commenters asked CMS to 

clarify that Medicaid payment 

disallowance for PPC would not apply 

when the PPC was present at the time 

the provider commenced treatment of 

the patient. 

Response: The language in the 

proposed regulation was intended to 

cover only situations where payment 

reduction was being applied to 

treatment for a condition not present on 

admission or commencement of 

treatment by that provider. However, we 

understand that clarifying the language 

of the regulation to emphasize this point 

would be helpful and we have done so 

in this final rule. New § 447.26(c)(2) 

language explicitly states that ‘‘* * * no 

reduction in payment for a PPC will be 

imposed on a provider when the 

condition defined as a PPC for a 

particular patient existed prior to the 

initiation of treatment for that patient by 

that provider.’’ This was implied in the 

previous language, but has now been 

made explicit. CMS agrees with the 

comment and is providing this 

clarification. 

Comment: A few commenters 

believed that the distinctions among the 

terms in the proposed rule were 

confusing and made it hard to 

understand which term applied to 

which criteria. 

Response: We have revised the 

regulatory text to make it clear that 

provider preventable conditions are 

clearly defined into two separate 

categories, healthcare acquired 

conditions (Medicare’s HACs applicable 

only to inpatient hospital providers paid 

under the IPPS) and other providerpreventable conditions (conditions 

minimally defined as Medicare’s 3 

NCDs, applicable in any healthcare 

service setting). 

Comment: One commenter requested 

clarification on the purpose of provider 

reporting and how CMS expects States 

to use reported information. Another 

commenter noted that there is no clear 

provision on how States are to report 

this data to CMS. One State questioned 

whether the SPA will have to specify 

how the reporting will be done, or if 

States will need to assure that they will 

comply with the requirement. 

Response: We are requiring that States 

impose provider self-reporting through 

claims systems because that information 

will be fed by States to CMS. CMS and 

States will use this data to inform policy 

making. Language assuring compliance 

with this provision is incorporated in 

the State plan pre-print associated with 

this provision. 

Comment: One commenter supports 

nonpayment for all PPCs as they pertain 

to the dual eligible population. This 

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commenter urges CMS to codify 

provisions that prohibit Medicaid claim 

payment for claims that have been 

denied by Medicare based on the 

presence of a HAC. 

Response: This is a significant area of 

concern, and we have revised the final 

regulation to clarify the prohibition on 

Medicaid payment for claims that have 

been denied (in full or in part) by 

Medicare, to reflect this 

recommendation. 

Comment: One commenter noted that 

the proposed rule requires States to 

establish a provider reporting 

requirement for PPCs and requested that 

amend the final rule to allow States time 

to implement the PPC policies in 

general. 

Response: As a requirement of the 

final rule, States will implement the 

provider self-reporting through payment 

claims systems regardless of the 

provider’s intention to bill. We 

anticipate that States and providers, 

especially those groups of providers that 

have not been subject to Medicare’s 

HAC policy, will need to work 

collaboratively to develop and 

implement reporting systems that would 

complement existing payment 

structures. 

III. Provisions of the Final Rule 

This final rule incorporates the 

provisions of the proposed rule with the 

following exceptions. 

In § 447.26(b), we are revising the 

definition of health care-acquired 

condition to mean a condition occurring 

in any inpatient hospital setting, 

identified as a HAC by the Secretary 

under section 1886(d)(4)(D)(iv) of the 

Act for purposes of the Medicare 

program identified in the State plan as 

described in section 1886(d)(4)(D)(ii) 

and (iv) of the Act; other than Deep Vein 

Thrombosis (DVT)/Pulmonary 

Embolism (PE) related to total knee 

replacement or hip replacement surgery 

in pediatric and/or obstetric patients. 

In § 447.26(c)(1), we are revising the 

language to read ‘‘A State plan must 

provide that no medical assistance will 

be paid for ‘‘provider-preventable 

conditions’’ as defined in this section; 

and as applicable for individuals dually 

eligible for both the Medicare and 

Medicaid programs.’’ 

IV. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 60- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

3506(c)(2)(A) of the Paperwork 

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

In accordance with the Act, we 

solicited public comments on the 

proposed collection of information, with 

a 30-day comment period, in the 

proposed rule that published on 

February 17, 2011 (76 FR 9283). We did 

not receive any substantive comments 

related to the proposed information 

collection requirements or burdens and, 

therefore, we are retaining the following 

requirements and estimates that were 

set out in the proposed rule. 

A. ICRs Regarding Contract 

Requirements (§ 438.6) 

Section 438.6(f)(2) will also require 

States which provide medical assistance 

using a managed care delivery system to 

modify their managed care contracts to 

reflect the PPCs payment adjustment 

policies as applied through these 

regulations. The burden associated with 

this requirement is the time and effort 

necessary for a State to amend its 

managed care contracts to reflect these 

policies. We estimated that 48 States 

will be required to comply with this 

requirement. We also estimated that it 

will take 8 hours for each State to revise 

its contracts to comply with this 

requirement and submit the amended 

contract to CMS for review and 

approval. The total estimated annual 

burden associated with this requirement 

is 384 hours at a cost of $20.67 per hour 

per State. 

B. ICRs Regarding the Prohibition on 

Payment for Provider-Preventable 

Conditions (§ 447.26) 

Effective July 1, 2011, § Section 

447.26(c)(1) will require States to 

submit SPAs for CMS approval that 

would reduce payments to providers by 

amounts related to PPCs. The burden 

associated with this requirement will be 

the time and effort necessary for a State 

to submit its SPA and the associated 

pre-print. We estimated that 50 States, 

the District of Columbia, and Territories 

will be required to comply with this 

requirement. We further estimated that 

it will take each State 7 hours to submit 

the aforementioned documentation to 

CMS. The total estimated burden 

associated with this requirement would 

be 385 hours at a cost of $20.67 per hour 

per State. 

We estimated that it will take each 

State 7 hours because we intend to issue 

a template to States to simplify the 

process of making the related 

amendment to the Medicaid State plan. 

Section 447.26(c)(2) will also require 

States to implement provider reporting 

requirements to ensure that PPCs are 

identified in claims for Medicaid 

payment. The burden associated with 

this requirement is the time and effort 

necessary to develop and implement 

provider reporting requirements that are 

effective with the provisions of this 

regulation. We estimated that 50 States, 

the District of Columbia, and Territories 

will be required to comply with this 

requirement. We estimated that it will 

take 24 hours for each State to develop 

and implement the provider reporting 

requirements as specified above. The 

total estimated burden associated with 

this requirement will be 1320 hours at 

a cost of $20.67 per hour per State. We 

believe that this estimate is reasonable 

because we are requiring that States 

have providers use their existing claims 

processes to report identified events. 

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32834 Federal Register / Vol. 76, No. 108 / Monday, June 6, 2011 / Rules and Regulations 

TABLE 1—ANNUAL RECORDKEEPING AND REPORTING REQUIREMENTS

Regulation section(s) 

OMB 

Control 

No. 

Number of 

respondents 

Number of 

responses 

Burden 

per 

response 

(hours) 

Total 

annual 

burden 

(hours) 

Hourly 

labor 

cost of 

reporting 

($) 

Total labor 

cost of 

reporting 

($) 

Total 

capital/ 

maintenance 

costs 

($) 

Total cost 

($) 

438.6(f)(2) ................................. 0938–NEW ..... 48 48 8 384 20.67 7,937 .28 0 7,937 .28 

447.26(c)(1) .............................. 0938–NEW ..... 55 55 7 385 20.67 7957 .95 0 7,957 .5 

447.26(c)(2) .............................. 0938–NEW ..... 55 55 24 1,320 20.67 27,284 .4 0 27,284 .4 

Total .................................. ........................ 158 158 39 2089 .................. .................... 0 43,179 .18 

The estimated annual burden 

associated with the requirements under 

438.6(f)(2), 447.26(c)(1), and 

447.26(c)(2) is 2,089 hours (total) at a 

cost of $43,179.18 (total) or $806.13 (per 

State). 

TABLE 2—ANNUAL RECORDKEEPING AND REPORTING REQUIREMENTS

Regulation section(s) 

OMB 

Control 

No. 

Number of 

respondents 

Number of 

responses 

Burden 

per 

response 

(hours) 

Total 

annual 

burden 

(hours) 

Hourly 

labor 

cost of 

reporting 

($) 

Total labor 

cost of 

reporting 

($) 

Total 

capital/ 

maintenance 

costs 

($) 

Total cost 

($) 

438.6(f)(2) ................................. 0938–NEW ..... 48 48 8 384 20.67 7,937 .28 0 7,937 .28 

447.26(c)(1) .............................. 0938–NEW ..... 50 50 7 350 20.67 7,234 .5 0 7,234 .5 

447.26(c)(2) .............................. 0938–NEW ..... 50 50 24 1,200 20.67 2,4804 0 2,4804 

Total .................................. ........................ 98 148 39 1,934 .................. .................... 0 39,975 .78 

The estimated annual burden 

associated with the requirements under 

438.6(f)(2), 447.26(c)(1), and 

447.26(c)(2) is 1,934 hours (total) at a 

cost of $39,975.78 (total) or $806.13 (per 

State). 

To be assured consideration, 

comments and recommendations for the 

proposed information collections must 

be received by the OMB desk officer at 

the address below, no later than 5 p.m. 

on July 7, 2011. 

OMB, Office of Information and 

Regulatory Affairs, Attention: CMS Desk 

Officer, Fax Number: (202) 395–5806. 

Fax Number: (202) 395–6974. 

V. Regulatory Impact Statement 

A. Statement of Need 

This final rule implements section 

2702 of the Affordable Care Act which 

directs the Secretary to issue Medicaid 

regulations effective as of July 2011, 

prohibiting Federal payments to States 

(under section 1903 of the Act) for any 

amounts expended for providing 

medical assistance for HCACs. It will 

also authorize States to identify other 

PPCs for which Medicaid payment 

would be prohibited. We view this 

regulation as one step of a larger 

approach to address the problem of 

PPCs. 

B. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993), Executive 

Order 13563 on Improving Regulation 

and Regulatory Review (February 2, 

2011), the Regulatory Flexibility Act 

(RFA) (September 19, 1980, Pub. L. 96– 

354), section 1102(b) of the Act, section 

202 of the Unfunded Mandates Reform 

Act of 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 Order 12866 directs 

agencies to assess all costs and benefits 

of available regulatory alternatives and, 

if regulation is necessary, to select 

regulatory approaches that maximize 

net benefits (including potential 

economic, environmental, public health 

and safety effects, distributive impacts, 

and equity). A regulatory impact 

analysis (RIA) must be prepared for 

major rules with economically 

significant effects ($100 million or more 

in any 1 year). This rule does not reach 

the economic threshold and thus is not 

considered a major rule under the 

Congressional Review Act. 

It is difficult to estimate the amount 

which will be withheld from providers 

under this regulation, as not all of these 

events will be billed. However, it is 

instructive to note that the total dollar 

amount of Medicare claims denied 

under its HAC policy is approximately 

$20 million per year (see 75 FR 23895, 

May 4, 2010). The original regulation 

creating the Medicare HACs was 

published in the August 19, 2008 

Federal Register (73 FR 48433). In 

addition, estimates were conducted by 

the Congressional Budget Office (CBO) 

and the CMS Office of the Actuary 

(OACT) on the impact of section 2702 

of the Affordable Care Act. The CBO 

estimate concluded there would be no 

impact associated with section 2702 of 

the Affordable Care Act (CBO and JCT, 

2010 Estimate). The CMS OACT 

estimate (Estimated Financial Effects of 

the ‘‘Patient Protection and Affordable 

Care Act,’’ as Amended, 2010) projected 

an impact from section 2702 of the 

Affordable Care Act on the Medicaid 

program of cost savings of $2 million for 

FY 2011 ($1 million for the Federal 

share and $1 million for the State share), 

with an aggregate cost savings of $35 

million ($20 million for the Federal 

share and $15 million for the State 

share) for FYs 2011 through 2015. The 

Federal and State share cost savings, as 

result of denied payments, are 

represented by the reduction in transfers 

from Medicaid to hospitals. These 

estimates could be higher if States elect 

to expand beyond the minimum 

requirements of this rule. 

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Federal Register / Vol. 76, No. 108 / Monday, June 6, 2011 / Rules and Regulations 32835 

TABLE 3—MEDICAID IMPACTS FOR FYS 2011 THROUGH 2015 

Medicaid impacts 

FY impact ($ millions) 

2011 2012 2013 2014 2015 Total 

Federal Share .......................................... ¥1 ¥4 ¥5 ¥5 ¥5 ¥20 

State Share .............................................. ¥1 ¥3 ¥3 ¥4 ¥4 ¥15 

Total .................................................. ¥2 ¥7 ¥8 ¥9 ¥9 ¥35 

There are administrative cost impacts 

on States to modify their systems to 

meet reporting requirements, but we 

believe these are not significant. As 

noted above, the reporting system in 

this final rule relies on an existing 

billing system currently in place. Both 

States and providers already have 

billing, claiming, and payment systems 

in place to act upon the information 

obtained. The costs reported in section 

IV of this final rule, Collection of 

Information Requirements, amount to an 

additional $39,976 dollars aggregate 

across all States. 

Hospitals may incur additional costs 

to reduce PPCs. Such costs include 

hiring additional nurses to ensure 

enforcement of the infection prevention 

policies. In turn, preventing or reducing 

HCACs will lead to a reduction in direct 

health spending, which is a benefit 

realized by Medicaid, hospitals and 

other payers. 

The Joint Commission requires 

hospitals to have established programs 

for Quality Improvement, Risk 

Management, Safety, and Infection 

Control. As a result, a majority of 

hospitals already have in place 

programs to avert Medicare HACs and 

thus would not incur new costs to 

implement parallel programs to avert 

Medicaid HCACs. Furthermore, we 

anticipate a public benefit to all 

providers and payers since programs 

that hospitals develop to avoid 

Medicaid HCACs will likely benefit all 

patients and reduce health care costs. 

Patient benefits resulting from a 

reduction in HCAC may include an 

increase in healthy years of life. 

However, this public benefit will derive 

from possible responses by hospitals 

and not from this regulation itself. 

We realize that the overall problem of 

HCACs cannot be completely addressed 

in this regulation, as this final 

regulation is one step of an overall 

approach. Consequently, the estimated 

economic impacts from all HHS 

initiatives to address HCACs may result 

in much higher savings impact than 

presented in this analysis. However, 

such economic savings, for example, 

will not derive from this regulation 

alone, but will in part come from the 

knowledge that State and Federal 

governments gain from the reporting 

requirements created by this regulation. 

That knowledge will in turn inform 

future HHS initiatives to reduce excess 

morbidity and mortality attributable to 

PPCs. 

The RFA requires agencies to analyze 

options for regulatory relief for small 

entities, if a rule has a significant impact 

on a substantial number of small 

entities. Most hospitals, other providers, 

and suppliers are small entities, either 

by nonprofit status or by having 

revenues of $7.0 million to $34.5 

million in any 1 year. Individuals and 

States are not included in the definition 

of a small entity. Guidance issued by the 

Department of Health and Human 

Services interpreting the RFA considers 

effects to be economically significant if 

they reach a threshold of 3 to 5 percent 

or more of total revenue or total costs. 

As illustrated in Table 1, any decrease 

in payments, as a result of this 

regulation, to small entities should be 

significantly less than this threshold. 

Therefore, we are not preparing an 

analysis for the RFA because the 

Secretary has determined that this final 

rule will not have a significant 

economic impact on a substantial 

number of small entities. 

In addition, section 1102(b) of the Act 

requires us to prepare a RIA if a rule 

may have a significant impact on the 

operations of a substantial number of 

small rural hospitals. This analysis must 

conform to the provisions of section 604 

of the RFA. For purposes of section 

1102(b) of the Act, we define a small 

rural hospital as a hospital that is 

located outside of a Metropolitan 

Statistical Area for Medicare payment 

regulations and has fewer than 100 

beds. We are not preparing an analysis 

for section 1102(b) of the Act because 

the Secretary has determined that this 

final rule will not have a significant 

impact on the operations of a substantial 

number of small rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any 1 year of $100 

million in 1995 dollars, updated 

annually for inflation. In 2011, that 

threshold is approximately $136 

million. This rule will have no 

consequential effect on State, local, or 

tribal governments in the aggregate or 

on the private sector. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

While this regulation does not impose 

substantial costs on State or local 

governments, it does preempt some 

State laws. The requirements of 

Executive Order 13132 are applicable. 

Executive Order 13132 sets forth a 

process to be followed by the Federal 

government whenever Federal 

regulatory processes may affect or 

preempt State regulations or laws. We 

are aware that many States do have 

regulations for Medicaid nonpayment in 

the event that specified adverse events 

occur during provider care. This final 

rule is intended to create a Federal legal 

minimum for such State regulations. 

States could continue to enact more 

stringent laws or regulations upon 

approval of a Medicaid SPA by CMS to 

assure that there is no adverse impact 

on Medicaid beneficiary access to care. 

This final rule derives from section 

2702 of the Affordable Care Act and 

other CMS statutory authority. Under 

the requirements of Executive Order 

13132 and the requirements of section 

2702 of the Affordable Care Act, we 

have consulted with the States before 

issuing this final rule. Major portions of 

the regulation are, in fact, derived from 

comparable State regulations. 

Significant regulatory authority in this 

area would remain with the States 

should the proposed regulation become 

final. As stated, the final rule does not 

completely preempt State law, but 

merely sets a Federal minimum 

standard. 

We are meeting the requirements of 

Executive Order 13132 by issuing this 

final rule 30 days prior to the effective 

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32836 Federal Register / Vol. 76, No. 108 / Monday, June 6, 2011 / Rules and Regulations 

date of July 1, 2011, set forth in the 

Affordable Care Act. 

C. Anticipated Effects 

1. Effects on State Medicaid Programs 

The effects on State Medicaid 

programs as a result of this provision 

will depend on various factors. For 

instance, as we state in the preamble, 

there are 21 States that have already 

implemented similar policies. While we 

have reviewed existing State policies 

and incorporated those policies that we 

believe would best apply on a national 

level, these States will have to make 

changes to comply with the minimums 

set in this final rule. In addition, States 

will have to work through the SPA 

review process to ensure that their 

existing policies do not serve to limit 

beneficiaries’ access to healthcare. 

The States that have used State plan 

authority to implement their 

nonpayment policies will need to 

review their policies and ensure that 

they comply with any final provisions 

of these rules. These States will likely 

have to submit revisions to their State 

plans. In addition, the States that 

implemented these policies through 

some other authority like State law or 

administrative procedures will have to 

submit new SPAs for review and work 

with CMS to ensure that their policies 

effective July 1, 2011, are in line with 

the final provisions of these rules. States 

that have elected not to implement 

Medicaid specific policies or that do not 

have related policies at all will need to 

submit new SPAs. Further, States which 

use a managed care delivery system to 

provide Medicaid benefits to 

beneficiaries will have to amend and 

submit for CMS review and approval 

managed care contracts that reflect these 

new requirements. While this regulation 

is effective on July 1, 2011, most States 

will already have their managed care 

contracts for the fiscal year in place by 

that time and there may be some delay 

in incorporating new language in their 

managed care contracts. We will issue 

subregulatory guidance to States 

requiring that appropriate changes be 

made to managed care contracts to 

comply with the regulation. 

All States will need to incorporate the 

reporting requirements into their claims 

systems. In addition, States will need to 

evaluate the best ways in which to 

identify and reduce payment for PPCs 

under their respective Medicaid plans. 

We anticipate that this provision will 

prompt programmatic changes for States 

regarding quality improvement 

considerations within health care 

systems. This provision, while it is a 

payment provision, is primarily targeted 

at preventing medical errors. 

2. Effects on Other Providers 

We anticipate that these provisions 

will prompt health care providers to 

adopt quality programs that would limit 

the risk of providing services or using 

resources, in error, that will not be 

reimbursed. 

We anticipate that the reporting 

requirements will ultimately be a 

catalyst for providers in developing 

quality practices to reduce the risks 

associated with receiving care at their 

facilities and promote overall quality 

improvements. 

3. Effects on the Medicaid Program 

Medicare’s and States’ experience has 

demonstrated that related policies often 

do not produce substantial short-term 

financial savings within health care 

systems. Medicare estimated that the 

policy will reduce its spending by an 

aggregate amount of about $80,000,000 

from FY 2009 through FY 2013, or by 

less than 0.01 percent of total annual 

spending on inpatient hospital services 

(75 FR 50661). States report similar 

short-term savings. However, there are 

more significant gains to be realized 

when considering the broader impact of 

increased quality on the health system 

overall, or more exactly the savings 

created when preventable conditions 

and related treatment are measured. 

The anticipated public benefit to all 

providers and payers from programs 

that hospitals develop to avoid 

Medicaid HCACs will likely benefit all 

patients and reduce health care costs. 

This includes, for example, Medicaid 

beneficiaries realizing an increase in 

healthy years of life as a result of the 

reduction in HCACs. However, this 

public benefit will derive from possible 

responses by hospitals and not from this 

regulation itself. 

D. Alternatives Considered: Conditions 

Identified as Provider-Preventable 

Conditions 

The statute requires that Medicaid, at 

a minimum, recognize Medicare’s 

current list of HACs. We considered 

proposing regulatory action that 

included only the conditions listed as 

Medicare HACs. However, when 

considering current State practices our 

research concluded that many States’ 

policies included conditions not 

identified by Medicare as HACs. We 

concluded that such limited action 

would not serve the program purposes 

of ensuring high quality care and would 

potentially limit State flexibility to 

protect beneficiaries and program 

integrity. Similarly, we considered 

proposing regulatory action that 

included only the inpatient hospital 

setting. Again, after assessing current 

State practices, as well as industrybased research, there is clear indication 

that data is available to States that will 

allow them to employ evidence based 

policy practices beyond the inpatient 

hospital setting. To provide States full 

flexibility to protect beneficiaries and 

the program, we elected the more 

comprehensive approach that we 

discussed in the proposed rule. We 

considered defining OPPC as, ‘‘a 

condition occurring in any health care 

setting that could have reasonably been 

prevented through the ordinary 

provision of high quality care during the 

course of treatment * * *’’ We believed 

that this terminology would limit 

additional requirements on States to 

produce evidence of preventability. 

However, after discussing the 

terminology and scientific parameters 

that exist in relation to this issue, we 

proposed that the term be defined as, ‘‘a 

condition that could have reasonably 

been prevented through the application 

of evidence based guidelines.’’ 

E. Conclusion 

For the reasons outlined in the RIA, 

we are not preparing an analysis for 

either the RFA or section 1102(b) of the 

Act because we have determined that 

this final rule would not have a direct 

significant economic impact on a 

substantial number of small entities or 

a direct significant impact on the 

operations of a substantial number of 

small rural hospitals. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

List of Subjects 

42 CFR Part 434 

Grant programs—health, Health 

maintenance organizations (HMO), 

Medicaid, Reporting and recordkeeping 

requirements. 

42 CFR Part 438 

Grant programs—health, Medicaid, 

Reporting and recordkeeping 

requirements. 

42 CFR Part 447 

Accounting, Administrative practice 

and procedure, Drugs, Grant programs— 

health, Health facilities, Health 

professions, Medicaid, Reporting and 

recordkeeping requirements, Rural 

areas. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services amends 42 CFR parts 

434, 438, and 447, as set forth below: 

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Federal Register / Vol. 76, No. 108 / Monday, June 6, 2011 / Rules and Regulations 32837 

PART 434—CONTRACTS 

■ 1. The authority citation for part 434 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

Act (42 U.S.C. 1302). 

Subpart A—General Provisions 

■ 2. Section 434.6 is amended by— 

■ A. Revising the introductory text of 

paragraph (a). 

■ B. Removing the semicolons from the 

end of paragraphs (a)(1) through (a)(9), 

and the semicolon and the word ‘‘and’’ 

from the end of paragraph (a)(10) and 

replacing them with a period. 

■ C. Adding a new paragraph (a)(12). 

The revision and addition read as 

follows: 

§ 434.6 General requirements for all 

contracts and subcontracts. 

(a) Contracts. All contracts under this 

part must include all of the following: 

* * * 

(12) Specify the following: 

(i) No payment will be made by the 

contractor to a provider for providerpreventable conditions, as identified in 

the State plan. 

(ii) The contractor will require that all 

providers agree to comply with the 

reporting requirements in § 447.26(d) of 

this subchapter as a condition of 

payment from the contractor. 

(iii) The contractor will comply with 

such reporting requirements to the 

extent the contractor directly furnishes 

services. 

* * * * * 

PART 438—MANAGED CARE 

■ 3. The authority citation for part 438 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

Act (42 U.S.C. 1302). 

Subpart A—General Provisions 

■ 4. Section 438.6 is amended by 

revising paragraph (f) to read as follows: 

§ 438.6 Contract requirements. 

* * * * * 

(f) Compliance with contracting rules. 

All contracts must meet the following 

provisions: 

(1) Comply with all applicable 

Federal and State laws and regulations 

including title VI of the Civil Rights Act 

of 1964; title IX of the Education 

Amendments of 1972 (regarding 

education programs and activities); the 

Age Discrimination Act of 1975; the 

Rehabilitation Act of 1973; and the 

Americans with Disabilities Act of 1990 

as amended. 

(2) Provide for the following: 

(i) Compliance with the requirements 

mandating provider identification of 

provider-preventable conditions as a 

condition of payment, as well as the 

prohibition against payment for 

provider-preventable conditions as set 

forth in § 434.6(a)(12) and § 447.26 of 

this subchapter. 

(ii) Reporting all identified providerpreventable conditions in a form or 

frequency as may be specified by the 

State. 

(3) Meet all the requirements of this 

section. 

* * * * * 

PART 447—PAYMENTS FOR 

SERVICES 

■ 5. The authority citation for part 447 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

Act (42 U.S.C. 1302). 

Subpart A—Payments: General 

Provisions 

■ 6. Section 447.26 is added to read as 

follows: 

§ 447.26 Prohibition on payment for 

provider-preventable conditions. 

(a) Basis and purpose. The purpose of 

this section is to protect Medicaid 

beneficiaries and the Medicaid program 

by prohibiting payments by States for 

services related to provider-preventable 

conditions. 

(1) Section 2702 of the Affordable 

Care Act requires that the Secretary 

exercise authority to prohibit Federal 

payment for certain provider 

preventable conditions (PPCs) and 

health care-acquired conditions 

(HCACs). 

(2) Section 1902(a)(19) of the Act 

requires that States provide care and 

services consistent with the best 

interests of the recipients. 

(3) Section 1902(a)(30) of the Act 

requires that State payment methods 

must be consistent with efficiency, 

economy, and quality of care. 

(b) Definitions. As used in this 

section— 

Health care-acquired condition means 

a condition occurring in any inpatient 

hospital setting, identified as a HAC by 

the Secretary under section 

1886(d)(4)(D)(iv) of the Act for purposes 

of the Medicare program identified in 

the State plan as described in section 

1886(d)(4)(D)(ii) and (iv) of the Act; 

other than Deep Vein Thrombosis 

(DVT)/Pulmonary Embolism (PE) as 

related to total knee replacement or hip 

replacement surgery in pediatric and 

obstetric patients. 

Other provider-preventable condition 

means a condition occurring in any 

health care setting that meets the 

following criteria: 

(i) Is identified in the State plan. 

(ii) Has been found by the State, based 

upon a review of medical literature by 

qualified professionals, to be reasonably 

preventable through the application of 

procedures supported by evidencebased guidelines. 

(iii) Has a negative consequence for 

the beneficiary. 

(iv) Is auditable. 

(v) Includes, at a minimum, wrong 

surgical or other invasive procedure 

performed on a patient; surgical or other 

invasive procedure performed on the 

wrong body part; surgical or other 

invasive procedure performed on the 

wrong patient. 

Provider-preventable condition means 

a condition that meets the definition of 

a ‘‘health care-acquired condition’’ or an 

‘‘other provider-preventable condition’’ 

as defined in this section. 

(c) General rules. 

(1) A State plan must provide that no 

medical assistance will be paid for 

‘‘provider-preventable conditions’’ as 

defined in this section; and as 

applicable for individuals dually 

eligible for both the Medicare and 

Medicaid programs. 

(2) No reduction in payment for a 

provider preventable condition will be 

imposed on a provider when the 

condition defined as a PPC for a 

particular patient existed prior to the 

initiation of treatment for that patient by 

that provider. 

(3) Reductions in provider payment 

may be limited to the extent that the 

following apply: 

(i) The identified providerpreventable conditions would otherwise 

result in an increase in payment. 

(ii) The State can reasonably isolate 

for nonpayment the portion of the 

payment directly related to treatment 

for, and related to, the providerpreventable conditions. 

(4) FFP will not be available for any 

State expenditure for providerpreventable conditions. 

(5) A State plan must ensure that nonpayment for provider-preventable 

conditions does not prevent access to 

services for Medicaid beneficiaries. 

(d) Reporting. State plans must 

require that providers identify providerpreventable conditions that are 

associated with claims for Medicaid 

payment or with courses of treatment 

furnished to Medicaid patients for 

which Medicaid payment would 

otherwise be available. 

Authority: (Catalog of Federal Domestic 

Assistance Program No. 93.778, Medical 

Assistance Program) 

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32838 Federal Register / Vol. 76, No. 108 / Monday, June 6, 2011 / Rules and Regulations 

Dated: May 25, 2011. 

Donald M. Berwick, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: May 27, 2011. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2011–13819 Filed 6–1–11; 11:15 am] 

BILLING CODE 4120–01–P 

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